ANNUAL CPD DAY 2015 GENERAL COMPANY LAW presentation is for general information only and does not...

WongPartnership LLP (UEN: T08LL0003B) is a limited liability law partnership registered in Singapore under the Limited Liability Partnerships Act (Chapter 163A).

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WONGPARTNERSHIP.COM

ANNUAL CPD DAY 2015

GENERAL COMPANY LAW

ANDREW ANG

9 OCTOBER 2015

This presentation is for general information only and does not constitute legal advice. Please seek specific legal advice before acting on the contents set out herein.

2007

• Steering Committee (SC) formed

2011

• SC Report issued

• Public consultation on SC Report and ACRA consultation on regulatory framework for foreign entities

2012

• MOF response to public consultation

2013

• Public Consultation on draft Companies (Amendment) Bill – first and second parts

2014

• MOF response to public consultation

• Revised Companies (Amendment) Bill was passed

Introduction

• Companies (Amendment) Act 2014 was passed on 8 October 2014

(Act 36 of 2014)

2


Introduction

• Objective of changes:

– Reduce regulatory burden, greater business flexibility, improve corporate

governance landscape

• Dual-phased implementation:

– Phase 1: around 40% effective from 1 July 2015 (in red)

– Phase 2: effective in 1Q 2016 (actual date not set - 2 months' advance notice)

• Regulations, prescribed forms, etc for Phase 2 not yet issued

• Topics covered in this session: selected key changes

3


Responsibilities of Directors & CEOs

• Powers of Directors

– Business of company managed by or under the direction or supervision of the

directors - 157A

• Duty and liability of officers (includes Directors and CEOs and

persons employed in an executive capacity)

– Cannot make improper use of position as officer (not limited to improper use of

information acquired by virtue of his position) to gain advantage or cause

detriment to the company - 157(2)

• New definition of CEO

– Any one or more persons, by whatever name described, in direct employment /

acting for / by arrangement with the company, who is principally responsible for

the management and conduct of the company’s business or part of the

company’s business, as the case may be - 4(1)

– Replaces existing definition of "manager"

4


Responsibilities of Directors & CEOs

• Now applicable to CEOs: disclosure of interest in transactions /

disclosure of conflict of interest / disclosure of interest in shares, etc

– Similar to requirement for Directors, with exceptions (not required for 164/165:

related corporation, participatory interests) - 156, 164/165

• For both CEOs and Directors: disclosure of interest in transactions / conflicts of interest via written means

– Disclosure now also possible by written means - 156

• Changes to definition of interest in shares

– Tracks (and updates!) Sections 4 and 130(5) SFA

– Authority to dispose / exercise control over disposal of shares = interest in shares

– 7

5


Directors’ Appointment and Cessation

• Resignation and appointment of directors

– General meeting by ordinary resolution can appoint director - 149B

– Director can resign by giving written notice, not subject to acceptance - 145

– Both cases: unless constitution otherwise provides

• Age of Directors

– 153 repealed! No difference in treatment of directors above 70

• Changes to disqualification provisions

– Conviction or civil penalty for market misconduct subject to disqualification - 154

– New disqualification provision:

• 3 defunct struck-off companies within 5 years - 155A

• New debarment order

– Debar from future appointments as director or secretary until order is cancelled

or suspended; pre-existing appointments not affected - 155B

6


Transactions with Directors

• Payment to Directors holding salaried employment or office, for loss

of office

– Existing provision: (subject to limited exceptions) not lawful for company to make

to any director, payment (a) by way of compensation for loss of office as an

officer of the company or subsidiary or as consideration in connection with his

retirement therefrom, or (b) in connection with the transfer of the whole or any

part of the undertaking or property of the company, UNLESS particulars of the

proposed payment have been disclosed to members and approved by the

company in general meeting

– No need shareholders' approval if amount of compensation for termination of

employment does not exceed total emoluments in year preceding termination,

payment is pursuant to existing contractual legal obligation in agreement with the

said director, and particulars of payment disclosed to shareholders upon or prior

to payment

– 168

7


Transactions with Directors

• Loans, etc. to Directors and connected corporations (20% stake)

– Existing provision: (subject to limited exceptions) Prohibited: loan to a director of

the company or related company, or loan to company in which director(s) are

interested in 20% or more equity stake, or entry into guarantee or provision of

security in connection with a loan to such director or company

– Prohibition extended to quasi-loans, credit transactions, related arrangements

– Prohibition extended to LLPs in which director(s) are interested in 20% voting

power

– For loans to connected corporations/LLPs, exception of prior shareholders'

approval with abstention by Director and family members

– 162, 163

8


Protecting Directors from liability

• Loan to Director to meet defence expenditure

– New exception to Sections 162 and 163: Loan to Director to meet expenditure

incurred in defending proceedings or regulatory investigation in connection with

negligence, default, breach of duty or breach of trust, subject to conditions (e.g.

loan must be repaid if convicted / adverse judgment, within 14 days)

– 163A, 163B

• Indemnity of Director against liability

– Company cannot indemnify officer (includes Director, secretary or person

employed in executive capacity) for liability for negligence, default, breach of duty

or breach of trust

– Exception: indemnity is against liability incurred to person other than the

company, subject to exceptions

– 172 to 172B

9


Duties of Directors:

Disclosure of Information

• Right of disclosure of company information by nominee

directors to nominating shareholder – made more flexible

A director of a company may disclose information which he has in his capacity as a

director of a company, being information that would not otherwise be available to

him, to a person:

(a) whose interests the director represents or

(b) in accordance with whose directions or instructions the director

may be required or is accustomed to act in relation to the

director’s powers and duties,

IF such disclosure is:

–not likely to prejudice the company; and

–made with the authorisation of the board of directors

(which authorisation may relate to all or any class of information, or only such

information as may be specified in the authorisation).

–158

10


Duties of Directors:

Disclosure of Information

• Right of disclosure of company information by nominee

directors to nominating shareholder – made more flexible

– Prior to the amendment to Section 158 (pursuant to the Companies

(Amendment) Act 2014), the nominee director seeking such disclosure had to

declare at a Board meeting the name and office or position held by the person to

whom the information is to be disclosed and the particulars of such information

(former Section 158(3)(a))

– The Steering Committee for Review of the Companies Act considered that:

• Section 158 was unclear as it was capable of different interpretations

• The narrow interpretation, that specific approval from the board for each

piece of information to be disclosed, was impractical and cumbersome

• Recommended that Section 158 be amended to

– delete Section 158(3)(a)

– enable the board to determine whether the mandate should be general

or specific, subject to the overarching consideration that there should

not be prejudice caused to the company

11


Other Changes relating to Directors

• Possible use of alternate address (applicable to Directors, secretary,

CEO)

– Section 173 currently requires individual’s “usual residential address” to be

registered in ACRA’s publicly accessible records

– Amendment will permit individual to supply an alternate address:

• An address at which the individual can be located

• Same jurisdiction as the individual’s residential address

• Cannot be a P.O. box

– Residential address will not be made publicly accessible if valid alternate address

has been supplied, but ACRA has power to restore the individual’s residential

address (with notice) to the public records if:

• Individual fails to respond to communications sent by ACRA

• Evidence shows service of document on alternate address ineffective to

bring it to the individual’s notice

– 173, 173G

12


Key Changes for Shares and Capital

• Redenomination of shares

– New procedure to redenominate share capital from one currency to another by

way of an ordinary resolution

– 73, 73A, 73B

• Conversion of shares

– New procedure to make provision in constitution to authorise conversion of

shares of one class into another by way of special resolution

– However, non-redeemable preference shares cannot be converted into

redeemable preference shares

– 74A

• Share capital can be used to pay share issuance expenses

– Expenses (including brokerage or commission) incurred directly in the issue,

purchase or acquisition of shares

– 67, 76G

13


Key Changes for Shares and Capital

• Share Buybacks

– Threshold of 20% issued share capital is now reflected in Companies Act

– Solvency test standardised (with Section 7A solvency statement)

– Selective off-market share buybacks now permitted for public listed companies

(not restricted to odd lots, though that was original proposal of Steering

Committee)

– 76B, 76F, 76D

• Corresponding amendment to Section 76 (prohibition against financial

assistance) will permit listed company to pay for costs associated with a

scheme/arrangement under which any shareholder may purchase/sell

shares for sole purpose of rounding off his odd-lots - 76

• Expanded use of treasury shares

– Treasury shares may be transferred for purposes of or pursuant to "any share

scheme, whether for employees, directors or other persons" (not just limited to

employees' share scheme)

– 76K

14


Impact on Corporate Transactions

• Membership of holding company

– Current prohibition against corporation being a member of its holding company

– New exception: subsidiary obtaining shares in holding company through

distribution in specie, amalgamation or scheme of arrangement

– Subsidiary's holding of its holding company’s shares: similar regime as treasury

shares (no voting rights)

– 21

• Indoor management rule

– In favour of person dealing with company in good faith (rebuttable presumption,

no duty to enquire), powers of Directors to bind company deemed to be free of

any limitation under the company’s constitution (including any shareholders’

agreement or resolution)

– Exception: transactions with Directors and their connected persons (generally

voidable at company’s option)

– 25B, 25C, 25D

15


Impact on Corporate Transactions

• Financial Assistance

– Section 76 prohibits the giving of financial assistance for the purpose of or in

connection with an acquisition or proposed acquisition of a person of shares in

the company or in its holding company

– No longer applicable to private companies unless they are subsidiaries of public

companies

– Exceptions to FA widened to cover:

• Distribution by way of dividends lawfully made / in the course of winding up

• Allotment of bonus shares

• Redemption of redeemable shares

• Payments by company of costs for odd-lot rounding scheme/arrangement

– 76

– New non-material prejudice exception - 76(9BA)

• Interest of company and its shareholders or its ability to pay creditors

• Board resolution that FA is fair and reasonable and should be given, with

grounds, to be lodged with ACRA

16


Impact on Shareholder Rights

• Differential Rights

– By default, for all companies, one share confers one vote, subject to constitution

– Public companies: different classes of shares possible subject to constitution

specifying rights. Can issue shares with special, limited, conditional or no voting

rights if approved by special resolution

– 64, 64A

• Derivative actions

– Derivative actions under Section 216A refer to actions taken out by shareholder

(or other person) in the name and on behalf of the Company, with leave of Court

– Now also applicable to public listed companies, and includes arbitration

– 216A

• Buyout remedy

– In winding-up application to Court on the basis of Directors acting in own

interests or unfairly, Court may (if just and equitable) order shares to be

purchased by company or other member, instead of ordering a winding-up

– 254

17


Impact on Amalgamations

• Short-form amalgamation

– now allows for subsidiary to be the surviving entity as well

– 215D

• Changes relating to solvency

– solvency threshold

• Past: directors of each amalgamating company to be satisfied that

amalgamated company will be able to pay debts as they fall due during next

12 months after effective amalgamation date

• Now: directors of each amalgamating company to be satisfied that

amalgamated company will be able to pay debts as they fall due as at

effective amalgamation date

– 215D(2)(c), 215J

18


Key Changes for General Meetings

• Multiple proxies

– Member who is "relevant intermediary" can appoint 1 proxy per share or shares

(current default is 2 proxies, subject to constitution; scheme meetings excluded):

• licensed bank holding shares as nominee

• capital markets services licensee holding shares as custodian

• CPF Board holding shares as intermediary under CPF legislation

– This applies to all companies; cannot exclude by constitution

– Such a proxy also has the right to vote on show of hands

– 181

• Proxy Forms – restriction on timing for submission

– To be submitted at least 72 hours before meeting (from 48 hours)

– 178 (corresponding change to new 81SJ SFA)

• Right of shareholder to demand poll at general meeting

– Reduced threshold from 10% to 5% (of total voting rights)

– 178

19


Registers

• All companies: Register of Directors, CEOs, secretaries and auditors

maintained by ACRA

– 173 to 173I

– All companies still have to maintain Registers of CEOs' and Directors' shareholdings

– Transitional provisions: what was lodged with ACRA before date of coming into force

will be entered into the Register of Directors, CEOs, secretaries and auditors; e.g.

formerly registered "managers" will be entered as CEOs. - 173D

20


Registers

• Private companies: Register of Members maintained by ACRA

– 196A (existing Register of Members provisions will only apply to public companies)

– Consequential changes – certain private company corporate actions will take effect

only upon lodgment of the relevant forms / documents with ACRA

• e.g. redemption of redeemable preference shares (70), alteration of share capital

(71), conversion of shares (74A), buyback (76B), cancellation or disposal of

treasury shares (76K)

• changes to share transfer provisions (126 to 130AE)

– Transitional provisions:

• Pre-existing private company to give information for Register of Members to

ACRA, within the earlier of (a) 6 months from date of this amendment coming into

force, and (b) date when first return under Section 197 is required to be lodged

with ACRA - 196B

• Existing Register of Members maintained by company must be kept for 7 years

after last member on the Register ceases to be member - 196D

21


Impact on Company Administration

• "memorandum and articles of association = "constitution"

– Transitional provision: M&AA in force immediately before date of this amendment

coming into force collectively deemed as the constitution - 4(13)

• Table A (Fourth Schedule) replaced by model constitution

– Minister may prescribe model constitutions for private companies and companies

limited by guarantee - 36

– Model constitutions not yet made available by Minister

• Share certificates

– Requirement to state amount paid up on the shares removed (but still required to

state amount unpaid, if any) - 123

22


Impact on Company Administration

• Electronic communications – new implied / deemed consent provision

– Express consent: electronic communications with members currently permitted

only if there is agreement in writing: 387A, 387B

– Implied / Deemed consent: new provisions to allow for implied / deemed consent

as provided under constitution - 387C

• Constitution to provide for use and manner of electronic communications

• Implied consent: constitution states that member agrees to receive notices

or documents by way of electronic communications and has no right of

election for physical copies

• Deemed consent: constitution gives member opportunity to elect for either

electronic communications or physical copies within specified time, and

member fails to elect

– Regulations for the above not yet made by Minister

• Company records may be in electronic form

– Company records can be in both hard copy or in electronic form - 395

23

This presentation is for general information only and does not constitute legal advice. Please seek specific legal advice before acting on the contents set out herein. 24

Thank You

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