22 January, 2016
Since its enactment in 1967, the Singapore Companies Act (Chapter 50) (the “CA”) has undergone several rounds of amendments to respond to changing business realities and to promote Singapore’s development as a global corporate hub that provides businesses and investors with confidence.
On 8 October 2014, the Companies (Amendment) Act 2014 (“Companies Amendment Act”) was passed by the Singapore Parliament. In April 2015, the Accounting Corporate and Regulatory Authority (“ACRA”) announced that the most extensive amendments to date will be implemented in two phases. The first phase of amendments came into force on 1 July 2015 and the second phase of amendments will come into force on 3 January 2016. The second phase of amendments are directly associated to the registration and filing processes in ACRA’s online business filing and information portal, BizFile.
This article will highlight some of the key amendments and potential consequences on merger and acquisition activities in Singapore.
Expansion of Compulsory Acquisition Mechanism
The CA sets out a compulsory acquisition mechanism to acquire shares of minority shareholders of target companies. Under Section 215 of the CA, an offeror who acquires not less than 90 percent of the issued target company shares pursuant to a takeover offer is entitled to compulsorily acquire any remaining target shares. Section 215 of the CA is frequently used in takeovers of public listed companies in Singapore where the offeror intends to acquire the entire shareholding of a target company, which results in such company becoming its wholly owned subsidiary.
The amendments to Section 215 of the CA have extended the circumstances where the right to compulsory acquisition is triggered and the scope of a compulsory acquisition.
Under the newly amended Section 215 of the CA, a transferee can be an individual (instead of a company or a corporation only, as previously provided) and the compulsory acquisition mechanism can be used to acquire options and other interests in shares (instead of being used to acquire shares only as previously provided).
Liberalisation Financial Assistance Prohibition
Another significant amendment to the CA is the abolition of the prohibition on financial assistance by private companies in connection with acquisitions of their own shares.
The removal of such a prohibition for private companies will likely provide such companies with more flexibility in restructuring transactions and reduce costs associated with takeovers of Singapore incorporated private companies. This is because it is common practice for a target company to provide security in the form of a charge over its assets to secure any borrowings that the acquiror company may obtain to facilitate the acquisition of the target company. Before the amendments took effect, such security would constitute prohibited financial assistance under the CA and would require the acquiror to incur costs, time and resources to undertake a lengthy “whitewash” procedure that in certain cases could even act as a stumbling block to the completion of certain transactions, such as leveraged buyouts of companies.
With the removal of such a prohibition for private companies, directors can also potentially reduce their exposure to additional personal liability that stems from the “whitewash” procedure as directors are required to issue a solvency statement that the assisting company will be able to meet its liabilities for a period of 12 months after the assistance.
While the prohibition will continue to apply to public companies and their subsidiaries, new exceptions to this prohibition have also been introduced to permit financial assistance by public companies and their subsidiaries in certain situations. These exceptions include:
- where giving assistance does not materially prejudice the interests of the company or its shareholders or the company’s ability to pay its creditors (subject to the company’s satisfying certain prescribed conditions),
- distributions made in the course of the company’s winding-up,
- allotment of bonus shares and
- redemption of redeemable shares of a company in accordance with its constitution.
Under the “no material prejudice” exception introduced by the Companies Amendment Act, directors of the affected company must satisfy themselves that there is no material prejudice to the interests of that company and that the terms and conditions of the proposed financial assistance to be given are fair and reasonable. This relaxed regime appears to be more attractive to directors who are not required to issue a solvency statement.
Removal of Requirement to Maintain Physical Registers
A key second phase of amendments involves the introduction of electronic registers, which will be updated and maintained with ACRA.
Private companies will no longer be required to keep a register of members, directors, chief executive officers, secretaries or auditors. The word “manager” has also been substituted with “chief executive officer” despite the legal definition being largely similar.
Currently, the physical register of members kept by a company is prima facie evidence of any matters contained within. However, after the amendments, the electronic register maintained by ACRA will be used as the main and authoritative register of members. This register of members will be publicly available. Companies must register share ownership and changes with ACRA, and such changes will not take effect until the ACRA electronic register of members is updated.
The electronic register maintained by ACRA will also be used as the main and authoritative register of directors, chief executive officers, secretaries and auditors. A company is required to update the Registrar within 14 days after any change of director, chief executive officer, secretary or auditor.
These changes will promote the simplification of the administrative process for companies and create greater public access to such records. In the context of merger and acquisition transactions, these changes will affect due diligence sign-offs and completion steps.
Moving Forward
The amendments to the CA ensure that the CA is kept up-to-date to efficiently reflect the modern realities of businesses in Singapore.
They also highlight Singapore’s commitment to improving its business and regulatory landscape.
It is anticipated that the amendments will be well received by Singapore companies, directors and investors as they stand to enjoy greater flexibility when doing business in Singapore.
Nevertheless, given the early stage in the implementation of such amendments, Singapore companies, directors and various stakeholders may want to exercise greater prudence and consult their legal advisers to thoroughly understand these changes and how the newly amended provisions should be interpreted in different circumstances.
For further information, please contact:
Rachel Choo, Duane Morris & Selvam
RChoo@duanemorrisselvam.com
