Client Update: Singapore reviews its corporate regulatory environment
18 March 2009
In brief: Consistent with the Singapore Government's commitment to the evolution of a corporate regulatory framework responsive to market innovation and developments in other jurisdictions, the Ministry of Finance has convened a steering committee to review the Companies Act. Senior Associates, Ian Stewart and Krista Bowie, provide a brief overview of some of the key areas targeted for review and, possibly, amendment in the coming months.
- Background
- Codification of directors' duties
- Liberalisation of the financial assistance provisions
- Modification of the exempt private company classification
- What next?
Background
For more than thirty years the Singapore Government has worked collaboratively with industry professionals to ensure Singapore's place on the world stage as a financial and business hub. The Ministry of Finance's (the MOF) approach to regulatory policy – that is, one of development, rather than control – has assisted in securing Singapore's number one ranking for 'ease of doing business' in the Doing Business Report 2009 published by the World Bank Group.
To review the Companies Act (the CA), the MOF has set up a steering committee to be chaired by Attorney-General Professor Walter Woon.
The committee has identified three key issues under the CA that will be closely evaluated.
Codification of directors' duties
Currently the CA sets out only certain directors' duties, such as the duty to act honestly and use reasonable diligence in the discharge of the duties of office. It does not provide a comprehensive statement of directors' duties and the CA must be read in conjunction with common law rules and equitable principles to obtain a complete understanding of the duties owed to a company by a director in Singapore.
The committee will assess the merits of extensively codifying the duties of a director. Such a statutory list should remove any ambiguity. This, however, should be weighed against the loss of flexibility to evolve in line with business practice that is inherent in adopting such an approach. As a potential solution to this problem, the committee will explore the possibility of retaining this efficiency via practice directions and guidance notes.
Liberalisation of the financial assistance provisions
Other than in limited circumstances, it is presently an offence under the CA for a company to provide direct or indirect financial assistance for the purchase of its own shares (or that of its holding companies). The application of this provision by the courts has been criticised as unclear.
Financial assistance provisions have been liberalised in a number of jurisdictions including Australia and the UK and the committee will evaluate the success of the reforms in these other countries when considering whether Singapore should follow a similar path.
Modification of the exempt private company classification
Generally speaking, an exempt private company (EPC) under the CA is a private company that has no corporate shareholders with a direct or indirect beneficial interest in its shares, and has no more than 20 shareholders. An unintended consequence of this approach is that large private companies qualify for the benefits of EPC status (such as filing exemptions) and this reduces transparency and stakeholder access to financial information.
The committee will consider the insertion of qualifying criteria (such as maximum total annual turnover and gross assets) to address this issue.
What next?
Following the completion of its deliberations, the committee will issue a public consultation paper outlining its recommendations with a view to inviting industry feedback. Such feedback will shape the drafting of an amending bill to the CA. At the moment there is no publicly available timetable regarding this process.
However, this most recent review of the CA to facilitate industry views and provide greater clarity is a further example of the Singapore Government's efforts to ensure a corporate regulatory framework that continues to evolve in line with international market practice.
Published 18 March 2009
For further information, please contact:
- Robert ClarkePartner,
Melbourne
Ph: +61 3 9613 8034
Robert.Clarke@allens.com.au - Robert FishPartner,
Ho Chi Minh City
Ph: +84 8 3822 1717
Robert.Fish@allens.com.au