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Singapore Law Reform Commission |
OCTOBER 2002
SINGAPORE
The CLRFC recommends the introduction of the limited partnership (modelled after the UK Limited Partnerships Act 1907) and the limited liability partnership modelled after Title 6, Chapter 15 Subchapter X (Limited Liability Partnerships) of the Delaware Code with a conversion by registration process.
The CLRFC recommends that the Trust Companies Act (Cap. 336) be reviewed and updated to ensure our rules are in line with international developments and trends.
The CLRFC recommends that further consideration be given to the introduction of Protected Cell Companies for insurance, securitisation and funds.
As the current exempt private company concept is adequate for the needs of small business, the CLRFC takes the view that it is unnecessary either to prescribe a separate regime for or provide a statutory definition for “small business” in Singapore.
The CLRFC recommends the deletion of Section 18(1)(c) and Section 18(1)(d) of the Companies Act. This would allow private companies to raise capital through private and exempted offerings without uncertainty or the need to convert to public companies unless they exceed the remaining criteria in Section 18(1) of the Companies Act.
The CLRFC recommends the adoption of the UK regime, which empowers the
Registrar of Companies and Businesses to direct a change of name on its own
initiative or upon receipt of valid complaints that are filed within 12 months of incorporation.
The CLRFC recommends the consolidation of the current set of forms required for incorporation into one form that is electronically submitted to the Registry of Companies and Businesses.
The CLRFC recommends dispensing with the need for a director to give his consent in writing and for the form to be signed before a defined professional. The director would indicate his consent electronically by using his CPF PAL-PIN or RCB PIN, which would serve as a secure and unique verification of his identity. For directors who elect to go through professional agents, it shall be the duty of these agents to verify and confirm the identities, qualifications and consent of these persons.
The CLRFC recommends allowing company secretaries to signify their consent to the Registry of Companies and Businesses electronically. The company secretary would use his CPF PAL-PIN or RCB PIN as a secure and unique verification of his identity. For companies that are incorporated by professional agents, it shall be the duty of the agents to verify and confirm the identities, qualifications and consents of the company secretaries.
The CLRFC recommends the abolition of the ultra vires doctrine. A company should be statutorily conferred with all the powers of a natural person. However, the ultra vires doctrine would be retained for the limited purpose of preserving the rights of internal redress by members against the directors, where the company’s constitution places limits on a company’s capacity and powers. It is proposed that Singapore adopt, with appropriate modifications, Sections 7 and 8 of the New Zealand Law Commission’s Company Law Reform and Restatement Draft Companies Act. We also recommend the replacement of the Memorandum and Articles of Association with a default constitution, modelled after the proposed constitution that would be adopted in the UK.
The CLRFC recommends that all private companies incorporated in Singapore be required to have at least one shareholder and one director who is ordinarily resident in Singapore. The shareholder and director can be the same person.
The CLRFC recommends that all private companies be required to give at least 14 days’ notice for all meetings, including those called to propose special resolutions. The CLRFC recommends the retention of the existing 28 days’ notice requirement for meetings called in order to propose resolutions requiring special notifications for all companies.
The CLRFC recommends that written resolutions in private companies may be passed with 75% and 50% majorities of those eligible to vote for special and ordinary resolutions respectively. In addition, legislation should be enacted to allow written resolutions to be passed through various forms of electronic communication. As a safeguard, the CLRFC further recommends that a minimum threshold of shareholders (representing at least 5% of the outstanding ordinary shares) can, by written notice, demand that a general meeting be convened.
The CLRFC recommends no change to the rule under Section 161 of the Companies Act that requires shareholders’ authorisation for directors to allot shares.
The CLRFC affirms and restates the importance of corporate secretarial functions, and recommends that all companies continue to be required by law to appoint company secretaries. However, the CLRFC recommends that private companies be exempted from the statutory prescription to appoint professionally qualified company secretaries.
The CLRFC recommends the retention of the requirement for companies to continue to maintain proper accounting and other records which will sufficiently explain their transactions and financial position. In addition, the law will continue to require all companies to prepare true and fair financial statements.
The CLRFC recommends that listed companies should be required to produce an
Operating and Financial Review, the contents of which would be prescribed by
the Council on Corporate Disclosure and Governance and the Singapore Exchange. The CLRFC further recommends that for all unlisted companies, the statutory requirement for the directors’ report [as prescribed by Sections 201(5) and 201(6) of the Companies Act] should be repealed and replaced with a requirement to submit a modified form of the Operating and Financial Review. This modified form of the Operating and Financial Review would include directors’ statements relating to the true and fair view of the accounts and the company’s ability to meet its debts as and when they fall due.
The CLRFC recommends that exempt private companies with annual turnover below S$5 million and dormant companies be exempted from preparing or filing audited accounts. The turnover threshold can be raised over time. The CLRFC further recommends that shareholders representing at least 5% of the outstanding ordinary shares be entitled to require such companies to prepare audited accounts. The Registrar of Companies and Businesses should also be empowered to require a company to submit audited accounts.
The CLRFC recommends that exempt private companies file a declaration of solvency every year. The declaration would be signed by one director who is authorised to do so for and on behalf of the whole Board, failing which a set of unaudited accounts must be filed.
The CLRFC recommends that Singapore move towards an entirely electronic filing system, which would include the maintenance of publicly accessible corporate registers.
The CLRFC recommends the retention of the existing time frames for all companies, which have either been struck-off the register or wound-up, to submit their reinstatement applications.
The CLRFC recommends that the existing boundaries between public and private offerings be replaced by an approach which requires a full prospectus for all offerings of securities, unless the offering is an exempted offering. A comprehensive list of exemptions or “safe harbours”, which comprises the
existing universe of exempted offerings as well as private offerings, should be provided. The Minister or the Monetary Authority of Singapore should be empowered to prescribe further exemptions for other forms of capital raising which merit exemption. The CLRFC further recommends that there should be no prescribed prospectus content and registration requirements for offerings of securities that fall within the list of exemptions or “safe harbours”.
The CLRFC recommends the abolition of the abridged prospectus and its replacement with a common standard filing, which would be required for rights and other similar offerings regulated by a statement of material facts.
The CLRFC recommends that all the exemptions relating to offers of shares and debentures be extended to collective investment schemes, without additional prescription, save for investments where clearly identifiable public interests justify additional prescription.
The CLRFC recommends that Section 273(1)(a) of the Securities and Futures Act be extended to exempt offer documents made in connection with a takeover offer which is in compliance with the applicable laws of the country of incorporation of the target company.
The CLRFC recommends that Section 273(1)(b) of the Securities and Futures Act be extended to exempt the following issues of covered warrants from prospectus requirements:
(a) primary issues of listed covered warrants over securities listed on the Singapore Exchange. The CLRFC recommends that the Singapore Exchange should be the agency to prescribe the disclosure requirements for listed covered warrants.
(b) issues of listed covered warrants where the underlying securities are previously issued and listed on recognised international exchanges. The CLRFC recommends that the Singapore Exchange should be the agency to determine the disclosure requirements and appropriate access arrangements for Singapore investors of information relating to the underlying securities.
The CLRFC further recommends that issue and trading of unlisted covered warrants by regulated financial institutions should continue to be unregulated by statute.
The CLRFC recommends that the exemption under Section 273(1)(c) of the Securities and Futures Act be extended to offers of securities by a company to bona fide employees or former employees of the company or a company in the same group or the wife, husband, widow, widower or child or stepchild under the age of 18 of such employee or former employee.
The CLRFC recommends repealing Section 256 of the Securities and Futures Act. Rights issues by listed issuers would have to comply with Section 277 of the Securities and Futures Act and a statement of material facts must be issued.
The CLRFC recommends that the existing exemptions in Section 274 and Section
275 of the Securities and Futures Act be retained. The current requirement to lodge the information memoranda and Form 3 with the Monetary Authority of Singapore should be dispensed with.
The CLRFC recommends that offers exempted under Section 273(3) of the Securities and Futures Act should not be required to file a notice to invoke the exemption. The CLRFC further recommends repealing Sections 280(2) – (5) of the Securities and Futures Act. Issuers invoking the exemption under Section 273(3) of the Securities and Futures Act need not maintain a register of such issues.
The CLRFC recommends the introduction of a private placement exemption for offers to up to 20 pre-identified offerees to raise unlimited funds without any statutorily prescribed prospectus content or filing, and without resale restrictions. The Minister should be empowered to raise the threshold number of pre-identified offerees when appropriate.
The CLRFC recommends the introduction of a small offering exemption for offers of up to S$5 million (computed based on the funds raised) in 12 months to offerees who have:
(a) previous contact with the person making the offer; or
(b) some professional or other connection with the person making the offer; or
(c) indicated that they are interested in offers of that kind through some statements of actions.
Resale restrictions should be imposed for six months after the allotment or purchase of securities made pursuant to the small offering exemption to confine such resales to persons who have similar relationships with the offeror. Any offering materials must include a statement on the front cover of the offering materials to notify offerees that the shares or debentures are being offered pursuant to the small offering exemption.
The CLRFC recommends the repeal of Section 244 of the Securities and Futures Act and the clarification in Section 4A of the Banking Act that corporate debt issues which comply with or are exempted under the Securities and Futures Act do not constitute deposit taking. In addition, the CLRFC recommends that the Securities and Futures Act should clarify that deposits with banks are not
“debentures” for the purposes of Part XIII of the Securities and Futures Act. RECOMMENDATION 2.13
The CLRFC recommends removing the statutory requirements pertaining to the appointment of trustees and prescribed covenants for public offerings of debentures. The requirements on the appointment of trustees, the duties of the trustees and the contents of the trust deed would be prescribed by Singapore Exchange Securities Trading Limited. The Securities and Futures Act should continue to address the liabilities of trustees where they are appointed. In addition, the Securities and Futures Act should be extended to confer the rights on the Monetary Authority of Singapore, the Singapore Exchange Securities Trading Limited and debenture holders to apply to the court to compel a trustee to perform his duties as set out in the trust deed. The CLRFC further proposes retaining Section 267 of the Securities and Futures Act, which would allow a trustee to apply to the court for directions.
The CLRFC recommends a reconsideration of the efficacy of enacting the
IOSCO’s Disclosure Standards into statutory form in the Securities and Futures
(Offers of Investments) (Shares and Debentures) Regulations 2002. Alternatively, the Monetary Authority of Singapore could consider issuing practice guidelines which will provide class adaptations and waivers to cater for small and medium size listings and public offerings.
The CLRFC recommends the retention of the prospectus registration process, but to streamline the process such that directors need not sign and file Form 45 along with the prospectus registration.
The CLRFC recommends that subsequent sales of shares or debentures (both listed and unlisted), which are first acquired pursuant to the Sections 274 and 275 exemptions in the Securities and Futures Act, should be permitted at any time after six months from the date of initial acquisition. During the six-month restriction period, the shares or debentures can only be sold to institutional investors and sophisticated investors.
The CLRFC recommends the secondary trading of collective investment schemes, which are initially acquired pursuant to an exemption under the Securities and Futures Act to institutional and sophisticated investors, be permitted.
The CLRFC recommends the abolition of the concepts of par value and authorised share capital. The amounts standing to the credit of the share premium account should be made available to provide the premium payable on redemption of debentures or redeemable preference shares issued, to write off preliminary expenses of the company incurred before, and to write off expenses incurred, payments made or discounts allowed on or before the abolition of par value.
The CLRFC recommends introducing an alternative capital reduction process which does not require court sanction. The alternative capital reduction process would require shareholders’ special resolution approval as well as a declaration of solvency. Where a company’s accounts are not audited, the directors would be required to make a statutory declaration of solvency. Where a company’s accounts are audited, the solvency declaration, if not made by a statutory declaration, should be confirmed by external auditors. For public companies, the alternative capital reduction process would further require publication of a notice
(in advance of the proposed capital reduction) in a national newspaper and making available for public inspection the shareholders’ resolution and solvency statement and be susceptible to creditor challenge in court.
The CLRFC recommends that the Council on Corporate Disclosure and Governance review the accounting standards and rules to limit distributions to be made only out of accumulated realised gains minus accumulated realised losses in the light of international developments moving away from the concept of
“realised profits”.
The CLRFC recommends the further liberalisation of our financial assistance restrictions to allow financial assistance to be provided in the following circumstances:
(a) where less than 10% of the company's paid-up capital is involved;
(b) where it is approved by a unanimous resolution of shareholders;
(c) under specific exemptions for financial institutions and approved employee share schemes; and
(d) for representations, warranties and indemnities by an issuer or a vendor in the context of a public offering.
For purposes of (a) and (b), where a company’s accounts are not audited, the directors would be required to make a statutory declaration of solvency. Where a company’s accounts are audited, the solvency declaration, if not made by a statutory declaration, should be confirmed by external auditors.
The CLRFC recommends that share buy-backs should continue to be funded out of distributable profits or where supported by a declaration of solvency. RECOMMENDATION 2.23
The CLRFC recommends allowing repurchased and redeemed shares to be held in treasury without the need for the company to obtain shareholders’ approval on how the repurchased and redeemed shares would be treated after the share buy- back. Their voting and other rights of the repurchased and redeemed shares would be suspended so long as they are held in treasury. Companies should be permitted to use treasury shares to meet their obligations under employee share option schemes, transfer to third parties to fund acquisitions or to raise cash.
The CLRFC recommends allowing companies to enter into contingent contracts to buy-back their shares, where such entry is approved in a special resolution by the companies’ shareholders.
The CLRFC recommends the retention of the statutory prescription of one-share- one-vote for public companies. All private companies, including subsidiaries of public companies, should be permitted to issue different classes of equity shares with multiple, limited or no voting rights.
The CLRFC recommends the repeal of the separate definitions of “director” and
“shadow director” in Sections 149(8) and 149A of the Companies Act.
The CLRFC recommends that Section 201B of the Companies Act relating to audit committees of listed companies be migrated to the Securities and Futures Act.
The CLRFC recommends that the Singapore Institute of Directors, in consultation with the Singapore Exchange, conduct more extensive and systematic training and accreditation for directors in Singapore.
The CLRFC recommends the retention of Section 153 of the Companies Act, which requires directors of public companies and subsidiaries of public companies to seek annual reappointment if they are of or above the age of 70 years. The CLRFC also recommends that the re-election requirements be amended to provide for such appointment by way of an ordinary resolution as opposed to a special resolution.
The CLRFC recommends that a copy of the Court order or the Official Assignee’s written permission to undischarged bankrupts to serve as directors or be involved in the management of companies under Section 148(3) of the Companies Act be filed with the Registry of Companies and Businesses.
The CLRFC recommends the adoption of UK’s statutory restatement of the general principles for directors, subject to adaptation to suit Singapore’s context.
The CLRFC recommends that directors be accorded protection for reasonable reliance on advice and information from professionals and experts along the lines of the Section 107 of the New Zealand draft legislation.
The CLRFC recommends that a summary account of directors’ duties and liabilities be inscribed on the director’s consent to act.
The CLRFC recommends extending the scope of Section 156 of the Companies Act beyond “contracts” to include “transactions”. The definition of “family” in Section 156(8) of the Companies Act should be aligned to the definition provided in Section 163(5) of the Companies Act.
The CLRFC recommends no change to Section 168 of the Companies Act and affirms the requirement for single item disclosure for shareholder approval of the provision or improvement of emoluments to directors under Section 169 of the Companies Act.
The CLRFC recommends that Section 162(1)(b) of the Companies Act be amended to clarify that the housing loan permitted thereunder be confined to the home occupied or to be occupied by the director, and should not be extended to housing loans for multiple homes or for investment.
The CLRFC recommends recognising the position of nominee directors by permitting them to disclose information to their nominating shareholder, provided it does not put the interests of the company in jeopardy and that such disclosure is minuted in the relevant board minutes.
The CLRFC recommends that Section 172 of the Companies Act be updated to incorporate the extended coverage offered in Section 310 of the UK Companies Act 1985. The Committee further recommends replacing Section 391 of the Companies Act with Section
727 of the UK Companies Act 1985 and that the definition of “liability” in the context of
Section 391 of the Companies Act be redrafted to include a liability to account for profits made.
The CLRFC recommends an overall review of the Companies Act with a view to eliminating criminal sanctions for such areas where civil or regulatory sanctions are sufficient. The CLRFC further recommends that the UK codification of civil remedies, when released, be adopted in Singapore subject to adaptation.
The CLRFC recommends a statutory restatement of the distribution of powers between directors and general meeting along the lines of Section 198A of the Australian Corporations Act 2001.
The CLRFC recommends the adoption of the recommendation in the UK Steering Committee’s Final Report to statutorily impose limits on majority rule in the context of alterations of the articles of association or alteration of class rights. The CLRFC also recommends that shareholder resolutions to ratify or condone wrongs be effective, provided that the votes of members with an interest or subject to the substantial influence by a person with an interest in the wrong have been discounted.
The CLRFC recommends adopting Sections 366A and 379A of the UK Companies Act 1985, which allow private companies to elect by unanimous agreement to dispense with the holding of annual general meetings. For purposes of clarification, the CLRFC further recommends the deletion of the expression “or agreements” in Section 186(1)(b) of the Companies Act.
The CLRFC recommends that the Singapore Exchange should be the agency to prescribe rules and procedures governing the use of web-casts and dial-ins for the disclosure of information. The CLRFC further recommends that the Companies Act be amended to provide for the electronic distribution of statutory reports to shareholders and for hardcopies to be available to shareholders who require them.
The CLRFC recommends adopting the recommendation of the UK Steering Committee that the contractual character of the constitution be retained – i.e. all obligations imposed by the constitution should be enforceable by individual members both against the company
and other members, unless the contrary was provided in the constitution or unless the breach in question was trivial or the remedy fruitless.
The CLRFC recommends the introduction of an omnibus Insolvency Act and subsidiary legislation that are applicable to both companies and individuals. The omnibus legislation would set out the common principles and procedures and consolidate and update all core areas including voluntary arrangements, judicial management, receivers and managers, voluntary and court winding up, liquidators, preferential debts, secured and unsecured debts, disclaimer, malpractices and insolvency practitioners modelled after the UK Insolvency Act
1986.
The CLRFC recommends the introduction of company voluntary arrangements, modelled after the UK Insolvency Act 1986, in the proposed omnibus insolvency legislation.
The CLRFC recommends establishing a common qualification for all insolvency practitioners e.g. receivers, administrative receivers, liquidators and judicial managers. The range of qualified persons should be extended to finance and other professionals. The CLRFC further recommends establishing in due course an Insolvency Practitioners Association, which would be responsible for accreditation of insolvency practitioners, continuing education and setting of professional standards.
The CLRFC recommends that the guiding principles identified by the UK Steering Committee be adopted in Singapore. The CLRFC further recommends a calibrated range of sanctions, which includes criminal, civil and regulatory sanctions, as well as professional sanctions and censure. A regular review process involving regulators, as well as market and industry players, should be institutionalised to track, evaluate and respond to market and regulatory developments in the major economies.
The CLRFC recommends that the statutory treatment of book-entry securities should be extended to the following range of securities:
(a) Listed equity securities issued by non-Singapore incorporated corporations and securities issued by supra-nationals and states;
(b) Listed debt and derivative securities issued by Singapore and non-Singapore incorporated issuers other than debt and derivative securities of Singapore- incorporated companies who have Central Depository (Pte) Limited named in its register of members;
(c) Unlisted securities by Singapore and non-Singapore issuers;
(d) Dematerialised securities; and
(e) Interests in collective investment schemes.
With respect to securities issued by Singapore corporations, the same treatment may be accorded. With respect to securities issued by non-Singapore corporations, it should be provided that insofar as Singapore law is relevant such depositor shall be treated as if he were a member of the corporation or registered holder of the relevant securities.
The CLRFC recommends that the Companies Act and/or Securities and Futures Act respectively should expressly define the depositors’ collective ownership of the Central Depository (Pte) Limited’s (“CDP”) trust assets, so that each depositor is only entitled to a pro rata share in the pool of securities or proceeds arising from such assets held in trust by CDP. The CLRFC further recommends that statutory provisions should be introduced to enhance the protection of securities in the sub-accounts of a depository agent upon the insolvency of the Depository Agent, by providing for pro rata entitlements to the pool of securities held by the depository agent.
The CLRFC recommends that Section 366(2)(j) of the Companies Act be extended to share transfers and share registration services of all corporations, both listed and unlisted.
The CLRFC recommends that the timeline for reporting of substantial shareholders, changes and cessation in Sections 82(2)(b), 83(2) and 84(2) of the Companies Act respectively, as well as the timeline for reporting of shareholdings by directors in Section
165 of the Companies Act be extended to 2 market days. In addition, reporting of changes prescribed by Section 83 of the Companies Act should be required when the shareholding exceeds discrete 1% thresholds above the minimum 5% threshold, e.g. when the shareholding crosses 6%, 7% etc. Such reporting should include details of all transactions
(both purchases and sales) that took place between the last report and the current report.
The CLRFC recommends that scrip lending intermediaries, whose securities are transferred to and out of its securities account in connection with a scrip lending transaction within two market days, be exempted from Division 4 of Part IV of the Companies Act.
The CLRFC recommends that Section 215 of the Companies Act be amended to exclude the following types of shares for the purpose of computing the 90% acceptance threshold:
(a) shares held by the offeror company;
(b) shares held by a nominee of the offeror company;
(c) shares held by a holding company, subsidiary or fellow subsidiary of the offeror company or a nominee of such holding company, subsidiary or fellow subsidiary;
(d) shares held by a body corporate in which the offeror company is substantially interested; and
(e) shares held by any person, who is, or is a nominee of, a party of any agreement with the offeror for the acquisition of, or an interest in, the shares which are the subject of the take-over offer.
The CLRFC recommends the introduction of a more effective and efficient statutory form of merger/ amalgamation process to be modelled after Section 188
– Section 194A of the New Zealand Law Commission Company Law Reform: Transition and Revision Report No. 16.
The CLRFC recommends the repeal of Division 1 of Part XI of the Companies Act.
COMPANY LEGISLATION
AND REGULATORY FRAMEWORK COMMITTEE REPORT
The Company Legislation and Regulatory Framework Committee (“CLRFC”) was appointed by the Ministry of Finance, the Attorney-General’s Chambers and the Monetary Authority of Singapore in December 1999. The terms of reference were “to undertake a comprehensive and coherent review of our company law and regulatory framework and recommend a modern company law and regulatory framework for Singapore which accords with global standards and which will promote a competitive economy”. The CLRFC members are:
Chairman: Dr Philip Pillai, Shook Lin & Bok
Members: Mr. Frank Blue, Caltex Services Pte Ltd [until 2001] Mr. Gerard Ee, Ernst & Young
Mr. Ian MacLean, F&N Group [until September 2002] Mrs Arfat Selvam, ASG Law Corporation
Mr. Sin Boon Ann, Drew & Napier LLC
Associate Professor Hans Tjio, National University of Singapore
Mr. Lucien Wong, Allen & Gledhill
Ms Yap Huan Lan, Singapore Exchange [until 2001] Mr. Charles Lim, Attorney-General’s Chambers
Mr. Ng Heng Fatt, Monetary Authority of Singapore
Ms Juthika Ramanathan, Registry of Companies and Businesses
SCOPE OF REVIEW
1 Approaches of the CLRFC
1.1 In conducting its review, the CLRFC has considered the following:
(a) Global impact of US corporations and market instruments
Current and future economic and business developments in the US have overreaching influences on global business. The presence of US operating multinationals and increasingly the new economy in which Singapore and Asian start ups are structured, with financial mechanisms and instruments common in the US market, have an impact on Singapore as a global business centre. In order to enhance Singapore’s competitiveness as a global business centre, we should ensure that our company law is flexible enough to cope with such mechanisms and instruments.
(b) Singapore’s UK Companies Act model – the heritage
Singapore’s Companies Act (Cap 50) is structurally based on the UK Companies Act 1948, which is the primary model for non-US common law countries including Australia, Malaysia, Hong Kong and New Zealand. The Delaware Corporations Code is the other primary model of US corporations. As a global business centre, Singapore’s company law should continue to be modeled on one of the two globally recognisable common law models.
(c) Continuation of UK Companies Act model
Since investors, regulators and the relevant professions of law, accountancy and corporate services have worked with a time tested structure and the concepts that underpin the UK model for four decades, the CLRFC has elected to retain and modernise this model rather than to adopt a new model based on the Delaware Corporations Code model. The CLRFC is also mindful that the Delaware model is premised on extensive regulatory machinery including the Securities and Exchange Commission and contingency and class legal actions.
(d) Adapting and modernising UK Companies Act model
In the UK, an extensive process of review of the fundamentals of company law in a modern economy has been undertaken by the Company Law Review Steering Group: Modern Company Law for a Competitive Economy. As the UK Steering Group has a wealth of resources and has also tapped the collective experience of all major sectors engaged in company legislation in the UK, we adopted these reports as a baseline for our review and proposed reform of Singapore company law. Our base model documents are the UK Company Law Review Steering Group, Modern Company Law for a Competitive Economy Final Report, June 2001 and the UK White Paper on Modernising Company Law, July 2002.
The CLRFC has also taken into account the extensive company law reforms which have been proposed and/or enacted under the Australian Company Law Economic Reform Programme, the New Zealand Company Law Reform and Restatement, and the Canadian Business Corporations Act.
1.2 We have sought to adopt the modern UK model as our basic framework, excise elements which are European Union driven, insert revisions that reflect Singapore’s particular requirements, introduce refinements from other jurisdictions and render our structure amenable to the adoption of US models in the areas of accounting standards, financial reporting and investor protection in the framework of a disclosure based regulatory environment. We have also sought to simplify our incorporation and continuing compliance obligations to achieve efficiencies and cost reduction. In addition, we have reiterated the continuing public value of current and reliable public records and registers in providing timely, reliable and accessible business information which is critical for an international business centre.
1.3 The CLRFC has taken into account the Reports of two other Committees appointed by the Ministry of Finance, the Attorney-General’s Chambers and the Monetary Authority of Singapore: the Corporate Governance Committee chaired by Mr. Koh Boon Hwee and the Disclosure and Accounting Standards Committee chaired by Mr. Ng Boon Yew, insofar as these reports impact on the statutory provisions of the Companies Act. We have accordingly proposed consequential revisions to the statutory framework in order to accommodate their recommendations.
1.4 We had hoped, on the premise that the extensive review in the UK had been completed, that this Report could be accompanied by draft legislation modelled on the UK draft. The UK government issued the UK White Paper on Modernising Company Law in July 2002. The White Paper comprises selected draft clauses of the new Companies Bill and additional issues for further consultation. In view of the ongoing consultation in UK, we would recommend a two-phase implementation process.
♦ In Phase 1, we envisage implementing most of the recommendations which focus on streamlining and excision, as well as recommendations relating to the Securities and Futures Act (“SFA”). This will leave intact the remainder of the Companies Act, which remains a coherent and consistent piece of legislation.
♦ In Phase 2, we would recommend that an entirely new Companies Act be drafted, modelled on the UK draft companies legislation as adapted by the principles set out in paragraph 1.2 and the recommendations of our Report. This will ensure that the new Singapore Companies Act is a coherent and consistent piece of legislation in both style and content rather than a skeletal framework engrafted with provisions drawn from different models with inherently distinct drafting styles and content. This will serve the additional purpose of enabling us to draw on the extensive case law that will emerge in the UK to continue to shape Singapore company law in the light of international practices and developments.
FINAL REPORT
2.1 The CLRFC issued a public consultation paper on 22 October 2001 to gather comments on the areas that the Committee had identified for review. The Committee received comments from a total of 105 respondents. The CLRFC issued its draft report for a second round of public consultation from 9 May 02 to 31 July 02 and received feedback from 104 respondents. The Committee also conducted a discussion forum on
25 June 02 with 57 representatives from businesses, professional bodies and the academia. The Committee would like to take this opportunity to express its appreciation to all the respondents for their valued comments. A list of the respondents to the first and second public consultation is attached at Appendix I.
2.2 We would also like to place on record the contributions of the following who have unstintingly participated and provided helpful industry insights which have shaped our recommendations:
♦ Assistant Professor Michael Ewing-Chow of the Faculty of Law, National
University of Singapore
♦ Issues relating to capital raising and capital maintenance: Mr. Ng Boon Yew, Mr. Soon Boon Siong of UOB Asia Ltd, Mr. Sum Soon Lim, Mr. Richard Teng, Ms Tracey Woon of Merrill Lynch (Singapore) Ltd and Ms Karen Tiah of Allen
& Gledhill
♦ Issues relating to accounts and audit: Mr. Quek See Tiat of
PriceWaterhouseCoopers
♦ Issues relating to insolvency: Mr. Sarjit Singh of Insolvency & Public Trustee Office, Mr. Nicky Tan, Mr. Lee Eng Beng of Rajah & Tann, Mr. Sarjit Singh Gill, S.C. and Mr. Vinodh Coomaraswamy of Shook Lin & Bok
♦ Mr. Alan Cameron of Australia, Mr. David Graham of Morgan Stanley Dean Witter (Asia) of Hong Kong, Mr. Richard Sykes QC of UK and Mr. Rob Everett of Merrill Lynch (Hong Kong) for their valuable comments on the CLRFC’s draft report.
♦ Editing and research: Ms Faith Gan, Manager, Professional Development and
Knowhow, Shook Lin & Bok
♦ Dean Tan Cheng Han of the Faculty of Law, National University of Singapore who provided “sanctuary” – office and computer facilities at the University – to the Chairman of CLRFC to write this report.
2.3 The Committee has given due consideration to all feedback received in finalising this report. The CLRFC’s final report comprises the following five chapters:
♦ Chapter 1: Business Vehicles and Small Business (21 recommendations)
The CLRFC has reviewed the adequacy and completeness of the vehicles available under Singapore law for the conduct of domestic and international business. In addition, the CLRFC also reviewed the particular needs of small business in the context of the Companies Act, in particular, whether Singapore should have a separate legislative regime for small businesses or whether it would be preferable to continue to have a base model that is applicable to all companies, with overlays for companies that can raise capital from the public. Finally, with a view to streamlining and reducing compliance costs without sacrificing the integrity of information filed for public access, we
have extensively reviewed the incorporation, maintenance and dissolution processes for all companies (with special regard to small businesses).
♦ Chapter 2: Capital Raising, Capital Maintenance and Company Charges (25
recommendations)
The CLRFC has reviewed the Companies Act and the Securities and Futures Act in relation to capital raising, capital maintenance and company charges. For capital raising, the CLRFC recommends the replacement of the ill-defined boundaries of public and private offerings with a comprehensive list of safe harbour prospectus exemptions. The CLRFC also recommends a common statutory regime for both public equity issues and public bond issues and consequently the repeal of statutory trustee and trustee covenants. We recommend that the safe harbour prospectus exemptions be extended to collective investment schemes save for where a countervailing public interest is evident.
The CLRFC recommends the elimination of the par value and authorised capital concepts. We recommend the simplification of capital reduction by dispensing with court approval and by requiring only supporting shareholders’ approval and a directors’ declaration of solvency. We recommend that companies, supported by a directors’ declaration of solvency, be able to provide financial assistance in the following additional circumstances: (i) where less than 10% of the company’s paid-up capital is involved, (ii) where there has been unanimous shareholders’ approval, (iii) by financial institutions and for the purposes of approved employee share schemes, and (iv) for representations, warranties and indemnities by an issuer or vendor in the context of a public offering.
The CLRFC recommends that share buy-backs be permitted to be retained as treasury shares rather than to be cancelled and that treasury shares may be used by a company (i) to meet its obligations under employee share option schemes, (ii) to be issued to third parties to fund acquisitions, or (iii) to be sold to raise cash. We recommend also that companies be permitted to enter contingent contracts to buy-back their shares.
♦ Chapter 3: Corporate Governance (19 recommendations)
The CLRFC has reviewed and made recommendations to refine our current regulation of directors. In particular, we recommend the adoption of the UK’s statutory restatement of the general principles for directors, when it is released, subject to adaptation to suit our local context. Other areas of review include definition of “directors”, directors’ qualifications, directors’ duties, corporate governance, conflict of interests, shareholders’ rights and general meetings and resolutions.
♦ Chapter 4: Corporate Insolvency (3 recommendations)
The CLRFC has reviewed the current Singapore corporate insolvency regime in the light of the US, UK, Australian and New Zealand and Singapore experience. We would recommend that Singapore adopt an omnibus insolvency regime for personal and corporate insolvency, thereby consolidating the discrete treatment now accorded under the Bankruptcy Act and the Companies Act respectively. We would recommend the broadening of the range of insolvency practitioners to enable other qualifying financial and other professionals to be credentialed for insolvency practice and for the development of a professional organisation which will train and accredit insolvency practitioners for Singapore and the region. We would recommend the introduction of voluntary arrangements.
♦ Chapter 5: Boundaries and Concluding Recommendations (9
recommendations)
The CLRFC recommends that the timelines for disclosure of substantial shareholdings and directors’ shareholdings be extended from 2 calendar days to 2 market days. To facilitate more efficient mergers, we recommend that Singapore introduce a corporate merger/ amalgamation process modelled after Section 188 – Section 194A of the New Zealand Law Commission Company Law Reform: Transition and Revision Report No. 16. We recommend that Section 215 of the Companies Act be amended to reflect the types of holdings that are to be excluded from the computation of the 90%- acceptances threshold, as has been enacted in the UK. We recommend that the book-entry trading system governed by the Companies Act be extended to facilitate scripless trading in a wider range of securities.
COMPANY LEGISLATION
AND REGULATORY FRAMEWORK COMMITTEE REPORT
1 INTRODUCTION
1.1 In this Chapter, in line with the principles set out in the Introduction to this Report, we have reviewed the adequacy and comprehensiveness of the vehicles available under Singapore law for the conduct of domestic and international business.
1.2 In addition, we have also considered the particular needs of small business in the context of the Companies Act (“CA”), in particular, whether Singapore should have a separate legislative regime for small businesses or whether it would be preferable to continue to have a base model that is applicable to all companies, with overlays for companies that can raise capital from the public.
1.3 Thirdly, with a view to streamlining and reducing compliance costs without sacrificing the integrity of information filed for public access, we have extensively reviewed the incorporation, maintenance and dissolution processes for all companies (with special regard to small businesses).
1.4 The Consultation Documents and Final Report of the UK Steering Group[1] issued by the UK Company Law Review Steering Group (“UK Steering Committee”), as well as the UK White Paper on Modernising Company Law have been adopted as our point of reference. In addition, we referred to relevant legislation in other jurisdictions such as the US, Australia, New Zealand, Canada and Hong Kong.
2. FULL MENU OF VEHICLES FOR BUSINESS IN SINGAPORE
LIMITED PARTNERSHIPS (“LP”) AND LIMITED LIABILITY PARTNERSHIPS
(“LLP”)
2.1 A review of the full range of vehicles available for the conduct of business in other jurisdictions reveals that Singapore currently lacks the limited partnership (“LP”) and limited liability partnership (“LLP”) vehicles. LLPs are often used as business, professional and investment vehicles whereas, for US tax purposes, LPs are used for private equity and fund investment businesses. As an investment vehicle, it accords passive investors with limited liability, privacy (as the accounts are not publicly filed) and tax transparency (as the partnership is not treated as a distinct tax entity from the partners).
2.2 The UK Limited Partnerships Act 1907[2] (“UK LP Act”) provides for the registration of limited partnerships which “consist of one or more persons called general partners, who shall be liable for all debts and obligations of the firm, and one or more persons to be called limited partners, who shall at the time of entering into such partnership contribute thereto a sum or sums as capital or property valued at a stated amount, and
who shall not be liable for the debts and obligations of the firm beyond the amount so contributed”[3]. Limited partners may not take part in the management of the firm and have no power to bind the firm. Limited partnerships enjoy lower registration and continuing compliance obligations, whilst allowing some partners the benefit of limited liability. They could be suitable for small family businesses and start-ups. The UK has recently initiated a review and update of the UK LP Act in the form of a Joint Consultation Paper of the Law Commission and Scottish Law Commission[4].
2.3 We note that it is important to ensure that LPs will be tax transparent (i.e. that income and capital gains flow through the partnership untaxed) under Singapore tax law and that US tax treatment will not be less favourable compared to the other centres favoured by US tax domiciled private equity investors.
2.4 The UK has enacted the Limited Liability Partnerships Act 2000[5], which allows businesses and professionals to incorporate with limited liability whilst being organised as partnerships. Safeguards are provided for those dealing with this new form of business structure. The LLP is a separate legal entity and all the partners have limited liability. The UK LLPs are available not only to professionals but also to other businesses. LLPs are owned and managed by members upon terms they have themselves agreed upon; the LLP agreement is not open for public inspection. LLPs are taxed as partnerships. In other respects, LLPs are subject to provisions that are similar to those in the UK Companies Act 1985[6] and the UK Insolvency Act 1994[7]. These include disclosure of information about the firm, particularly its finances, and safeguards for creditors in the case of insolvency.
2.5 The US Delaware Revised Uniform Partnership Act (the “Delaware Code”) accords separate legal entity status to the LLP and limited liability to all the partners. It prescribes a list of statutory fiduciary duties and does not require the public filing of any financial statements. The Delaware Code additionally provides for seamless transition from existing partnerships to LLPs.
2.6 In order to widen the options available for businesses and investments in Singapore, we recommend that legislation be enacted to introduce these two vehicles. With regard to LLPs, the CLRFC endorses feedback from respondents that this structure should not only be limited to professionals but also be available to all businesses.
2.7 We also recommend adopting the US Delaware Code (which appears to be the preferred model) as our base model with such adaptations as would render the Singapore LLP Act to be self-contained.
2.8 In order to ensure an orderly and seamless transition for an existing partnership to convert to an LLP, we recommend that statutory provision be enacted along the lines of Title 6, Chapter 15, s. 15 –1001 of the Delaware Code, to allow existing partnerships to convert to LLPs by filing a statement of qualification; following which the existing partnership is converted to an LLP and full succession to all assets and liabilities is thereby effected by operation of law, including continuity of all tax liabilities and benefits. As LLPs are in substance partnerships with limited liability, they should not be required to file any financial statements with the Regulator.
The CLRFC recommends the introduction of the limited partnership (modelled after the UK Limited Partnerships Act 1907) and the limited liability partnership modelled after Title 6, Chapter 15 Subchapter X (Limited Liability Partnerships) of the Delaware Code with a conversion by registration process.
1.1.1 Other vehicles
2.9 Trust Companies
2.9.1 Whilst this is beyond the direct scope of the CLRFC, we would recommend that a review be undertaken to update our Trust Companies Act (Cap. 336) in the light of the potential growth of global trust activities in Singapore. Our Trust Companies Act was originally enacted in 1926 and has only been revised twice since then
(once in 1970 and again in 1985). With the vast developments in international trust activities and the recent reforms undertaken by other countries, Singapore needs to review and update our legislation to remain competitive and ensure that our rules are current.
1.1.1.1.1 Recommendation 1.2
The CLRFC recommends that the Trust Companies Act (Cap. 336) be reviewed and updated to ensure our rules are in line with international developments and trends.
2.10 Protected Cell Companies
2.10.1 In order to facilitate the business of insurance and funds companies that use the cell structure to segregate asset and liability classes, the feasibility and implications of introducing Protected Cell Companies (“PCC”) also warrant further study. Each cell in a PCC is not a separate legal entity but the accounts of different cells are separate as a matter of law, so that the liabilities of one cell would not flow through to other cells. The PCC structure is used mainly for captive insurance and as special purpose vehicles for insurance securitisation. PCCs (also known as “Segregated Accounts Partnerships”) are found in jurisdictions like the Bermuda and the Cayman Islands. The PCC structure is also available in certain US states e.g. Rhodes Island, Vermont, Illinois and South Carolina. It is also being considered in jurisdictions like New York and Hong Kong. The CLRFC subscribes to the view that it would enhance Singapore’s competitiveness as an international business centre to consider the
introduction of PCCs as another available business vehicle for insurance, securitisation and funds.
RECOMMENDATION 1.3
The CLRFC recommends that further consideration be given to the introduction of Protected Cell Companies for insurance, securitisation and funds.
3. SMALL BUSINESS
3.1 We examined the case for a separate legislative regime for small companies, modelled on the US limited liability company (“LLC”), against the integrated regime of a common structure for all companies. We are in favour of retaining but refining our existing basic model of the exempt private company and adapting it to better meet the needs of small business.
3.2 In terms of presentation of the legislation proper, our view is that it is desirable that our CA be user friendly and easily understood by the business community. We therefore recommend that, as far as possible, the regulation of private companies be simplified and presented in a stand-alone manner. Provisions relating exclusively to public companies should be separately presented whilst those relating to listed companies should be set out in the Securities and Futures Act (Act 42 of 2001) (“SFA”) and the Singapore Exchange Securities Trading Ltd Listing Rules (“SGX Listing Rules”).
1.1.2 Definition
3.3 The CLRFC considered the definition of small business proposed in the UK as well as the various views of respondents to the proposal to retain and modify the concept of the exempt private company.
3.4 In the UK, small business has been defined in s. 247 and s. 249 of the UK Companies Act, by reference to turnover, balance sheet assets and number of employees for the purpose of statutorily prescribing an abbreviated form and content regime and also for the purpose of exemption from distribution and filing of audited accounts.
3.5 S. 4(1), CA defines an exempt private company as a private company that has no shares held directly or indirectly by any corporation and which has not more than 20 members, or any private company that is wholly owned by the Government, which the Minister for Finance, in the national interest, declares by notification in the Gazette to be an exempt private company. Currently, more than 75% of all Singapore-incorporated companies are exempt private companies.
3.6 Exempt private companies are exempted from some regulatory requirements, such as the filing of audited accounts with RCB. An exempt private company, provided it files a declaration of solvency and confirms that audited accounts have been distributed to its shareholders, is not required to file audited accounts with RCB. When it is unable to confirm either of these, it is obliged to file audited accounts (s. 197 and 8th Schedule, CA).
3.7 The CLRFC considered views from respondents that the concept of the exempt private company may have outlived its usefulness. Some respondents argued that exempt private companies, by being exempted from public disclosure and transparency, do not operate on a level playing field with other non-exempt companies. While exempt private companies are exempted from some regulatory requirements, they are subject to certain restrictions e.g. an exempt private company can only have up to 20 shareholders; the company would also lose its exempt private status if a corporate shareholder comes on board.
3.8 Exempt private companies have been widely used as a vehicle for small business. RCB data indicates that more than 80% of exempted private companies have shareholders who are also directors. It is reasonable that such owner-managed/directed companies are exempted from certain regulatory requirements. As for private companies that are wholly-owned by the Government, the Minister will only grant them exempt private company status when it is in the national interest to do so.
3.9 Some respondents were in favour of defining small business on the basis of revenue, type of activities and total assets. References were made to the approaches taken in the UK and Australia, which define small business based on turnover, balance sheet assets and number of employees. The CLRFC prefers to retain the current criteria for defining exempt private companies, as these are easy to understand and, unlike the quantitative definitions in UK and Australia, would not require regular revisions. The additional benefit would be that the Singapore business community is familiar with the current definition.
3.10 In light of the above and our recommendations to streamline compliance and filings for all companies, we see no pressing need in Singapore to either prescribe a separate regime for or provide a statutory definition for small business.
RECOMMENDATION 1.4
As the current exempt private company concept is adequate for the needs of small business, the CLRFC takes the view that it is unnecessary either to prescribe a separate regime for or provide a statutory definition for “small business” in Singapore.
4. SIMPLIFYING AND STREAMLINING THE INCORPORATION PROCESS
4.1 Our current CA draws a distinction between private and public companies, with a higher threshold of statutory requirements for public companies and for public capital raising. We propose the following: (i) to maintain the distinction by providing a simplified incorporation process for private companies with an overlay of statutory prescription for public companies and public capital raising; (ii) to streamline the incorporation process for all companies, simplify the decision making process in private companies and streamline their internal administration; and (iii) to clarify the provisions governing private capital raising and exempted capital raising for both private and public companies. Item (iii) will be discussed in Chapter 2.
4.2 S. 18, CA defines a private company as a company whose memorandum or articles:
(a) restricts the transfer of shares;
(b) limits the number of shareholders to not more than 50;
(c) prohibits any invitation to the public to subscribe for any shares; and
(d) prohibits any invitation to the public to deposit any money with the company. We recommend the deletion of items (c) and (d) in the light of our recommendations in Chapter 2 to regulate public offerings of securities through a regime of public and exempted offerings. The determining criteria for fund raising should be whether the fund raising is being undertaken through public or private means. This will enable private companies to raise capital through private and exempted offerings without uncertainty or the need to convert to public companies unless they exceed the remaining criteria in s. 18(1), CA. Under the proposed arrangement, only public companies would be allowed to raise capital through public means, i.e. where the issue of a prospectus is required.
RECOMMENDATION 1.5
The CLRFC recommends the deletion of Section 18(1)(c) and Section 18(1)(d) of the Companies Act. This would allow private companies to raise capital through private and exempted offerings without uncertainty or the need to convert to public companies unless they exceed the remaining criteria in Section 18(1) of the Companies Act.
Streamlining of incorporation process
4.3 The following streamlining measures have been recommended in order to reduce the costs of incorporation and facilitate same-day incorporations. These recommendations have been incorporated in the recent round of amendments to the Companies Act in July 2002.
4.4 Similar Name Review
4.4.1 In order to facilitate same-day incorporation in Singapore, we recommend dispensing with the prior screening of similar names and the adoption of the UK regime, which empowers the Registrar to direct a change of name on its own initiative or upon receipt of valid complaints that are filed within 12 months of incorporation, without affecting the rights of affected persons having recourse to the courts at any time to procure the change of similar names. The process of rejecting identical, undesirable names and restricted names should remain unchanged. Owners of registered names, trade or service marks and trade names will continue to have recourse to the courts to protect their intellectual property rights.
4.4.2 We recommend the retention of the optional name reservation process where available names may be reserved upon application for a limited time period.
4.4.3 Arising from our recommendations, the distinctive registration number of Singapore-incorporated companies would become a useful identifier. S. 144, CA should be amended to require all companies to include their RCB registration numbers on all business letters, statements of account, invoices, official notes and publications, as well as in the name display at their registered office.
4.4.4 We also recommend the introduction of an electronic search facility that would make available all incorporated and reserved names, with a sub-index of currently reserved and new company names over a rolling 12- month period, for the following reasons: (i) to help applicants avoid choosing names that are too similar to existing names; and (ii) to enable existing companies to readily review recently incorporated and reserved names and lodge prompt administrative or court challenges against these names. Should this not be immediately feasible, we would
recommend an interim facility of currently reserved and new company names over a rolling 12-month period. The current declaration process, which links the name registration to trade and service mark registration, should be retained.
The CLRFC recommends the adoption of the UK regime, which empowers the Registrar of Companies and Businesses to direct a change of name on its own initiative or upon receipt of valid complaints that are filed within 12 months of incorporation.
Consolidation of Information to be filed
4.5 We have reviewed the filing documents currently prescribed for incorporation and recommend consolidation of the forms in order to eliminate duplication.
4.6 Creation of a consolidated form for incorporation
4.6.1 With the launch of RCB's electronic filing system, the documents required for incorporation will be streamlined. We recommend the consolidation of the current set of forms required for incorporation (i.e. Forms
6, 7, 24, 44, 45 and 49) into one transactional form, which includes the following information:
• Details of all persons named as proposed directors and subscribers i.e. names, addresses, identifications and nationalities;
• Share capital structure;
• Registered office address and opening hours;
• Type of entity formed; and
• A declaration that the identities of the officers and shareholders of the company are true and correct, and also all the relevant provisions of the CA and Regulations have been complied with. The requirement under s. 19(2), CA for a statutory declaration of compliance has been removed.
The CLRFC recommends the consolidation of the current set of forms required for incorporation into one form that is electronically submitted to the Registry of Companies and Businesses.
4.7 Consent to act as director and statement of non-disqualification
4.7.1 S. 146(1), CA requires a person named as a director or proposed director in the memorandum or articles of a company or in the register of directors or in a prospectus or statement in lieu of prospectus to lodge a consent to act in writing. The consent to act must be signed before a defined professional. The consent to act ensures that directors are appointed with their written consent, as the CA imposes regulatory and fiduciary duties on directors, who represent the only individuals ultimately responsible for
compliance. It is in the public interest that there be evidence of a director’s consent to act, in order to avoid subsequent disputes relating to the appointment or resignation of particular directors.
4.7.2 With the implementation of the electronic filing system by the RCB in January 2002, the director would indicate his consent to act electronically by using his CPF PAL-PIN or RCB PIN, which serves as a secure and unique verification of his identity. For directors who use professional agents, it continues to remain the duty of these agents to verify and confirm the identities and qualifications of these persons. The professional agent must additionally confirm that the person has given his consent to be a director.
The CLRFC recommends dispensing with the need for a director to give his consent in writing and for the form to be signed before a defined professional. The director would indicate his consent electronically by using his CPF PAL-PIN or RCB PIN, which would serve as a secure and unique verification of his identity. For directors who elect to go through professional agents, it shall be the duty of these agents to verify and confirm the identities, qualifications and consent of these persons.
4.8 Consent to act as company secretary
4.8.1 S. 171(1B), CA requires the company secretary to file his consent to act as company secretary with the RCB. With the implementation of electronic filing, we recommend that a company secretary give his consent electronically using his CPF PAL-PIN or RCB PIN as a secure and unique verification of his identity. For companies that are incorporated by professional agents, it remains the duty of the agents to verify and confirm the identities and qualifications of the company secretaries and their consent to act.
The CLRFC recommends allowing company secretaries to signify their consent to the Registry of Companies and Businesses electronically. The company secretary would use his CPF PAL-PIN or RCB PIN as a secure and unique verification of his identity. For companies that are incorporated by professional agents, it shall be the duty of the agents to verify and confirm the identities, qualifications and consents of the company secretaries.
5. CORPORATE PERSONALITY, MEMORANDUM AND ARTICLES OF ASSOCIATION/MODEL CONSTITUTION
1.1.3 Corporate personality
5.1 The application of the ultra vires doctrine has been ameliorated in Singapore by the enactment of s. 25, CA. It continues to have application to executory transactions
which may be set aside at the instance of aggrieved shareholders. It also has an impact on the authority of directors to bind the company as their principal.
5.2 Currently, a company sets out extensive object clauses in order to ensure that it can undertake all possible transactions. The CLRFC is of the view that the setting out of such object clauses serves no continuing value or public interest. We recommend the total abolition of the doctrine of ultra vires. A company should be statutorily conferred with all the powers of a natural person. Whilst third parties are thus protected, we recommend the retention of the ultra vires doctrine where the constitution of the company places limits on a company’s capacity and powers, by preserving the rights of internal redress by members against the directors.
5.3 We recommend adopting, with appropriate modifications, the original New Zealand Law Commission Company Law Reform and Restatement Report No 9[8], 1989, s. 7 and s. 8, which was not finally enacted. We find value in the approach as it clearly confers on companies all the legal capacity of natural persons.
“ 7. Separate personality
A company is a person in its own right separate from its shareholders, and continues in existence until it is removed from the New Zealand register in accordance with this Act.
8. Capacity and powers
(1) Subject to its constitution, a company
(a) has the capacity, rights, powers and privileges of a natural person, and
(b) without limiting paragraph (a), may do anything which it is permitted or required to do by its constitution or by any enactment or rule of law.
(2) No act of a company, including any transfer of property to or by a company, is invalid by reason only that the act or transfer is contrary to its constitution or this Act, but this subsection does not limit sections 126 [Injunctions to restrain action],
127 [Derivative actions], 131 [Personal action by shareholder against directors],
132 [Personal action by shareholder against company], and 135 [Prejudiced shareholders].”
5.4 We note that consequential amendments to the Legal Profession Act (Cap. 161), Accountants Act (Cap. 2) and other legislation regulating the professions which can be incorporated as companies would be necessary, to ensure that these incorporated professions confine their activities to those permitted under their respective legislation.
Constitutional Documents – Memorandum & Articles of Association
5.5 S. 19, CA requires every company to have its memorandum and its articles of association, if it has any, to be lodged with the RCB.
5.6 S. 22, CA prescribes the following minimum information for the memorandum:
° Company name
° Object Clauses
° Names, addresses and occupations of the subscribers
° Amount of share capital with which the company proposes to be registered and division of shares in a fixed amount
° Liability of members
° Names of first directors [alternatively to be stated in articles, s. 145, CA]
° That the subscribers are desirous of being formed into a company and agree to take up shares
5.7 S. 35(1), CA provides that companies limited by shares may lodge articles, but need not do so. If a company does not lodge any articles, s. 36, CA provides that the articles contained in the Fourth Schedule, Table A, CA would be adopted by default. Many Singapore-incorporated companies have lodged articles that are identical to the articles in Table A.
5.8 We recommend that the memorandum and articles of association be eliminated and replaced by a single model constitution which will form the default model constitution. Those who incorporate may register customised or modified constitutions upon incorporation. The company may make post-incorporation modifications to its constitution.
5.9 The model constitution would exclude statutory content prescription and should be user friendly for small business. The drafts generated in the UK Steering Committee Final Report 2001, Chapter 17 propose a default constitution that is organised along the lines of setting out the powers of directors to manage the company and their own proceedings; share capital, dividends and bonus issues, notices and indemnity and the procedures for the general meeting. In the UK White Paper on Modernising Company Law, the UK government accepted the recommendation for the law to provide a model default constitution for companies of each type (except for an unlimited company with no share capital). Companies would be free to adopt it in whole or in part or to adopt a constitution of their own.[9]
5.10 We recommend the adoption of the UK Steering Committee’s recommendation of a model constitution for private companies, which provides a set of default rules which are workable and suitable for most companies.
RECOMMENDATION 1.10
The CLRFC recommends the abolition of the ultra vires doctrine. A company should be statutorily conferred with all the powers of a natural person. However,
the ultra vires doctrine would be retained for the limited purpose of preserving the rights of internal redress by members against the directors, where the company’s constitution places limits on a company’s capacity and powers. It is proposed that Singapore adopt, with appropriate modifications, Sections 7 and 8 of the New Zealand Law Commission’s Company Law Reform and Restatement Draft Companies Act. We also recommend the replacement of the Memorandum and Articles of Association with a default constitution, modelled after the proposed constitution that would be adopted in the UK.
6 SIMPLIFICATION OF MAINTENANCE FOR PRIVATE COMPANIES
6.1 We propose to maintain a common regime for all companies. However, as private companies would remain the principal corporate vehicle for small business and start-ups, we propose to simplify the requirements for such companies.
6.2 One shareholder/one director companies
6.2.1 There is no continuing policy reason to require private companies to have a minimum of two shareholders and two directors. Allowing private companies to be incorporated with a minimum of one shareholder and one director would also reduce incorporation and maintenance costs. The UK, Australia and New Zealand require private companies to have at least one director.[10] For public companies, the UK and Australia currently prescribe a minimum of two and three directors respectively, whilst New Zealand requires at least one director. The UK is amending its law to make it possible for a single person to form both public and private companies[11].
6.2.2 We recommend that all private companies incorporated in Singapore be required to have at least one shareholder and one director who is ordinarily resident in Singapore. The single shareholder and director can be one and the same. In line with the UK approach, the sole director of a one-director company should not concurrently be its company secretary. We also recommend the retention of the existing requirement under s. 145, CA for public companies, i.e. a public company must have at least 2 shareholders and 2 directors, at least one of whom shall be ordinarily resident in Singapore.
6.2.3 As a safeguard, the CLRFC further recommends statutory conferment of powers upon the Court and the RCB to compel shareholders to appoint a director at any time where a company has ceased to have at least one ordinarily resident director.
6.2.4 We earlier recommended adapting s. 42, CA to provide that the remaining shareholders acquire personal liability, without limit, for the debts and obligations incurred by the company for the duration of the time when there is no director. Following
the public consultation, the CLRFC agrees that this may be unduly onerous particularly for international shareholders.
The CLRFC recommends that all private companies incorporated in Singapore be required to have at least one shareholder and one director who is ordinarily resident in Singapore. The shareholder and director can be the same person.
6.3 Notice period for shareholder meetings
6.3.1 Currently, under s. 177(2), CA, at least 14 days' notice must be given for meetings other than a meeting to pass a special resolution. The exceptions to this general rule are:
° S. 184, CA which requires 21 days' notice for special resolutions[12];
and
° S. 185, CA which requires 28 days' notice
for ordinary resolutions requiring special notifications.[13]
The company’s articles of association cannot override these statutorily prescribed notice periods.
6.3.2 S. 177(3), CA and s. 184(2), CA allow for the passing of ordinary and special resolutions at general meetings called at a shorter than prescribed notice period. This is useful for urgent actions. However, this can only be invoked by companies where 95% of those entitled to attend and vote agree to the shorter notice. In the case of annual general meetings, all members entitled to attend and vote must sign the consent for shorter notice. For special resolutions, s. 184(2), CA requires that the consent to shorter notice must be signed by a majority in number of shareholders having the right to attend and vote thereat, being a majority which together holds not less than 95% in nominal value of the shares of a company.
6.3.3 We recommend that all private companies be required to give at least 14 days’ notice for all meetings, including those called to propose special resolutions. The CLRFC is of the view that this reduction from 21 to 14 days for notice to propose special resolutions is reasonable in view of modern methods of communication which will not adversely impact the shareholder decision making process. The UK government
recently announced its support for the UK Steering Committee’s proposal to reduce the notice period for special resolutions from the current 21 days to 14 days[14].
6.3.4 However, we do not recommend the attenuation of the 28 days' requirement under s. 185, CA for resolutions requiring special notifications, which usually relate to the removal of auditors. We take the view that it continues to be important to allow the auditors sufficient time in such events to prepare their defence. S. 185, CA should therefore continue to apply to both private and public companies.
The CLRFC recommends that all private companies be required to give at least 14 days’ notice for all meetings, including those called to propose special resolutions. The CLRFC recommends the retention of the existing 28 days’ notice requirement for meetings called in order to propose resolutions requiring special notifications for all companies.
6.4 Written resolutions
6.4.1 There is currently no codification of the law of written resolutions. It has been held that the informal assent of all members of a company would have the effect of binding the company even if a special or other resolution or alteration of the articles is thereby effected (see Cane v Jones[15]). It is uncertain whether Cane v Jones has full application in Singapore in the light of s. 184, CA, which requires that 21 days’ written notice, specifying the intention to propose the special resolution, be given.
6.4.2 The assent of all members of a company, if expressed in a resolution in writing signed by or on behalf of all the members of the company who, at the date of the resolution would be entitled to vote at such a meeting, is often undertaken as paper meetings in small companies.
6.4.3 The UK Steering Committee Final Report[16] recommends that legislation should expressly state that any decision which the company has power to make, may be made without observing any of the formalities of the Act or the Company’s constitution where the members unanimously agree. We note that the UK Government has expressed reservations that the codification of the “unanimous consent rule” in legislation may achieve the unintended effect of rigidity and restriction. We would await final developments in the UK.
6.4.4 With regard to written resolutions where unanimity is not possible, legislation should expressly allow private companies' members to make decisions without the burden of the requirement to hold a general meeting. The UK Steering Committee Final Report recommends that written resolutions may be effected in private companies without the need for unanimity. Instead, written resolutions may be passed with 75%
and 50% majorities of those eligible to vote for special and ordinary resolutions respectively.17 We endorse this approach. In addition, in order to obtain prompt shareholder resolutions, legislation should also allow written resolutions to be passed through various forms of electronic communication. Similar to the approach in UK, the CLRFC recommends that electronic communication is to be used only where the resolution can be received in legible form, or a form which can be converted by the recipient into legible form.
6.4.5 In order to circumvent the use of written resolutions as a device to deprive dissenting shareholders of the opportunity to be heard in a shareholders’ meeting and to put questions to the board and management, we accordingly recommend a safeguard, which is to entitle a minimum threshold of shareholders (representing at least
5% of the outstanding ordinary shares), who can by written notice, demand that a general meeting be convened.
6.4.6 In public and listed companies, the rights of public shareholders to attend, speak and debate on resolutions is an expression of shareholder democracy and accountability which is not to be attenuated.
The CLRFC recommends that written resolutions in private companies may be passed with 75% and 50% majorities of those eligible to vote for special and ordinary resolutions respectively. In addition, legislation should be enacted to allow written resolutions to be passed through various forms of electronic communication. As a safeguard, the CLRFC further recommends that a minimum threshold of shareholders (representing at least 5% of the outstanding ordinary shares) can, by written notice, demand that a general meeting be convened.
6.5 Shareholder authorisation for allotment of shares
6.5.1 S. 161, CA requires shareholders’ authorisation for directors to allot shares, unless the directors have been specifically authorised to do so by the shareholders or by the company's articles.
6.5.2 When the Companies (Amendment) Bill was read in 1974 with respect to this provision, the rationale for s. 161, CA was primarily to protect the interests of shareholders against dilution and to allow them to be apprised of the reasons for capital enlargement.18 The approval of the shareholders need not be sought for each issue of shares as the CA permits renewable blanket annual approvals. We considered the positions in Australia and New Zealand, all of which do not statutorily prescribe the need for shareholder approval for the issue of new shares, thus leaving it to be determined by each company’s articles of association. We note that for listed companies, the SGX Listing Rules would continue to require shareholder approval or mandates for share issues which will provide continuing protection against dilution for minority shareholders.
6.5.3 We do not however recommend any change to the Singapore position as we are not aware of any change in conditions which detract from the policy reasons underpinning the introduction of the requirement for shareholder approval for the issue of new shares in 1974.
The CLRFC recommends no change to the rule under Section 161 of the Companies Act that requires shareholders’ authorisation for directors to allot shares.
6.6 PROFESSIONALLY QUALIFIED COMPANY SECRETARIES
6.6.1 S. 171, CA requires all companies to appoint a company secretary. In addition, s.
171(1A), CA prescribes the minimum professional qualifications of persons eligible to be appointed company secretaries. S. 171(5), CA prohibits a director from concurrently performing the services of a company secretary where the CA or the articles require an act to be done by a director and the secretary e.g. affixing the seal. In the UK, a director can concurrently be the company secretary unless he is the sole director of a one- director company[19].
6.6.2 The CLRFC affirms and restates the continuing public interest in the accuracy of public registers and filings. It is an integral part of our business environment that there exist publicly available and reliable information relating to companies, their capital structure, directors and shareholders. This is true for all companies. It is of continued importance therefore that the corporate records that are statutorily required be competently maintained.
6.6.3 The existing requirement in Singapore is more onerous than that in the other leading jurisdictions. The UK no longer imposes a statutory requirement for company secretaries of private companies to be professionally qualified. Public companies in the UK are still required to appoint professionally qualified company secretaries. The UK Steering Committee has proposed the total elimination of the need for private companies to appoint a company secretary provided the functions are performed[20]. In the UK White Paper on Modernising Company Law, the UK government agreed with the UK Steering Committee’s recommendation to remove the requirement for private companies to appoint company secretaries[21]. The UK government reiterated that “the requirement represents a regulatory burden on small private companies” and “while a company secretary can, for many companies, perform a highly valuable function, the specific role is not essential to good corporate governance”. In Hong Kong, both public
and private companies are not required to appoint professionally qualified company secretaries. In Australia, proprietary companies (similar to private companies) are not required to appoint company secretaries.
6.6.4 The CLRFC agrees with the public respondents that for a start, it would be good for each company to continue to have an appointed person whose responsibility is to ensure that the statutory registers and records are properly maintained. In this regard, we take the view that the requirement for all companies to appoint company secretaries be retained. However, with regard to private companies, in line with the UK, Australia and Hong Kong, we take the view that the law should not prescribe the qualifications of the company secretary.
6.6.5 We note further that with the proposed simplification of incorporation and compliance for private companies, there is a strong case to allow private companies to decide whether they want to undertake these responsibilities internally or appoint a professionally qualified company secretary.
6.6.6 The CLRFC has carefully considered expressed concerns that the preparation and filing of corporate records by non-professionally qualified persons could lead to improper and incomplete maintenance of statutory registers and filings, which would impair the accuracy and integrity of public information. Other views were expressed that the company secretary’s role is not limited to the maintenance of statutory registers and filings and that as an independent third party, the company secretary is more likely to be impartial in protecting the interests of the company as a whole. Having deliberated over the issues at length, and taking into account all the above, the CLRFC recommends, in line with the UK, Australia and Hong Kong, that private companies should be exempted from the requirement to appoint company secretaries from amongst legally prescribed categories.
6.6.7 The effect of this recommendation would be to reduce the maintenance costs for small business, as employees or directors of private companies would be able to perform company secretarial functions. Some private companies may make business decisions (as opposed to being obliged by law) to retain professionally qualified company secretaries. According to a survey from the Association of Small and Medium Enterprises (“ASME”), more than half of the companies surveyed indicated that they would continue to engage professionally qualified company secretaries, even if the law does not compel them to do so. In order to ensure that residual power exists to compel the maintenance of proper statutory records, we further recommend that the Registrar be empowered to order private companies to appoint professionally qualified company secretaries, where the Registrar is satisfied that such private company has failed to adequately maintain the corporate records in the manner prescribed by the CA.
The CLRFC affirms and restates the importance of corporate secretarial functions, and recommends that all companies continue to be required by law to appoint company secretaries. However, the CLRFC recommends that private companies be exempted from the statutory prescription to appoint professionally qualified company secretaries.
6.7 Accounting records
6.7.1 Companies are statutorily obliged to maintain proper accounting and other records which will sufficiently explain their transactions and financial position. The accounting records should enable true and fair profit and loss accounts and balance sheets to be prepared and audited.22 We recommend the retention of the following core elements relating to the accounts of companies:
a) to retain filing of accounting and other records as are necessary to explain the transactions and financial position of the company, but to review and simplify the form and content of such accounts and returns. (s. 199(1), CA)
b) to prepare individual and group accounts (s. 201A, CA)
c) to require all companies, with the exception of solvent exempt private companies, to file their accounts with RCB (s. 201, CA)
d) to require all companies to distribute accounts to their members (s. 203(1), CA)
e) to retain the annual reporting cycle ( s. 175, CA and s. 197, CA)
6.7.2 As the law will still require companies, including exempt private companies, to keep proper accounting records and prepare true and fair financial statements, the CLRFC believes that many companies would continue to engage professional book-keepers to ensure they satisfy the statutory requirements. According to a survey by ASME, 75% of the companies surveyed indicated that they would hire accounting firms as book-keepers, provided the fees are reasonable.
The CLRFC recommends the retention of the requirement for companies to continue to maintain proper accounting and other records which will sufficiently explain their transactions and financial position. In addition, the law will continue to require all companies to prepare true and fair financial statements.
6.8 Accounting Standards and Statutory Content Prescriptions
6.8.1 The statutory content prescriptions, s. 201 and 9th Schedule, CA were introduced in an era when accounting standards were evolving. As international and Singapore accounting standards today are well developed and comprehensive, it is timely to remove the statutory content prescriptions and the 9th Schedule from the CA. Instead, companies should be required by law to comply with the prescribed accounting standards. Accounting standards can better reflect changing market conditions and provide international comparability. Accordingly, we recommend that the statutory prescriptions contained in Part VI, CA and the 9th Schedule be recast and the 9th Schedule eliminated in favour of the prescribed accounting standards that will be adopted based on the recommendation of the Disclosure and Accounting Standards Committee. The CLRFC notes that the Companies (Amendment) Act 2002 has repealed the 9th Schedule, CA which is to be replaced by accounting standards prescribed by the Council on Corporate Disclosure and Governance (“CCDG”).
6.8.2 A related question is whether the Directors’ Report prescribed by s. 201(5), CA serves any continuing purpose and whether it should be replaced by an Operating and Financial Review (“OFR”) as proposed by the UK Steering Committee Final Report
[chapters 3 and 8]. In the UK, it has been proposed that an OFR be developed for public listed companies to provide a discussion and analysis of the performance of the business and the main trends and factors underlying the results and financial position and likely to affect performance in the future, so as to enable users to assess the strategies adopted by the business and the potential for successfully achieving them[23]. The OFR would “include information on direction, performance and dynamics (capital projects, risks etc) and on all other aspects which the directors judge necessary to an understanding of the business, such as key business relationships and environmental and social impacts.” 24
6.8.3 We recommend that for all unlisted companies, the statutory requirement for the directors’ report be repealed and replaced with a requirement to submit a modified form of the OFR, the contents of which would be prescribed by the CCDG[25]. We recommend that this modified form of the OFR include directors’ statements relating to the true and fair view of the accounts and the company’s ability to meet its debts as and when they fall due (both as currently expressed in s. 201(15), CA). We also recommend that listed companies should be required to produce an OFR, the contents of which would be prescribed by the CCDG and the SGX.
The CLRFC recommends that listed companies should be required to produce an Operating and Financial Review, the contents of which would be prescribed by the Council on Corporate Disclosure and Governance and the Singapore Exchange. The CLRFC further recommends that for all unlisted companies, the statutory requirement for the directors’ report [as prescribed by Sections 201(5) and 201(6) of the Companies Act] should be repealed and replaced with a requirement to submit a modified form of the Operating and Financial Review. This modified form of the Operating and Financial Review would include directors’ statements relating to the true and fair view of the accounts and the company’s ability to meet its debts as and when they fall due.
6.9 Removal of statutory requirement of audit
6.9.1 S. 201(4), CA requires all accounts placed before the general meeting to be audited and s. 207, CA prescribes the content of the auditor’s report. S. 207(9), CA imposes a statutory duty on the auditor to report to the Registrar, if in the performance of his duties as auditor, he is satisfied that there has been a breach or non-observance
of the CA which has not been and will not be adequately dealt with by his report or by his bringing it to the attention of the directors. Where he has reason to believe that a serious offence involving fraud or other dishonesty is being or has been committed by the officers or employees of a public company or a subsidiary of a public company, he is obliged under s. 207(9A), CA to immediately report the matter to the Minister.
6.9.2 The proposal to remove the statutory requirement of audit has understandably raised much interest from the accounting profession who has quite correctly stated the importance of independent external audit. Some have argued that businesses which do not wish to bear the costs of an external audit should instead be structured as limited liability partnerships. On the other hand, respondents from the business sector support the removal of the statutory requirement for audit, and the leaving of such decisions to market forces. We note the comments from several respondents, including accountants, who support the removal of the statutory requirement of audit for dormant companies.
6.9.3 Having considered the responses, we reiterate that our approach to this issue has not been taken with a view to discounting the value of audit. Rather, we have re- examined the case for a statutory requirement for exempt private companies to have external audit, in light of the fact that leading jurisdictions such as the US, UK and Australia do not impose such a statutory cost on small business, but leave such decisions to be determined by market demands. In addition, we considered the dormant company and noted that neither the UK nor Hong Kong requires dormant companies to have their accounts audited.
6.9.4 S. 250(3) of the UK Companies Act states that a company is dormant during any period in which it has no significant accounting transactions[26] during a financial year. This applies to both public and private companies. The UK does not statutorily require dormant companies to have their accounts audited. We propose that Singapore should adopt the UK definition of a dormant company. The CLRFC is of the view that there is a strong case to remove the statutory requirement of audit for dormant companies in Singapore. This should be done as soon as possible. Such a requirement serves no public purpose and imposes unnecessary costs on dormant companies.
6.9.5 The CLRFC also considered the retention of the statutory requirement of audit for exempt private companies. More than 80% of exempt private companies have shareholders who are also directors, i.e. they are owner-managed. In such companies, the case for statutory audit as a means to protect shareholders’ interest is less strong, if the law provides that a certain percentage of shareholders can demand that an audit be conducted. Other parties who deal with such companies, such as banks and creditors, can continue to require audited accounts. According to the ASME survey, 78% of companies surveyed indicated that they would continue to have their accounts audited,
even if the law does not compel them to do so. The companies expected that banks and finance companies would continue to require audited accounts before extending credit facilities. Many respondents to the ASME survey also expected their shareholders to continue to require audited accounts. We note that exempt private companies include companies that are gazetted by the Minister in the national interest. With respect to these companies, we expect that the government would continue to require such companies to prepare audited accounts.
6.9.6 The CLRFC considered the view that public disclosure would be affected if the statutory requirement of audit for exempt private companies is removed. Currently, an exempt private company does not need to submit its accounts to the RCB if it files a declaration of solvency. The company is only required to send its audited accounts to shareholders. In other words, the public currently does not have access to the accounts of exempt private companies. Hence, we do not think that our proposal will lower the quality of public disclosure and the information that the public can obtain from the RCB.
6.9.7 During the public consultation, several respondents expressed concerns that the CLRFC’s preliminary proposal to remove statutory audit for all exempt private companies would also exempt large companies which ought not to be so exempted. It was suggested that Singapore should adopt the approach in UK and Australia, where only small companies (defined according to criteria such as turnover, assets and number of employees) would qualify for audit exemption. The thresholds for these criteria can be raised over time.
6.9.8 The international trend, however, is in the direction of the removal of statutory audit for all private companies. However, the CLRFC agrees with the respondents that this should not be implemented overnight. A better approach is to introduce the changes in phases. The CLRFC is of the view that as the exempt private company structure has met the needs of small business in Singapore for many years, it would provide a good starting point for implementing the proposal to remove statutory audit.
6.9.9 To address the concern that the universe of exempt private companies includes large companies, the CLRFC recommends removing statutory audit for exempt private companies with annual turnover below S$5 million. This will take effect after the Companies Act is amended. The law should empower the Minister to raise the threshold over time. This approach will exclude the bigger exempt private companies, while allowing the smaller companies, especially start-ups, to benefit from the recommendation. The S$5 million turnover threshold is comparable to the thresholds in the UK and Australia. The CLRFC notes that the Statements of Accounting Standards
(“SAS”) on Cash Flow Statements, i.e. SAS 7, uses S$5 million turnover as one of the criteria for defining small companies that can be exempted from SAS 7.
6.9.10 Whilst the requirement of external audit would be elective for exempt private companies with annual turnover below S$5 million, the statutory obligation to maintain accounting records remains. We recommend that the directors of such companies be required to issue an annual statement, stating that the company has: (i) kept accounting
records that correctly record and explain the transactions and the company’s financial results and position; (ii) kept accounting records in such a manner as would enable true and fair financial statements of the company to be prepared, and (iii) kept its accounting records in such a manner as would enable the accounts of the company to be conveniently and properly audited. Additionally, we recommend that a minimum threshold of shareholders’ consent (representing at least 5% of the outstanding ordinary shares) would be sufficient to compel the company to prepare audited accounts. The law should also empower the Registrar to compel a company to submit audited accounts.
The CLRFC recommends that exempt private companies with annual turnover below S$5 million and dormant companies be exempted from preparing or filing