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15 October, 2016
Prior to 1 July 2015, Section 76 of the Companies Act, Chapter 50 of Singapore (the “Singapore Companies Act”) prohibited any company incorporated under the Singapore Companies Act (both public and private) from providing, whether directly or indirectly, financial assistance for the acquisition of its own shares or the shares of its parent company, unless: (i) it complied with certain “whitewash” procedures prescribed by the Singapore Companies Act; or (ii) the transaction fell within an exception under the Singapore Companies Act. Such “whitewash” procedures are cumbersome and the process of determining what amounts to financial assistance is often fraught with uncertainty, partly because Section 76 is overly complex and has been interpreted differently by judges. As the Steering Committee noted in its report, financial assistance provisions also can cause challenges in structuring transactions since they tend to cause delay.
Provisions of the Companies (Amendment) Act 2014 relating to the abolition of financial assistance under Section 76 of the Singapore Companies Act took effect on 1 July 2015. Since then, the prohibition on providing financial assistance has no longer been applicable to private companies whose holding or ultimate holding company is not a public company, and such companies will be able to enter into transactions involving financial assistance without having to undertake the “whitewash” procedures prescribed by the Singapore Companies Act. This was a welcome change, which finally put Singapore in line with other major jurisdictions, such as the UK, Australia and New Zealand, in this area.
It is important to note that the financial assistance prohibitions still apply to public companies and subsidiaries of public companies. However, to address concerns that the present financial assistance restrictions may prevent or render more expensive a range of potentially beneficial or innocuous transactions to be undertaken by public companies and their subsidiaries, a new exception was included under Section 76(9BA) of the Singapore Companies Act, to allow a public company or its subsidiary to assist a person to acquire shares (or units of shares) in the company or a holding company of the company, if giving the assistance does not: (i) materially prejudice the interests of the company or its shareholders; or (ii) the company‘s ability to pay its creditors. The board of directors will need to pass a resolution that: (i) the company should give the assistance and (ii) the terms and conditions of the assistance are fair and reasonable to the company. This procedure was adapted from the Australian approach of authorized assistance, where potentially beneficial or innocuous transactions will arguably not be seen as involving “material prejudice” and will be allowed without the need for further shareholder approval. The “material prejudice” exception was also a welcome introduction since it is a more succinct and less time-consuming alternative to the “whitewash” procedures in Section 76(10) of the Singapore Companies Act.
For further information, please contact:
Mindy Ng, Duane Morris & Selvam
MNg@selvam.com.sg
