Singapore – Reform of Companies Act
The Singapore Companies Act has undergone a number of amendments since its introduction in 1967, the most recent is the Companies (Amendment) Act 2014. The 2014 Act will come into force in two phases; the first is already effective, from July this year, with the second phase taking effect in early 2016.
The initial review of the company legislation was instituted with the stated objective ‘...to ensure that the corporate regulatory regime is robust and supports Singapore’s growth as a global hub for businesses and investors.’ With this in mind the amendments contained in the 2014 Act seek to reduce the regulatory and compliance obligations, to allow companies greater flexibility, while continuing to maintain a strong and efficient regulatory regime.
The principle changes introduced in the first phase are:
Audit exemption
The previous legislation provided only limited exemptions from the requirement to undertake an annual statutory audit; for example, if the company was dormant or its turnover was below S$5million.
The exemption has been expanded to exclude privately held companies ‘small companies’, as defined in the Act, from the audit requirement. A company that meets two of the following three criteria in the last two financial years, will qualify as ‘small company’, regardless of its share structure:
Total annual revenue is less than S$10million;
Total assets of less than S$10million;
Less than 50 employees.
If the company is part of the group, it may still qualify under the exemption, subject to the proviso that the entire group of companies meets at least two or three of the criteria in the last two financial years.
Abolition of the prohibition against financial assistance.
There was a general prohibition against companies providing financial assistance for the acquisition of its own shares or the shares in its holding company. The prohibition has now been abolished for private companies, which may now provide financial assistance to acquire its own shares and its holding company shares.
The prohibition against share acquisition remains in place for public companies and their subsidiaries.
Issue of shares for no consideration.
Earlier legislation permitted the issue of shares for a nominal sum. The system has now been expanded with the removal of the requirement to issue shares, even for a nominal sum, so allowing the possibility for companies to issue shares with no consideration.
Abolition of shareholder approval of termination payments to executive directors.
It was previously a requirement for companies to disclose to shareholders, and obtain shareholder approval, of any compensation package paid to a director on retirement or loss of office. This requirement has now been removed, but only providing the following three conditions are met:
The payment is no more than the total remuneration paid to the outgoing director in the last year of employment;
The termination is based on the director’s existing employment contract; and
The details of the payment are disclosed to shareholder before the payment is made.
Director’s report.
Directors were required to provide a report that formed an annex to the company’s financial statements. This requirement has been removed and replaced with a more stringent obligation to provide a directors’ statement that must include certain mandatory disclosures on the company and its business.
Requirement to align financial years is removed.
The legislation required parent companies and their subsidiaries to align their financial year end to the same date. The requirement to align the financial year has been removed.
However, holding companies continue to be required to ensure that the financial statements of the parent and subsidiaries are prepared to the same reporting date; to ensure the accuracy of the consolidated financial statements.
The second phase of amendments that are intended to come into force in the first quarter 2016 include the following:
Extension of director’s disclosure obligation.
The current obligation to disclose any conflict of interest in transactions and a shareholding in companies or related corporations is limited to the company’s directors. Under the 2014 Act this disclosure obligation will be extended to CEO’s. For these purposes the CEO is defined as an individual principally responsible for the management and conduct of the all or part of the company’s business, whether employed directly or indirectly by the company.
Company officer’s address reporting obligations.
Company officers are required to provide details of their private address to the regulatory authorities, where the general public can inspect the register. From next year, company officers can provide an alternative address, within the same jurisdiction, as their private residential address. However, a post office address will not be accepted.
Company Constitution.
The present requirement for a company to have a memorandum and articles of association has been removed and the two documents will be merged into one document to be known as the company’s constitution.
Electronic publishing and transmission of notices.
New procedures will be introduced to liberalise the electronic transmission of notices and documents with the simplification of procedures. Transmission by email can be the default means of communication by the company with its members and can be specified in its constitution document. However, important documents, eg issues relating to rights issues and takeovers, must continue to be sent to members by hard copy.
Reduction of branch agent requirements.
The requirement to have two agents, who are ordinarily resident in Singapore, as agents of the branch of a foreign registered company registered in Singapore, will be reduced to one.
Increased restrictions on any financial assistance to directors.
The rules affecting loans to directors have been tightened further and will extend to ‘quasi- loans’ and ‘credit transactions’ as defined in the legislation.
Other matters covered under Phase 2 include the removal of the upper age limit of 70 years on the appointment or re-appointment of directors. Other factors must be taken into account, not simply the individual’s age.
A new director’s debarment regime will also be introduced to prevent irresponsible directors and company secretaries from holding similar positions. The aim is to promoting greater compliance with the statutory filing obligations.
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