Selected Key Legislative Amendments to Singapore Companies Act be effected on 1 July 2015 (Phase 1)
The Companies (Amendment) Act 2014 (“Amendment Act”) was passed by Parliament on 8 October 2014 and assented to by the President on 18 November 2014.
ACRA has announced a 2-phase implementation approach to the legislative amendments to Singapore Companies Act (“CA”), where about 40% of the over 200 legislative amendments will take effect in the first phase on 1 July 2015, while the second phase encompassing the rest of the legislative amendments is expected to take effect in the first quarter of 2016.
Selected Key Legislative Amendments to Singapore Companies Act be effected on 1 July 2015
The Selected Key Legislative Amendments to Singapore Companies Act be effected on 1 July 2015 are:
1. Amendment of Section 168 – No shareholders’ approval required for compensation paid to executive director for termination of employment up to a prescribed limit
Section 168(1)(a) of the Companies Act requires any payment of compensation to a director for loss of office as an officer of the company or its subsidiary, or any payment as consideration for or in connection with his retirement from such office, to have been disclosed to and approved by the shareholders of the company, otherwise the payment would not be lawful.
Certain types of payments are currently exempted from shareholders’ approval under the CA.
Shareholders’ approval not required if the following conditions are satisfied:
(a) Amount that is paid out is not more than director’s total emoluments for the one year immediately preceding that director’s termination of employment;
(b) Termination of employment is based on an existing agreement between the company and the director; and
(c) Particulars of payment are disclosed to shareholders before payment is made.
Compensation for loss of office as a director are usually decided by shareholders because the shareholders are the ones who appointed the directors. However, if the payment is to an executive director as an employee, then it should be for the board of directors to decide as employees are appointed by the board. Safeguards to be put in place are the specifying of a payment limit and requiring the particulars of the payment to be disclosed to shareholders for transparency and as a check on the Board.
- Amendment to Section 158 – Relaxing conditions for nominee directors to disclose information to nominating shareholders.
Nominee directors are allowed to disclose information, which he/she acquired in his/her capacity as director/employee of the company, to the nominating shareholder only if the board has specifically authorized such disclosure. The director was required to declare at the board meeting, the name and office or position held by the shareholder.
The position under Section 158 of the Act will be liberalised such that the board of directors may allow the disclosure of company information whether by general or specific mandate, subject to the overarching consideration that there should not be any prejudice caused to the company. The amended Act will also remove the current condition for disclosure under Section 158(3)(a) which stipulates a declaration at a meeting of directors of the name, office or position of the person to whom the information is to be disclosed as well as the particulars of such information.
Section 158(1) will be amended to delete any reference to the conditions for disclosure under section 158(3). The new Section 158(1) will also stipulate that disclosure may be made “if such disclosure is not likely to prejudice the company and is made with the authorisation of the board of directors”. The current section 158(3) will be deleted and a new section 158(3) will be introduced to clarify that an authorisation of the board may be in respect of disclosure of all or any class of information or only specific information as specified in the authorisation.
In short, a nominee director will now be allowed to disclose information that he/she obtained in his/her capacity as director/employee of the company to the nominating shareholders provided such disclosure does not prejudice the company. But such disclosures must be authorized by a general mandate or specific mandate of the board of directors.
- New Section 171(3A) – Company secretaries of private companies need not be physically present at the company’s registered office.
Pursuant to the new section 171(3A), company secretaries of private companies need not be physically present at the company’s registered office.
- Amendment to Section 171(1AA) – Prescribing the requirements of a company secretary of a public company in regulations
Section 171(1AA) is amended to recognize other qualifications besides the Singapore Association of the Institute of Chartered Secretaries and Administrators (SAICSA) for a company secretary. All qualifications will therefore be put on equal footing and this will provide flexibility for the list to be updated in the future.
5. New Sections 205AA to 205AF – Resignation of auditor before end of term of office
An auditor can resign if he is not the sole auditor, or at a general meeting, and where a replacement auditor is appointed.
An auditor of a non-public interest company (other than a subsidiary of a public interest company) may resign before the end of the term of his appointment by giving written notice to the company.
Auditors of public interest companies and their subsidiaries will be required to obtain ACRA’s consent for resignation before the end of the term of their appointment. This will ensure that companies are not unfairly left in the lurch without their auditors but also allow auditors to resign, especially in situations where the company refuses to hold a general meeting to appoint a replacement auditor. The requirement for ACRA’s consent will allow ACRA to stop the resignation in the public interest where necessary. Guidelines will be issued on what ACRA will consider as valid circumstances under which resignations will be accepted.
Examples of public interest companies are companies listed on the Singapore Exchange, financial institutions, and large charities or institutions of public character.
- Section 10 – Consolidating provisions relating to auditor independence under the Accountants Act
The removal of auditor independence provisions that is also dealt with in the Code of Professional Conduct and Ethics as set out in the Fourth Schedule to the Accountants (Public Accountants) Rules.
- New Section 205C and Thirteenth Schedule – Audit exemption for small companies
An exempt private company with annual revenue of $5m or less for the financial year is exempt from auditing its financial statements.
Note: An exempt private company is a company which has not more than 20 members and in which no corporation holds any beneficial interest in its shares.
A new small company concept will be introduced for exemption from statutory audit.
A company qualifies as a small company if:
(a) it is a private company in the financial year in question; and
(b) it meets at least 2 of 3 following criteria for immediate past two financial years:
(i) total annual revenue ≤ $10m;
(ii) total assets ≤ $10m;
(iii) no. of employees ≤ 50.
For a company which is part of a group:
(a) the company must qualify as a small company; and
(b) entire group must be a “small group”
in order to qualify to the audit exemption.
For a group to be a small group, it must meet at least 2 of the 3 quantitative criteria on a consolidated basis for the immediate past two consecutive financial years.
Where a company has qualified as a small company, it continues to be a small company for subsequent financial years until it is disqualified. A small company is disqualified if:
(a) it ceases to be a private company at any time during a financial year; or
(b) it does not meet at least 2 of the 3 the quantitative criteria for the immediate past two consecutive financial years.
Where a group has qualified as a small group, it continues to be a small group for subsequent financial years until it does not meet at least 2 of the 3 the quantitative criteria for the immediate past two consecutive financial years.
Existing safeguards will remain, such as requiring all companies to keep proper accounting records, and empowering shareholders with at least 5% voting rights to require a company to prepare audited accounts.
- The small company criteria recognizes broader group of stakeholders (e.g. creditors, employees, customers) who may have an interest in the financial statements, other than just shareholders.
• It would reduce regulatory costs for smaller companies that do not have wide market impact.
• Similar criteria are used for differentiated financial reporting in other countries (e.g. UK, Australia).
Presentation of Accounts and Financial Reporting
- New Section 201, New Twelfth Schedule and Amendment to Section 209A – Determination of requirement to prepare consolidated financial statements to be determined by financial reporting standards and not the Companies Act
The requirement for the directors to issue a report to be attached to the financial statements and disclose directors’ benefits will be removed.
New Section 201(16) will require two directors to sign on and behalf of all directors, a statement containing information to be set out in the new Twelfth Schedule of the Companies’ Act (including a list of all directors in the company). The directors’ statement will accompany the financial statements of the Company.
In Section 209, the term “financial statements” replaces “balance sheet and profit and loss account”.
- Section 200 Repealed – Removal of requirement to align the financial years between parent and subsidiaries
A subsidiary is required to have the same financial year-end as its parent.
The alignment of the financial-year end between a parent and its subsidiaries is repealed under the Companies’ Act. However, the alignment of the financial year-end between a parent company and its subsidiaries will be governed by the Accounting Standards instead.
- Amendment to Section 66 – Phasing out share warrants
The bearer of a share warrant issued before 29 December 1967 shall be entitled on surrendering it for cancellation to have his name entered into the company’s register of members.
The amendment will phase out any outstanding share warrants by giving bearers of these warrants a two-year period, from the time the amendment is effected, to surrender the warrants for cancellation and have their names entered in the register of members. Companies will cancel any outstanding share warrants that are not surrendered.
This transitional arrangement has been in place for more than 40 years. It was put in place for bearers of share warrants issued before 29 December 1967 to convert the warrants to registered shares. This amendment addresses the growing international expectation to strengthen transparency of companies.
- Amendment to Section 76 – Allowing listed companies to make selected off-market acquisition of shares in itself in accordance with an agreement authorised by the company.
Section 76D(1)(b) has been deleted to allow listed companies to conduct selective off-market acquisitions. New sections 76(8)(m) and 76(8A) have clarified that sponsoring an odd-lot program does not amount to financial assistance.
- New Section 67 and Amendment to Section 76G – Permitting use of capital for share issues and buybacks for brokerage, commissions
A company can use its share capital to pay any expenses (including brokerage or commission) incurred directly in the issue of new shares or buyback of shares.
- 13. New Section 68 – Allowing companies to issue shares for no consideration.
A company having a share capital may issue shares for which no consideration is payable to the issuing company.
Financial Assistance for Acquisition of Shares
14. Amendment to Section 76 – No more prohibition against financial assistance by private companies. New exceptions to financial assistance provisions
A company may not give financial assistance to any person (whether directly or indirectly) for the purpose of acquisition/ proposed acquisition of shares or units of shares in the company or holding company.
The financial assistance prohibition for private companies will be done away with, but will still apply to public company / subsidiary of public company.
- Private companies are usually closely held, and shareholders have greater control over the decision to give financial assistance.
- This will reduce cost for private companies and is consistent with the position in the UK.
To clarify or address concerns that the present financial assistance prohibition may impede potentially beneficial or innocuous transactions, the following new exceptions will be introduced for a public company or a subsidiary of a public company:
(a) Where the giving of assistance does not materially prejudice interests of company or shareholders or company’s ability to pay its creditors (subject to the company satisfying certain prescribed conditions);
(b) Distributions made in the course of the company’s winding up;
(c) Allotment of bonus shares; and
(d) Redemption of redeemable shares of a company in accordance with its constitution.
15. Amendment to Section 328 – Update limit on preferential payments to employees of insolvent companies.
Employees of an insolvent company are currently entitled to be paid their wages and salaries, followed by retrenchment benefits and ex-gratia payments, in priority of other unsecured creditors. The limit in the Companies Act on such priority payment is “five months’ salary of the employee or $7,500, whichever is lower”.
The amendment will update the limit and specify in the subsidiary legislation a new limit of “five months’ salary or five times the salary cap for non-workmen referred to in Part IV of the Employment Act, whichever is lower”.
The $7,500 limit is based on the monthly salary cap of $1,500 for non-workmen under the Employment Act in 1993 more than two decades ago. This approach has the benefit of ensuring that the limit will be automatically updated each time the salary cap for non-workmen is adjusted in the Employment Act. This is to ensure that this section of the Companies Act is in line with the Employment Act.
For Frequently Asked Questions (FAQs) to the Implementation of the Companies (Amendment) Act 2014, please click here.
Winding-up by Court
- Amendment to Section 254 – Empowering the Court hearing a winding-up application to order a buy-out instead of ordering winding-up.
To allow the court to order a buy-out where it is just and equitable to do so (Recommendation 2.26), or where directors acted in their own interest or in unfair or unjust manner (Recommendation 2.27).
Statutory Derivative Action
- Amendment to Section 216A – (i) Expanding the scope of the statutory derivative action in section 216A to allow a complainant to apply to the court for leave to commence/intervene in arbitration, and (ii) Extending application of section 216A such that the statutory derivative action is applicable to Singapore-incorporated companies that are listed for quotation or quoted on a securities market, whether in Singapore or overseas.
The statutory derivation action will be available to all Singapore incorporated companies (instead of non-listed companies only) and will allow a complainant to start arbitration proceedings or intervene in an arbitration to which the company is a party for the purpose of prosecuting, defending or discontinuing the arbitration on company’s behalf (in addition to court proceedings).
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