Companies (Amendment) Bill

Order for Second Reading read.

12.04 pm

The Senior Minister of State for Finance (Ms Indranee Rajah): Mdm Speaker, I beg to move, "That the Bill be now read a Second time."

The Companies Act was last amended in 2014, mainly to implement the recommendations of the Steering Committee for the Review of the Companies Act. Since then, the Ministry of Finance (MOF) and the Accounting and Corporate Regulatory Authority (ACRA) have undertaken another review of the Companies Act to ensure our regulatory regime continues to remain robust, relevant and in line with international norms.

The Ministry of Law (MinLaw) has also considered the recommendations of the Insolvency Law Review Committee (ILRC) and the Committee to Strengthen Singapore as an International Centre for Debt Restructuring to enhance Singapore's debt restructuring framework.

These reviews have prompted the current amendments which fall into three categories. First, amendments to improve the transparency of ownership and control of companies in line with certain international norms. Second, amendments to reduce the regulatory burden and improve the ease of doing business and, third, amendments to enhance our debt restructuring framework. Several rounds of public consultation on the proposed amendments were conducted and the feedback has, where appropriate, been incorporated into the amendments.

Mdm Speaker, let me now take Members through the key amendments in the Bill. First, improving transparency of companies. The first set of amendments seeks to make the ownership and control of business entities more transparent and thus reduce opportunities for the misuse of corporate entities for illicit purposes. This will help Singapore to better meet the recommendations of the Financial Action Task Force (FATF).

FATF is an intergovernmental body that sets global standards for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

As a member of FATF, Singapore undergoes mutual evaluations by FATF. In Singapore's fourth mutual evaluation last year, FATF assessed that Singapore has a strong framework for anti-money laundering and countering the financing of terrorism. FATF also recommended some areas for improvement. One of these was to enhance the access of law enforcement agencies to information on the beneficial ownership of legal persons.

Singapore is also a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes (GF). Amending our laws will enable us to better implement international standards on tax transparency.

Let me now elaborate on two key changes under this category of amendments. The first pertains to registers of controllers, members and nominee directors. We are requiring three new registers to be maintained by companies.

First, clause 47 will require locally incorporated companies and foreign companies registered in Singapore to maintain registers of their controllers at prescribed places. A controller, or more commonly known as the beneficial owner, refers to an individual or a legal entity that has interest in or significant control over the company.

The Bill defines "significant control" and "significant interest" and uses a 25% threshold to help companies determine when control and interest are significant. The 25% threshold is consistent with those in the FATF's guidance documents, the United Kingdom's (UK's) legislation on registers of people with significant control, and the European Union's Fourth Anti-Money Laundering Directive.

Companies will be required to take reasonable steps to identify and obtain information on their controllers, including sending notices to potential controllers or persons who have information about the controllers. Besides companies, the Bill will introduce obligations for two other groups of persons.

First, any person who receives a notice from the company must provide his particulars to the company if he is a controller. If the person is not the controller, the person must provide any information on the controller that he is aware of to the company. Second, controllers will be required to provide and update their particulars to the companies.

Mdm Speaker, the topic of transparency of beneficial ownership continues to gain international attention and momentum. Internationally, there are discussions about central or public registers of controllers and the automatic exchange of beneficial ownership information.

At the Group of 20 (G20), there is greater focus on ensuring availability of beneficial ownership information of legal persons to regulators and law enforcement agencies. The Bill only requires companies to maintain non-public registers of controllers. However, this information must be provided to the Registrar and law enforcement authorities upon request. The Bill also provides a reserve power for the Minister to direct the Registrar to maintain a central register of controllers should it become necessary to do so.

Let me now deal with the next register. Clause 46 will require foreign companies registered in Singapore to maintain public registers of their members. This brings the position of foreign companies into alignment with the current requirement for locally incorporated companies. The change will not impose any additional compliance responsibility for foreign companies which already maintain registers of members in their place of incorporation.

Clause 47 will require locally incorporated companies to maintain the third new register, which is the register of nominee directors. The Bill will also require nominee directors to disclose their nominee status and the particulars of their nominators to their companies. This mitigates the risks of money laundering and terrorist financing being done through nominees.

Next, record retention, or the second key change. When a company is wound up, clause 38 will require the liquidator to retain the company's records for at least five years, instead of the current two. Furthermore, a company that is wound up by its members or creditors will not be allowed to destroy records early. Such a company will have to retain its records for at least five years.

For a company that has been struck off and dissolved, clause 39 will require its former officers to similarly retain all books and papers of the company for at least five years, including its accounting records and registers. The five-year period takes reference from standards under FATF and GF. The changes will allow enforcement agencies to access past records for their investigations.

These amendments will boost Singapore's ongoing efforts to maintain our strong reputation as a trusted and clean financial hub. We intend to effect these amendments by 31 March 2017. To help companies prepare to comply with these new requirements, existing companies will have a transitional period of 60 days from the commencement of the law to maintain the registers of controllers. ACRA will also issue further guidance to companies. This includes samples of the notice that companies can use to send to their shareholders, directors and any other relevant persons to assist them in obtaining the information required for their register of controllers.

Mdm Speaker, I move next to the second set of amendments. These seek to reduce the regulatory burden and improve the ease of doing business. There are three key changes.

First, clause 42 introduces an inward re-domiciliation regime in Singapore. Foreign corporate entities will be allowed to transfer their registration to Singapore, besides the current options of setting up a subsidiary or branch in Singapore. Inward re-domiciliation is akin to changing "corporate citizenship". Transfer of registration will thus be useful to foreign corporate entities that wish to retain their corporate history and identity. Foreign corporate entities may choose to re-domicile for various reasons, such as for a more conducive regulatory framework or to be closer to their shareholders or operational base. A foreign corporate entity that is re-domiciled to Singapore will be required to comply with the requirements of the Companies Act like any other Singapore company.

Second, clauses 9 to 10 and 14 to 16 will align the timelines for holding annual general meetings (AGMs) and filing annual returns with the companies' financial year end. The Bill will require listed companies to hold AGMs and file annual returns within four months and five months after their financial year end respectively. Non-listed companies must hold AGMs and file annual returns within six months and seven months after their financial year end respectively.

The Bill also exempts all private companies from holding AGMs, subject to safeguards. This will be in addition to the current regime whereby private companies can dispense with the holding of AGMs if all shareholders approve. The Bill also includes safeguards, such as allowing any shareholder of a private company to ask for an AGM within prescribed timelines.

Third, clause 6 will remove the requirement for a common seal to execute documents, such as deeds, and for certain documents, such as share certificates. The use of common seals has become outdated. Jurisdictions, such as Australia, Canada, Hong Kong, New Zealand and the United Kingdom (UK) no longer require the use of common seals. The Bill will allow companies to execute documents by having them signed by company officers who are duly authorised to do so.

However, notwithstanding this amendment, companies can choose to retain the use of a common seal based on their business needs.

Mdm Speaker, I will now move on to the debt restructuring amendments.

Debt restructuring refers to the process undertaken by companies in financial difficulty to renegotiate the terms of their debts and save their businesses. The need for debt restructuring is on the rise globally. Recent high-profile cases include Hanjin Shipping's attempted rehabilitation in Korea and ongoing efforts for Singapore-listed businesses like Swiber and Ezra.

A successful restructuring averts liquidation and allows the company to continue as a going concern, which benefits not only the company owners but also employees who keep their jobs and others who rely on the company for their own businesses. It also allows the company's creditors to receive a higher repayment under the restructuring proposal than in liquidation.

While Singapore is already a regional forum of choice for restructuring, these amendments will enhance Singapore's restructuring processes which are schemes of arrangement, under section 210 of the Bill, and judicial management, under Part VIIIA of the Bill; and improve our capability to deal with cross-border insolvencies and restructurings.

These proposed changes will further enhance our restructuring framework and status as a centre for international debt restructuring. With this background in mind, let me explain the key amendments relating to restructuring.

I will first cover amendments to the schemes of arrangement.

In a scheme, the company presents a debt restructuring proposal at meetings of its creditors or classes of them. If the proposal is approved by a majority of creditors that hold 75% of the company's debts at these meetings and is sanctioned by the Court, the proposal becomes binding on the creditors.

The key amendment is clause 22, which introduces a new set of provisions that apply to schemes which implement debt restructuring proposals. These provisions adapt parts of Chapter 11 of the United States (US) Bankruptcy Code (Chapter 11). I will highlight the key features of these new provisions.

First, moratorium. The provisions will allow the Court to order a moratorium in favour of a company that is proposing or intends to propose a scheme. The moratorium prevents creditors from taking action against the company, such as commencing legal proceedings or enforcing security rights, and gives the company breathing room to put forward the restructuring proposal.

Features of Chapter 11 that will be adapted include: providing an automatic moratorium on filing an application, for a period of up to 30 days; allowing the Court to give the moratorium worldwide effect; and extending the moratorium to related entities relevant to the restructuring.

Finally, the new provisions will provide for carve-outs from the moratorium through subsidiary legislation. This will address situations where the moratorium may cause disproportionately adverse effects on certain transactions. An example is contractual obligations under set-off and netting arrangements.

Next, rescue financing. The next feature of Chapter 11 that is being adapted are rescue financing provisions. Rescue financing consists of new loans which provide working capital during the restructuring. Without rescue financing, a viable company may be unable to restructure, but lenders may be reluctant to provide additional financing to troubled companies.

To facilitate rescue financing, the Court will be empowered to order that rescue financing be given super-priority. That means priority over all other debts or to be secured by a security interest that has priority over pre-existing security interests, provided the pre-existing interests are adequately protected. This is consistent with the approach in Chapter 11.

Third, cram-down provisions. Another feature adapted from Chapter 11 is to allow the Court to approve a scheme even if there are dissenting creditor classes, but provided safeguards are met.

Presently, the Court can only sanction a scheme if the requisite majority approval has been obtained from all classes of creditors. These provisions, therefore, prevent a minority dissenting classes of creditors from unreasonably frustrating a restructuring that benefits creditors as a whole.

Fourth, pre-packs. The final feature adapted from Chapter 11 are provisions for pre-negotiated restructurings between the company and its key creditors or "pre-packs". Other creditors will not be affected as the pre-pack is sufficient to save the company.

The new provisions facilitate approval of these pre-packs as the Court may dispense with calling creditor meetings if certain safeguards are met.

I will now move on to amendments relating to our judicial management scheme. Judicial management is a temporary Court-supervised procedure where a company unable to pay its debts is managed by a judicial manager.

Clause 25(a) will allow the Court to make a judicial management order when a company "is likely to become unable to pay its debts", as opposed the current "will be unable to pay its debts". This will allow the judicial management process to commence earlier in the day, when the prospects of saving a company are higher.

Clause 25(d) will allow the Court to make a judicial management order despite objections from certain secured creditors if the prejudice caused to unsecured creditors is disproportionately greater. Presently, the Court cannot grant a judicial management order if these secured creditors oppose the application.

Clause 28 will introduce rescue financing provisions, which mirror the provisions introduced for schemes of arrangement.

These three enhancements to the judicial management regime will improve its efficacy as a corporate rescue process.

I will now turn to amendments pertinent to cross-border cases, which are increasingly common because businesses conduct their operations and dealings all over the world.

Clause 40 sets out a list of factors for the Court to consider when deciding whether a foreign company has substantial connection to Singapore in order for it to be wound up under this Act.

The impact of this list goes beyond winding up, as a foreign company that can be wound up under this Act may make an application for a scheme of arrangement or judicial management. This list will provide greater certainty to foreign debtors that wish to restructure in Singapore.

Clauses 41 and 50 adopt the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Cross-Border Insolvency (1997), which is a well-understood and internationally respected framework that governs the recognition and assistance of foreign insolvency proceedings.

Clause 45 abolishes the current rule that requires liquidators of foreign companies to "ring fence" Singapore assets and pay off debts incurred in Singapore first. However, "ring fencing" for specific financial entities, such as banks and insurance companies, will still be retained.

These amendments will provide greater certainty of outcome in cross-border cases and significantly enhance Singapore's capability in dealing with cross-border insolvencies.

In conclusion, the transparency-related amendments will enable Singapore to better mitigate the risks of money laundering and financing of terrorism. The Bill will also reduce the regulatory burden on companies and improve corporate governance in Singapore.

The enhanced debt restructuring framework will give business entities in financial difficulties greater flexibility to restructure and survive. Together with the new inward re-domiciliation regime, these amendments will increase our competitiveness and strengthen Singapore as a leading financial centre. Mdm Speaker, I beg to move.

Question proposed.

Mdm Speaker: Mr Edwin Tong.

12.24 pm

Mr Edwin Tong Chun Fai (Marine Parade): Madam, before I start, I would like to declare my interest as having been a member on ILRC and also on the Committee to Strengthen Singapore as an International Centre for Debt Restructuring, mentioned by the Senior Minister of State earlier. I will focus my speech on the third basket of the amendments which the Senior Minister of State has mentioned earlier.

Mdm Speaker, the ability to restructure the business of a distressed company and rehabilitate it back to good financial health is as important as setting up a good business in the first place. Where such restructuring is carried out successfully, cost efficiently and relatively quickly, all stakeholders, including creditors, investors, shareholders and employees, benefit. For companies that have fallen on hard times, but with a sound underlying business, restructuring is preferable to the alternative of liquidation. It preserves value. In contrast, in a liquidation, the company's assets will be broken up, sold for recovery and distributed to creditors, usually at fire sale prices.

Further, in an economic downturn, our restructuring regime allows struggling companies to quickly resume normal business operations which enhances the growth and sustainability of our economy.

The need for Singapore to have a robust insolvency framework is underscored by the difficulties which the global economy has faced in recent times. In 2016, we witnessed increasing global uncertainty, climbing interest rates and a downturn in oil prices. Global corporate defaults were at their highest since the 2008 financial crisis, economic growth slowed and the economic outlook was severely dampened.

In Singapore, we have not been spared. In the first half of 2016, there were 118 winding up applications in Singapore, out of which 85 companies were then put into liquidation. This is high when compared to the previous 10 years. In the second half 2016 alone, companies like Swissco Holdings, Swiber Holdings, Technics Oil and Gas Ltd, Ezra Holdings, all major players in the beleaguered oil offshore and marine industry, went into one form of insolvency arrangement or another.

The adverse run-on effects of the insolvency and collapse of a company cannot be underestimated. It is not just the closure of a business, but also the loss of jobs and livelihoods for many. The offshore and marine industry, probably the hardest hit sector in the recent downturn, has some 88,000 workers employed in that sector alone. The threat of the loss of jobs in this industry as well as others is thus a real issue, close to the hearts of many Singaporeans. There are also other stakeholders whose interests we need to consider, such as financial institutions with loan exposures to distressed companies. The rehabilitation of such companies in financial trouble is, therefore, not just about crunching numbers, generating business or increasing profits. There is a wider social interest at stake.

It is in this context and backdrop that this Bill has been introduced, and it is aimed at several key objectives.

First, it seeks to set up a more conducive legal framework with a view to ultimately saving businesses, preserving values and jobs. Second, it aims to make our insolvency and restructuring laws more robust, more rescue-friendly but, at the same time, nimble and nuanced enough to balance and protect the competing interests of relevant parties. Third, I would suggest that this is also timely for the reasons the Senior Minister of State has mentioned. Since the last amendment to these regimes, the way we do business now is very different; there are a lot of cross-border aspects of the business, and many companies are located in several parts of the world. For example, a company may be headquartered in one country but have branches in others, and therefore, assets, interests, creditors or debtors are located across different jurisdictions.

There had been a slew of enhancements to the regime and, as a practitioner in this area, I can say that it has been broadly welcomed by insolvency practitioners from the finance industry, banks and the companies. I wish to focus on five of those amendments which the Senior Minister of State has mentioned.

First, the proposed section 211B(1) widens the circumstances in which a company can obtain a moratorium when seeking such a scheme or compromise. The moratorium is crucial because it suspends actions against a debtor company. Without a moratorium, a scramble usually takes place when creditors think that someone else is going to steal a march on them and, consequently, everyone moves in to liquidate the company. This undermines any prospect of being able to reach a more beneficial arrangement. It drives a company towards litigation and, ultimately, kills value in the company. In contrast, a moratorium holds the line and keeps all creditors on an even keel. This is vital, so that companies in distress can have some "breathing space" in order to put in place an effective and mutually beneficial rescue plan.

In that context, the automatic 30-day moratorium upon an application being made in Court is very much welcomed. This is necessary to give efficacy to the moratorium. At the same time, the Bill also strikes a balance between the interests of the debtor company and its secured and unsecured creditors. The company is required to give information on its financial affairs to its creditors. The Court takes all of this into account and is then empowered to grant a number of different restraining orders which can be ordered individually or in combination, as necessary or as appropriate. As such, the Court can bespoke the scope of the moratorium and its terms to fit the specific circumstances of each case and need not order a moratorium over security enforcement, if necessary.

Second, the new cram-down provisions which the Senior Minister of State mentioned will better allow judicial control of schemes. As the Senior Minister of State outlined, the current regime requires there to be a threshold of 75% by value and 50% in number before a scheme can even be presented to Court. In other words, the Court will have no jurisdiction to entertain any scheme proposal that does not even meet this threshold.

In the case of some companies, one class of creditors could have just a very few number of creditors and this could then, by way of this very minority number of creditors, derail the entire scheme. Commentators have said that this is a "major impediment" to the success of the scheme for distressed companies.

The new cram-down provisions, however, meet this criticism nicely. They allow the company or one of its creditors to apply to Court for approval of the scheme, notwithstanding that it is objected to by a class of creditors. At the same time, there are safeguards to protect these rights of the objecting creditors. The Court must be satisfied that the scheme does not discriminate unfairly among the classes and it must be fair and equitable to the dissenting class of creditors. Very often, a minority number of creditors hold a tactical leverage in restructurings to try to negotiate a better position for themselves, even if they hold only a small percentage of the debts. I, therefore, think this change is a welcome one, which calibrates the playing field a little more in favour of the debtor company and its majority creditors, without compromising the position of other dissenting creditors.

Third, it will now be easier for companies to apply for judicial management. Under the current Companies Act, the Court must be satisfied that the company "is" or "will be" unable to pay its debts, before allowing the application to succeed.

As noted by ILRC in 2013, this strict test causes companies to turn to judicial management only when they are already hopelessly insolvent, by which time, it would often be too far gone for a judicial manager to be effective in turning the company around. And that perhaps explains why judicial management in Singapore has been less successful in rehabilitating companies.

This, in my view, is a pity, as judicial management is otherwise a very useful option in our arsenal of restructuring tools. A Court-appointed Judicial Manager is usually an independent professional advisor, coming in to manage the affairs of a company in a difficult period, lending assurance that the creditors to the company need. To allow the judicial management regime to be more effective, it ought to be possible to implement it at an earlier stage to give distressed companies a real prospect of success. That is why I welcome the amendments which allow for a company to be placed into judicial management as long as it "is likely to become" unable to pay its debts. This is a lower threshold and, in my view, a far more sensible one.

Fourth, rescue-financing will now be encouraged under the Companies Act. New financing is often crucial for ailing companies, as it provides funds, for example, to pay urgent operational expenses, provide working capital and so on.

Quite understandably, however, an insolvent company in such a situation is unlikely to be flushed with options when it comes to new financing. Financial institutions will not want to risk throwing good money after bad. As such, companies in financial distress typically face severe liquidity problems, meaning they cannot meet their current liabilities. It would be futile to put such a company into a scheme or judicial management without also having the ability to facilitate a financial solution to its liquidity problems. The rescue finance provisions, therefore, provide an option for companies to get new funds in as part of their restructuring exercise.

The amendments incentivise and encourage financial institutions to provide rescue financing, by giving the Courts the power to grant priority or security in relation to the debt created under the rescue financing arrangements. In this respect, the new provisions allow a variety of options with varying degrees of guarantee of recovery. For example, the Court could order that the debt rank in priority or it could order that the debt be secured by a security interest that ranks higher than an existing one.

At the same time, the Bill also introduces safeguards which will be scrutinised and policed by the Courts. It is only allowed in appropriate circumstances and the Court must be satisfied that there is "adequate protection" given to an existing security interest holder. This, as the Senior Minister of State mentioned, draws inspiration from the US Chapter 11 model. The rationale for the above safeguard was that new lending should create new value for the company such that it is in a position to protect the interests of the security holder, whether by cash payments or by providing another form of security. In this way, the Courts are called upon to "assess the viability of the purpose behind the proposed financing".

The Bill facilitates rescue financing for distressed companies whilst also managing any entailing risks. The US experience in Chapter 11 proceedings has been that rescue financings are invariably value enhancing and are usually associated with a higher probability of successful recovery. I hope that, with these amendments, the same will be seen in Singapore.

Finally, I look at the last amendment in the context of the UNCITRAL Model Law being adopted. The Model Law was designed not to make insolvency laws in different countries uniform, but to supplement existing laws.

As I previously mentioned, it is now commonplace for businesses to be cross-border. The insolvency practitioner managing the restructuring will then have to coordinate different moving parts, grapple with foreign procedures, regulations, laws and the like. A degree of cooperation is thus much needed between the Courts and the insolvency practitioners from different countries. It is far more productive and cost-efficient for cross-border insolvencies to be coordinated from one "main" jurisdiction.

Currently, the provisions in the Companies Act do not assist in the facilitation of cross-border insolvencies. Take the example of a company in Singapore which wants to enter into a scheme of arrangement but has subsidiaries in other jurisdictions where the real value resides. It would be no use for the holding company to apply for a scheme and a moratorium in Singapore, only to have creditors take action against his other assets located in other jurisdictions. In fact, this was an issue which came up in a recent High Court decision in the Pacific Andes case.

This is where the UNCITRAL Model Law comes in to supplement our insolvency laws. Under this framework, a foreign insolvency practitioner can apply to the Singapore Court for recognition of insolvency or restructuring proceedings in another country. When recognition is granted, the Court then has a range of options from which to grant relief.

Likewise, a scheme manager in Singapore can go to a jurisdiction which has adopted the Model Law for assistance. For example, he can go to a foreign court to ask for a moratorium. Other countries, like Singapore, which have adopted the Model Law, include the US, the UK, Australia, Japan and Korea, amongst others, and these are the leading jurisdictions in which restructurings take place.

Finally, Madam, in connection with the cross-border efforts, I note also that our Singapore Courts have recently embarked on a novel and ground-breaking initiative. In October 2016, the Singapore Judiciary hosted the first Judicial Insolvency Network conference. This led to guidelines for the communication, coordination and cooperation in cross-border insolvencies. Singapore, Delaware and New York have already signed up to it, with Australia, England and Wales expected to follow. These are major restructuring jurisdictions, and the ability to hold joint-hearings, such as by video conference, with the objective of increasing cooperation, aligning positions and cutting costs, can only benefit the insolvent company.

Madam, the amendments in this Bill are critical to the enhancement of Singapore as an international debt restructuring hub. London and New York have long been regarded as the dominant force in this area. In a recent publication by Global Restructuring Review on 1 March 2017 just last week, it was reported that this "traditional hegemony of London and New York" is facing competition from Singapore, following the concerted push to make ourselves a leading restructuring hub for the Asia Pacific.

The amendments which this Bill seeks to introduce are an integral part of that effort. With that, I support the Bill, Madam.

Mdm Speaker: Mr Dennis Tan.

12.38 pm

Mr Dennis Tan Lip Fong (Non-Constituency Member): Madam, I wish to declare that company and insolvency laws form part of my legal practice areas.

This Amendment Bill came up for First Reading only last Tuesday. Today, after eight days of the Budget and Committee of Supply debates, this Bill is up for Second Reading and debate. A large part of this Bill is the result of the recommendation by ILRC back in October 2013. Much time has elapsed since then. The Bill is finally out. I hope all Members have time to digest the Bill in such a short time, as we ought to. But, Madam, can the Members not have more time to consider such Bills properly before it is put up for Second Reading?

Madam, under this Bill, there are quite a lot of changes to the Companies Act. There are various amendments relating to corporate secretarial and filing requirements. I am agreeable to these proposals as they aim to improve practices and reduce regulatory burden.

I have two clarifications for the Senior Minister of State. One of the amendments involves the dispensation of compulsory AGMs. On this issue, may I ask the Senior Minister of State whether ACRA does provide for public access suitable literature or other resources on minority rights? If not, will the Government consider doing so in light of the proposed changes? I believe this will be useful to some shareholders as they grapple with the changes in the law.

Additionally, would the Government look into the possibility of streamlining the filing obligations of companies such that the annual ACRA filings can be combined with the Inland Revenue Authority of Singapore (IRAS) tax filing into a composite submission? I believe this will make compliance easier and businesses do not need to grapple with different deadlines and different filing obligations.

Madam, this Bill also seeks to introduce an inward re-domiciliation regime to allow foreign companies to transfer their registration to Singapore. I support the intention of allowing foreign companies to re-domicile as a Singapore company if this may help to attract existing foreign companies to relocate their operations and headquarters to Singapore and bring more business and investments to Singapore or enhance Singapore as a key corporate hub and business centre.

However, I have some concerns. I hope we may not, by these provisions, end up encouraging corporate inversion without bringing real gains to Singapore. Will the companies suffer reputational damage in their home countries for reasons of tax avoidance? Will Singapore, by encouraging corporate inversions, draw the ire of other countries? Will we, for example, go the way of, say, Ireland and draw the ire of countries like the US?

Two years ago, Australian companies BHP Billiton and Rio Tinto were under the spotlight from the Australian tax authorities for what was described as the "Singapore Sling" tax avoidance scheme where they were said to have channeled profits through marketing hubs in Singapore. The Australian tax authorities seemed to have accepted that they were for legitimate business activities and they were under legitimate tax avoidance schemes. Nevertheless, it appears from media reports that our so-called "Singapore Sling" schemes were not as welcoming to the Australian taxmen as the real McCoy usually served to Aussie tourists in the Long Bar at Raffles Hotel.

While I recognise that: (a) it is our sovereign right to decide freely on how we want to tax and the rules therefor; and (b) that we need to always make our tax regime attractive in many ways to attract companies to come to Singapore. Nevertheless, as a country, how we organise our tax regime must also be welcomed by other countries within the international tax environment.

In recent years, and as we have certainly seen after the Panama Papers episode, popular opinion around the world on the issues of tax avoidance practices has started to change. Tax avoidance practices, which used to be carried out without any questions asked, together with the reputation of certain once popular offshore tax havens, have taken a beating. I am sure the Government has considered these issues. Nevertheless, these are my concerns and I hope the Senior Minister of State can provide some assurances.

I move on to debt restructuring and judicial management. Part of the major changes to this Bill consists of various new provisions relating to debt restructuring proposals. Among other things, new features for schemes of arrangements include enhanced moratoriums against creditor action. The Court will also be allowed to approve rescue financing provided for debt restructuring and to give such financing super priority over existing creditors' claims. Schemes of arrangement can also be approved even if some creditors object.

The Bill is also making it easier for companies to apply for judicial management and there are also provisions for super priority for rescue financing in judicial management. I understand that such priority for rescue financing, together with cram-down provisions, are concepts which are borrowed from US bankruptcy law. The Bill will also make judicial management available to foreign companies. Madam, I welcome these provisions.

On 1 September 2016, the Korean shipping conglomerate, Hanjin, obtained a rehabilitation order from the South Korean courts to protect itself from creditors and to allow it to restructure its debts. On 17 February 2017, after five-and-a-half months, we read from media reports that the Seoul Central District Court had declared Hanjin bankrupt.

After the rehabilitation order, we read in media reports of their ships being turned away by container terminals, ships abandoned without sufficient funds for operation or to pay its crew, desperate cargo owners trying hard to retrieve their cargo still stuck in containers onboard the Hanjin ships.

With the insolvency declared last month, I wonder whether Hanjin or any of its creditors have really benefited from the initial order for protection. What did the initial order for insolvency protection do for all its creditors? In reality, I understand that many debts owed to many shipping and other businesses worldwide are still unpaid.

In Singapore, many Singapore companies on the brink of insolvency often apply to the Singapore High Court for some variants of "insolvency protection" measures whose stated aims usually include restructuring business or restructuring debt payments. These may be in the form of schemes of arrangements, restructuring their debt obligations and payments, or by way of judicial management, giving a chance to rehabilitate themselves with the hope of being restored. Some of these schemes or measures have worked in some cases but, quite often, these schemes did not work to revive and sustain the ailing companies and eventually the companies had to be wound up. At best, it may buy some time before a company or its key and usually secured creditors work desperately to see if they can avoid writing off the huge amount of securitised loan granted to the ailing company or its vessels.

Meantime, by applying for judicial management or scheme of arrangement, it stalls the efforts of other creditors who may otherwise have different recourse to pursue their debts, whether in the same jurisdiction or even abroad. These trade creditors may have already commenced actions in court, even obtained judgment or, through admiralty claims, have arrested ships in Singapore or elsewhere. With the judicial management and scheme of arrangements applications, the company would have also applied for stay of such proceedings effectively, making these proceedings ineffective. The regime now will allow debtors to buy some time before they go. These provisions have often been used to the advantage of troubled companies as well as their banks. This Bill will now provide greater powers. At the end of the day, like in the Hanjin case, unsecured creditors will quite often end up with limited or no recovery.

Madam, I support the proposed amendments on debt restructuring and judicial management in so far as they will, hopefully, provide ailing companies with more meaningful options of recovering from their near insolvent situations.

That said, I hope that in the application of these laws, the Courts will not allow the balance to be shifted too far away with the interest of unsecured trade creditors in favour of ailing companies and their secured creditors. I hope the Courts, as the gatekeeper, will continue to vigorously scrutinise the viability of all schemes, proposals and applications put forward by ailing companies in their application to the Courts and the applicants can be called to account for the viability of their proposals.

Madam, oftentimes, such applications are taken out at short notice. This is often the case even though many ailing companies would usually have much time to sort out their problems. If the Courts should require more time to scrutinise the viability of proposals made, then that should override any arguments of urgency. Similarly, all creditors should be given sufficient time to scrutinise all such applications before an order is granted.

In my view, in fairness to all creditors and in the interest of resolving their debt situation, ailing companies should be encouraged to consider any application for debt restructuring or judicial management a little earlier than it is usually being done now. And with the new provisions, certainly in judicial management, I hope this will definitely be done now.

Madam, before I move on to another area of the Bill, may I seek a clarification from the Senior Minister of State regarding clause 25(f) where the Bill will empower the Minister to prescribe the class of companies in relation to which the judicial management order must not be made? May I know what are the limitations intended here?

I next move to the UNCITRAL Model Law on Cross-Border Insolvency. The Bill adopts the UNCITRAL Model Law on Cross-Border Insolvency. In a globalised world, many companies and businesses operate globally and when somebody's company runs into problems, insolvency issues may also turn cross-border. With businesses and assets in multiple countries, this is unavoidable. When rules of insolvency may vary from country to country, it may bring complications to insolvency procedures or proceedings with companies with businesses, assets and debts in multiple jurisdictions.

Though relatively few countries have ratified the UNCITRAL Model Law on Cross-Border Insolvency, for the reasons I have given above, I am of the view that we should support ratifying and applying the Model Law in Singapore. Another reason to support this will be the fact that Singapore is a key legal hub in the world and, with an increasing number of international corporate players having a base here and doing business in Singapore. Finally, the fact that some of the signatories include key legal jurisdictions like the UK, US and Australia, makes it a more cogent case for Singapore to apply the Model Law.

Madam, ultimately, whether the introduction of the Model Law or other measures in this Bill, such as super priority for rescue financing or other proposed amendments to debt restructuring and judicial management provisions in the Bill, I hope the amendments to our insolvency law today will help to enhance the reputation of Singapore as both a leading international hub in the world as well as a leading hub in the world for insolvency work. Madam, in closing, I support the Bill.

Mdm Speaker: Mr Louis Ng.

12.48 pm

Mr Louis Ng Kok Kwang (Nee Soon): Madam, I rise in support of this Bill which, I trust, will solidify Singapore's drive to be a regional debt restructuring and corporate rehabilitation hub in Asia.

Similar to how Singapore adopted the Model Law on International Commercial Arbitration due to globalisation and commercial realities, the need to adopt the Model Law on cross-border insolvency arose out of similar circumstances.

Just as how Singapore made it easy for anyone in the world to start a business in Singapore, it is imperative to make it easier to restructure businesses in Singapore. In this regard, a harmonisation of relevant rules and a universalist approach to insolvency should be employed.

Madam, I note that adoption of the Model Law is not a full-scale one. Article 25 was amended by substituting "shall cooperate" to the maximum extent possible with foreign courts or foreign representatives to "may cooperate" instead. Can the Minister clarify why this amendment was made?

Also, in relation to cross-border insolvency is the abolishment of the ring-fencing mechanism, which has been criticised by practitioners local and abroad as contrary to internationally-accepted standards of a fair and equitable cross-border insolvency regime. In this regard, the abolishment should assist in Singapore's ambition to become a debt restructuring hub.

Local creditors should also not be overly worried that this amendment gives them no protection. In this regard, I note that a long list of financial institutions could still receive some protection. Further, some creditors may rely on Articles 6, 21 and 22 of the Model Law to ensure that their interests are protected under certain circumstances.

Next, I support the amendment to allow foreign companies to transfer their registration of incorporation to Singapore. This move allows Singapore to remain competitive, facilitate the relocation of companies to Singapore, and keep pace with other jurisdictions that have embraced this re-domiciliation mechanism.

However, can the Minister clarify if re-domiciled companies could represent to counterparties and the public that they are Singapore-incorporated companies upon issuance of the Notice of Transfer, or could they make only such representations after ACRA is satisfied with the submission of documents evidencing de-registration in its prior place of incorporation?

I also note that we will introduce how a financial year is to be calculated. This is a required addition in view of the fact that lodging of a company's annual returns is to be done within a prescribed period after the end of its financial year, instead of the AGM under this Bill.

The proposed section 198(2) provides that the first financial year must be no longer than 18 months, unless ACRA approves on the application of the company. Can the Minister clarify under what conditions will a company's application be approved?

On the retention of books and papers after a company has been struck off, may I clarify why the period is five years when a person may, within six years, after the name of the company has been struck off, apply to the Court to restore the struck off company to the Register?

Lastly, on foreign entities hoping to register in Singapore. While I note that the Ministry is retaining the 60-day period for newly-registered companies to prepare all share or debenture certificates, there should also be an option for an extra 30 days − in cases where companies have more elaborate tools of debt which require in-depth legal support in their countries of origin. This option will enhance the attractiveness of our regulatory regime for companies planning to register a new entity in Singapore. Will the Ministry consider this?

Madam, I stand in full support of this Bill which would serve well to assist Singapore's drive to become an international hub for debt restructuring.

Mdm Speaker: Mr Henry Kwek.

12.52 pm

Mr Kwek Hian Chuan Henry (Nee Soon): Mdm Speaker, I rise in support of the Bill. The amendments to the Companies Act is ground-breaking in at least two ways: the incorporation of elements from US Chapter 11 into our corporate insolvency regime which has English roots; and two, the adoption of the UNCITRAL Model Law on Cross-Border Insolvency.

We can all agree that this Bill would serve to bring about significant changes to our corporate insolvency regime, which will strengthen Singapore's role in debt restructuring.

This could not come at a more opportune time. Why? First of all, companies in the maritime and oil and gas industries have a tough time due to the decline in oil prices from two years ago. While oil prices are creeping up, a bit slowly, several Singapore Stock Exchange (SGX)-listed oil and gas companies have already gone into insolvency proceedings or are facing impending insolvency petitions from creditors.

Two, small and medium enterprises in Singapore are coping with economic challenges to maintain their competitiveness. More private funding sources would be required to make capital expenditure in order for them to improve their business models and expand their businesses beyond Singapore.

Three, the Committee on the Future Economy (CFE) Report proposes creating more favourable conditions to attract venture capital and private equity firms to set up shop in Singapore. With the amendments, it is now easier for companies to apply for a judicial management order. There will also be enhanced moratorium, rescue financing, cram-down and other enhancement provisions for the schemes of arrangements. The legal community whom I spoke to found this revised Companies Bill timely and appropriate. They are also appreciative of MinLaw's consultative approach in the revision of the Companies Act.

Let me talk about cram-down provisions before suggesting a related refinement for MinLaw to consider for further refinement of the law. Cram-down provisions were introduced to prevent creditors from undermining a scheme of arrangement when introduced. The introduction of cram-down provisions is important to facilitate the timely rescue of a company in financial distress where time is of the essence and a long-drawn out process to resolve differences will not be in the best interests of keeping the company as a going concern.

Having the Court to decide on whether a cram-down provision is to be applied against dissenting creditors to a scheme of arrangement who are not being unfairly and inequitably treated in the proposed scheme would be ideal and there is no lack of jurisprudence in the US on this and, certainly, the case law there would help form our jurisprudence in this area in time to come.

What I think we could do to create a further improvement to the cram-down provisions would be to introduce some form of shareholders' cram-down. These provisions would prevent de facto shareholder veto in schemes involving debt-equity swaps where shareholder approval is required. Such provisions would encourage experienced international distressed financiers with the experience and know-how in nursing companies back to health to invest due to potential upside they can enjoy with debt-equity swaps. I believe that MinLaw considered this proposal but was not in favour of it. But let me give an example how this could help.

Let us consider a hypothetical situation of a company with a good track record of commercial excellence that, as a result, experiences a strong brand equity in the market. And let us say that this company falls in bad times and experienced cash flow issues and was eventually placed under judicial management. The company has many good ongoing prospects from across the region from which the company could continue as an ongoing concern. There are private equity investors who are interested to provide rescue funding to this company but would demand for debt-equity swap provisions in their rescue financing arrangements so as to enjoy the upside on the company's revitalisation.

This would require shareholders' approval. Unfortunately, due to the unwillingness of some existing shareholders with sufficient voting rights who will veto this shareholder approval for the debt-equity share swaps, the rescue financers could not get the deal they are looking at and thus dropped out of the rescue financing. Without equity participation, rescue financing would simply be less attractive and rescue financers will not be incentivised to provide the expertise in such rescue.

This example that I illustrated will, hopefully, show it might be worthwhile for MinLaw to study how shareholder cram-down provisions could be advantageous to attracting experienced distressed asset investors who bring their expertise in corporate governance, corporate restructuring and distressed company management who would often want to enjoy the upside from equity participation should such rescues be successfully executed. Mdm Speaker, with that, I stand in support of the Bill.

Mdm Speaker: Mr Patrick Tay.

12.57 pm

Mr Patrick Tay Teck Guan (West Coast): Mdm Speaker, I rise in support of the proposed amendments to the Companies Act to adopt the recommendations in the report of ILRC and the report of the Committee to Strengthen Singapore as an International Centre for Debt. In the current landscape, it is, indeed, timely to enhance the robustness of our corporate rehabilitation regimes to facilitate and raise the success rates of corporate rescues.

However, while we endeavour to make these corporate rehabilitation regimes more accessible to companies, let us not forget to ensure that our workers, the lifeblood of companies, are taken care of as well.

When the survival of the company hangs in the balance, workers face many unknowns. Will the company be able to pay them their salaries? Should they continue to work for the company? What happens when they are not paid while the company is undergoing rehabilitation? Would they be able to provide for their families and meet their personal financial obligations? What happens when rehabilitation efforts fail? I will focus on two pressing concerns. First, when workers are not paid their salaries while the company undergoes rehabilitation; and second, the impact on workers' salary claims when rehabilitation efforts fail and the company is wound up.

First, statutory moratoriums and impact on workers' salary claims. In our existing judicial management regime, the making of the judicial management order brings into force a statutory moratorium. While the statutory moratorium is in force, no other proceedings or legal process shall be commenced or continued against the company except with the consent of the judicial manager or with leave of the Court. The policy intent behind the institution of the statutory moratorium makes good sense and many jurisdictions have in place similar regimes. It allows the company to continue its business with reprieve from creditors while it attempts to nurse itself back to financial health or to achieve a more advantageous realisation of the company's assets than would be effected on a winding up.

The statutory moratorium is clearly geared to the interest of the company in distress and the ambit of the moratorium has been interpreted in a purposive manner to include processes initiated whether in Court or by way of arbitration or a step in such a process. This would presumably extend to criminal proceedings and quasi-legal proceedings, such as the bringing of trade disputes to the Industrial Arbitration Court.

1.00 pm

In the course of my interactions with workers from unionised and non-unionised companies, I have come across cases where workers ended up at the receiving end of such statutory protection. In one particular case, workers of a company placed under judicial management had not been paid their salary for more than six months. The judicial manager was silent when asked of his plans for the workers.

Some of the workers left the company while others continued to turn up at work out of loyalty and in the hope that the company would turn around. The workers could not take legal action against the company to recover their unpaid wages as the moratorium was in force. In order to do so, consent of the judicial manager or leave of Court was required. Leave of Court is sought by filing an originating summons in the High Court and workers who were already in financially dire situations lacked resources to do so.

In the media, we have also seen reported cases of workers in similar situations. In November 2016, British taxi-hailing app service, Karhoo, abruptly shut its offices around the world just a year into commencing business and was put into administration in the UK. In a bid to turn the business around, employees had reportedly been working unpaid for six weeks but were left in the lurch by its sudden closure. In addition to unpaid salaries, Singapore employees were also owed Central Provident Fund (CPF) payments.

In another case, when Vela Diagnostics came under judicial management in Singapore in February 2015, staff were informed that they could not be paid until new funding from investors was secured. The Ministry of Manpower (MOM) had stated that they were unable to assist employees of a firm under judicial management as MOM was not able to inquire into salary claims of employees covered under the Employment Act while the statutory moratorium was in force, except with the consent of the judicial manager or with the leave of the High Court. One former employee, owed about $13,000, resigned in April 2015 to start a new job because he could not afford to keep waiting for his salary to come in. Others struggled in their financial commitments while staying with the company in the hope that investors could be secured. Vela Diagnostics was eventually brought out of judicial management in September 2015 and thereafter settled all salary claims. By this time, the workers who had stayed on with the company would have worked for almost six months without pay. Well, not all cases get resolved in the same way or end happily.

While Karhoo has been brought out of administration in the UK by foreign investors, monies owed to former Singapore employees were not repaid immediately. These workers have no recourse except to await distribution of Karhoo's assets following the closure of its operations in Singapore. While it is not refuted that workers benefit from successful rehabilitation of companies in distress, more can be done to ensure that workers' interests are protected whilst the company undergoes rehabilitation. Companies need workers in order to rehabilitate. Workers should not be bearing the manpower cost of the rehabilitation efforts of the company.

Second, winding up and impact on workers' salary claims. This leads me to my second area of concern, that is, the impact on workers' salary claims when rehabilitation efforts fail and the company is wound up. For every successful rehabilitation, there will be other attempts at rehabilitation which meet with no success. In a review conducted by ILRC in 2013, it was found that between 1996 and 2000 and between 2001 and 2010, there were only 52 successful judicial management cases out of 194 cases, or 26.8% reviewed. In unsuccessful cases, the companies would be wound up and the workers would be left with little or no recourse for outstanding salaries except to await distribution of the assets of the company. Depending on the assets available for distribution, they may receive a few cents for each dollar owed, or nothing at all if the assets were secured assets.

Under the law, secured creditors are paid first out of the assets that comprise their securities, and the remainder of the assets, if any, will be distributed among the preferred creditors in the priority set out in the Companies Act and, any balance remaining, to unsecured creditors. Under section 328 of the Companies Act, outstanding salary claims are ranked second in the list of preferred creditors, subject to a cap of five months' salary or S$12,500, whichever is less, while outstanding contributions to provident funds rank fifth. Workers owed wages due to their employers experiencing financial difficulty and insolvency are a real issue which needs to be addressed. Last year, we heard of the case of Mr Islam Rafiqul, a construction worker, who was owed over $7,000 in wages. Although the Labour Court had ruled in his favour, he was not able to seek any recourse as his employer, a sole proprietor, refused to comply with the order, citing financial difficulties. According to MOM, of an approximated 450 unresolved salary-related claims before the Labour Court last year, a vast majority of the claims were unresolved because the employers, 199 out of 208, had either stopped operations or faced impending shutdown of business due to financial troubles. Viewed collectively, and given the unknown probability of success of rehabilitation, a worker who stays on with a company while it undergoes rehabilitation may become worse off than another worker who had chosen to cut his losses and leave his company earlier.

While the proposed amendments seek to facilitate rehabilitation and raise success rates of corporate rescue by expanding the scope of the moratorium for schemes of arrangement and making it easier for companies to apply for a judicial management order, we must be careful that we do not inadvertently transfer the risk of rehabilitation to the workers who choose to stay with the company while it undergoes rehabilitation.

In the ILRC's Report 2013, the committee opined that one of the impediments to the judicial management regime being an effective rehabilitative regime is its inability to ensure that key management and employees will continue to work for the company. This makes it more difficult for the judicial manager to maintain continuity in the company's business or operations. Without sufficient safeguards of workers' interests, there is little assurance to workers to stay on with the company as it undergoes rehabilitation. Some may argue that workers who have been owed wages should be treated like any other creditor of the company and that existing preferential status in the event of winding up is sufficient. In response to that, I wish to highlight that workers and trade creditors differ in bargaining status vis-a-vis the company. For workers, their wages are usually their only source of income, whereas trade creditors have other revenue streams to rely on in the event of default. When entering into employment contracts, workers also do not have the means to factor in the risk of their employers' inability to pay them, unlike trade creditors who can factor such defaults into their pricing or lending rates.

For these reasons, I propose that we look further into safeguarding workers' interests by considering the implementation of some of the following measures.

First, an exception to the statutory moratorium could be made for MOM to be allowed to investigate and take action against companies for unlawful labour practices under the Employment Act while the moratorium is in place without having to seek the consent of the judicial manager or leave of Court. By the same token, there should also be an exception to allow unions to refer their industrial disputes to the Industrial Arbitration Court during the moratorium without the need of leave of Court nor the judicial manager's consent.

Second, MOM could set up a fund to provide relief to workers who have not been paid their wages while the employer is undergoing rehabilitation or due to the employer's insolvency. Previously, Minister Lim had announced that a short-term relief fund would be set up to help local vulnerable workers where companies are not able to pay up on claims heard by the Employment Claims Tribunal and this is a step in the right direction. In the UK, employees can tap on the National Insurance Fund while, in Australia, employees can seek relief under the Fair Entitlements Guarantee (FEG) scheme when the employer is in liquidation, subject to eligibility requirements.

Third, priority of payment of outstanding salary in the event of winding up could be reviewed or a process for expedited payment of outstanding salary could be put in place. In Canada, the Wage Earner Protection Program Act allows expedited payment of wages and benefits, up to an annual cap, owed to workers whose employer has become insolvent. Once the worker is paid, the Government assumes the worker's place as a creditor in the insolvency, as well as the risk of recovering the amounts paid.

Fourth, with an increasing share of professionals, managers, executives and technicians among employed residents, about 55% in 2016, and median gross monthly income from work, including employer CPF contributions, of full-time employed residents at $4,056 in 2016, it may be timely for a review of the cap of $12,500 under section 328 of the Companies Act.

In conclusion, a better corporate rehabilitation and insolvency regime is one which facilitates the rehabilitation of distressed companies while providing sufficient safeguards for workers who are the most vulnerable in the process. We can surely do more to protect our workers in this regard.

Mdm Speaker: Mr Murali Pillai.

1.10 pm

Mr Murali Pillai (Bukit Batok): Mdm Speaker, I declare my interest as a disputes lawyer in private practice.

The Companies (Amendment) Bill implements various changes in the Companies Act, such as providing for enhanced moratoriums against creditor action in judicial management, rescue finance and cram-down provisions. These measures, once implemented, will have the effect of strengthening Singapore's insolvency framework and enhance Singapore's standing as an international centre for debt restructuring. I welcome these timely changes to the Companies Act.

Besides these amendments, other amendments address key findings in the FATF's 4th mutual evaluation of Singapore's anti-money laundering and counter-terrorism financing regime.

The FATF Mutual Evaluation Report highlighted that companies in Singapore, including foreign companies registered in Singapore, are vulnerable to criminal misuse. The FATF Report also noted that the Commercial Affairs Department has observed that there has been an increase in the number of money laundering cases involving shell companies established by non-residents based overseas since 2012.

The new Part XIA of the Companies (Amendment) Bill requires companies to keep a register of controllers and nominee directors. The identification of controllers and nominee directors of companies increases transparency and facilitates investigation of serious economic crimes committed by the individuals associated with such companies. Greater scrutiny would have a deterrent effect on companies and their officers.

In my speech, I will focus on the proposed FATF-related amendments to the Companies Act and comment on three areas.

First, the Bill proposes to amend the Companies Act to require non-listed locally incorporated companies and foreign companies to maintain registers of controllers and to take reasonable steps to find out and identify registrable controllers of the company. This is likely to raise corporate administrative and compliance costs for such companies. While this initiative is welcome in playing our part in the global fight against financial crime, I note that there are a number of major countries which have not at this stage implemented a register of controllers of companies. For example, the US, Canada and Australia, which have been rated by FATF between 2015 and 2016 as being partially compliant or non-compliant with the FATF recommendations of transparency and beneficial ownership of legal persons and legal arrangements in their mutual evaluation reports, do not yet have an equivalent register. Australia is in the midst of consulting on this. Amongst the major financial centres, only the UK has, since last year, implemented a Register of Persons of Significant Control. Hong Kong is currently looking at requiring firms incorporated in the city to disclose their beneficial ownership by 2018.

In a different but similar context in 2014 relating to Singapore's intention to adopt the Organisation for Economic Co-operation and Development (OECD) pact to swap tax information aimed at ending offshore tax evasion, our then Finance Minister Mr Tharman Shanmugaratnam highlighted that Singapore would adopt the standard as long as rival wealth management centres do the same. The Minister explained that there must be a level playing field to minimise regulatory arbitrage. Similarly, in the present context, given that the implementation of a register would increase administrative compliance costs for companies operating in Singapore, should we consider putting this provision into effect only when there is a level playing field when the major financial centres also implement their equivalent?

Second, the proposed section 386AD of the Bill imputes the state of mind of the corporation's officers, employees or agents to the corporation itself in respect of offences under the proposed new Part XIA. This means that where the officer, employee or agent had a particular state of mind when engaging in conduct within the scope of his or her actual or apparent authority, this would be evidence that the corporation had that state of mind for the purpose of any criminal proceedings against the company for an offence, such as the company's failure to send notices to the persons whom the company knows or has reasonable grounds to believe, knows the identity of its registrable controller, or the company's failure to send notices to a controller if it knows or has reasonable grounds to believe that the particulars of the controller have changed.

Such legal attribution is necessary as companies may only act through natural persons. However, the proposed amendment adopts a standard of attribution which is lower than and a departure from the existing legal standards. Under the existing standards, to establish corporate criminal liability, the mental element of an offence must be attributed to "the directing mind and will of the corporation". The "directing mind and will of the corporation" usually refers to superior officers who carry out management functions, and not any officer, employee or agent of the company. This threshold is not easy to meet, especially where larger companies are involved, and it is often difficult for prosecutors to prove that the "directing mind and will" of the company had knowledge of the criminal conduct to pin liability on the company.

I quote the then Attorney-General Mr Steven Chong, Senior Counsel, speaking at his Keynote Address at the Cambridge Symposium for Economic Crime in 2012, "In today's financial industry, most large organisations have hierarchies which are quite complicated and unavoidably so, due to the specialised nature of professional expertise. Unfortunately, this has made it easy for top executives to feign ignorance when fraudulent behaviour is uncovered, especially since they have every incentive to state that they were unaware of wrongdoings in their organisations."

The Attorney-General had gone on to suggest that a measure to counter this would be to impose legal requirements to increase disclosure requirements to facilitate the identification of the executives responsible for the misdeeds.

Seen in this context, the proposed amendments to stipulate a lower standard of attributing the state of mind to the corporation to pin corporate liability is understandable and justified. In these circumstances, why limit the application of the lower standard in section 386AD of the Bill only to offences under the new Part XI A? Should this lower standard be of general import and apply to other financial crimes?

In my Parliamentary Question to the Minister for Home Affairs last month, I asked whether the Minister would consider introducing an offence for commercial organisations that fail to prevent the commission of economic crimes by persons who act on their behalf, such as employees and contractors. The Ministry's reply was that the current legislative and regulatory levers that we have to take action against errant companies are adequate and there is no need at this point for a specific provision to penalise a company for failing to prevent a crime from taking place. The Minister also stated that the Companies Act imposes various obligations on company directors to ensure that companies adopt good corporate governance practices.

Implementing "failure to prevent" offences is yet another way to make it easier to pin liability on companies for acts of their employees and agents. This is the route that the UK has taken in its Bribery Act, by making corporations liable for failing to prevent bribery by associated persons. The UK is now consulting on whether to expand this to other forms of financial crimes.

The FATF Mutual Evaluation Report made the following findings on Singapore: "Singapore's status as both a major global financial centre and an international transport hub makes it vulnerable to becoming a transit point for illicit funds generated throughout East and Southeast Asia. Legal persons, including foreign companies registered in Singapore, are vulnerable to criminal misuse." Given the FATF's report stating that companies in Singapore are vulnerable to criminal misuse, does the introduction of section 386AD signal a shift in the standard of attributing states of mind to corporations in respect of other serious economic crimes?

Finally, the register of controllers is a useful resource and tool in the arsenal to increase transparency and facilitate criminal investigations. Banks and other financial institutions also play an important role in ensuring that their institutions are not used as conduits for money laundering and terrorism financing. However, I note that the proposed framework expressly prohibits companies from disclosing or making available for inspection the register of controllers to the public. This restriction on access to this register is an anomaly, given that all other registers as they exist now, such as the register of shareholders and directors, are publicly available and may be inspected.

In contrast, in the UK, the information in the register has to be filed at the UK Companies House and is available online. The registers are also open to public inspection. However, the residential address and date of birth of individuals concerned will not be provided except to credit reference agencies and certain public authorities. Only the individual's name, month and year of birth, nationality and service address will be publicly available, together with details of the interest concerned. Applications may be made to keep all information private where there is a risk of violence or intimidation in the event that the information is public.

I recognise that the issue of whether information on the register, which contains personal information, should be published and easily accessible to the public is contentious. However, there is value in allowing certain prescribed categories of private institutions, such as financial institutions, access to the register, as this would facilitate these institutions' conduct of due diligence on their customers or in respect of the financial transactions that they may facilitate. I propose that we consider whether wider access to these registers of controllers is beneficial and should be allowed to certain specified categories of persons. Notwithstanding my comments, I support the Bill.

Mdm Speaker: Senior Minister of State Indranee Rajah.

1.21 pm

Ms Indranee Rajah: Mdm Speaker, I thank all Members for their comments and support of the Bill. Let me first address the specific questions that Mr Henry Kwek, Mr Patrick Tay and Mr Louis Ng have raised on the restructuring-related amendments.

Mr Henry Kwek suggested introducing cram-down provisions to bind shareholders to restructuring proposals. Shareholders' cram down exists in Chapter 11, but Chapter 11 is an insolvency process that reorganises both the debt and equity of a company. By contrast, the new provisions support creditor schemes, which only bind the company's creditors. The current cram-down provisions ensure that the scheme distributes a company's property to its creditors in a fair and equitable manner and are not concerned with adjustments to shareholder interests.

In order to justify cramming down shareholders' rights, shareholder meetings must be called and the company should be shown to be insolvent. Neither requirement exists in the current framework, so a fundamental paradigm shift to the regime is required to introduce shareholder cram down.

The current scheme process is familiar and has worked well. So, at this stage, we have improved the process by adapting elements of Chapter 11 that mesh well with our scheme framework, instead of moving to a different system.

Next, Mr Patrick Tay had made several suggestions to protect employees' claims for unpaid salaries. I think it is important to distinguish between two scenarios here. One is where it is a restructuring scenario and the other where it is a liquidation scenario. So, for the proposals concerning employee preferential debts in a winding up, these are related to corporate liquidation, and reforms to that process will be tackled in later phases of amendments to the insolvency framework. They are not pertinent to this set of amendments.

With respect to this set of amendments on restructuring, Mr Patrick Tay asked a question on whether or not you could exempt employee claims from the moratorium. But I think that would defeat the purpose of a moratorium. See, with restructuring, what you are really trying to do is: the company is in trouble, it is bleeding, it has got a problem. You are trying to give it breathing space where it is kind of like a "time out". And the "time out" enables you, hopefully, to get in rescue financing or to see how to restructure it so that it can continue as a going concern.

If it is done well and done properly, then these employees, hopefully, will be able to get their salaries and continue to hold on to their jobs. The difficulty of exempting them from a moratorium is that just as you are talking to somebody who is prepared to give you rescue financing, then suddenly an employee claim comes and then another group of employee claims comes. And the management is trying to fight and hold off these claims as you are talking with the people who are going to put in financing. It does not enable the management to focus on getting the company back on its feet. So, the restructuring context is slightly different and the whole idea of the moratorium is to give the company time to take stock of all the different debts and try to get it back on its feet, hopefully, for the betterment of all the creditors, including the employees, and have the employees continue in employment.

Moving on, Mr Louis Ng queried why Article 25 of the Model Law was amended. States are given the flexibility to modify this Model Law and many jurisdictions have adopted the Model Law with amendments. The amendments to Article 25 have been made to give our Courts flexibility in cooperating with foreign courts and practitioners. It is also in line with other jurisdictions, such as the UK.

In this regard, Mr Edwin Tong has noted that the Supreme Court of Singapore has adopted the Judicial Insolvency Networks' Guidelines on Cooperation and Communication in Cross-border Insolvency Cases. These guidelines are a bespoke framework which will guide our Courts on communication and coordination with other courts in cross-border insolvency matters. Additionally, aside from Singapore, the guidelines have also been adopted by the US Bankruptcy Courts of Delaware and the Southern District of New York. Other courts are also expected to adopt these guidelines in the near future.

Let me next address the specific questions raised on other amendments in the Companies (Amendment) Bill. Mr Louis Ng has asked whether companies that have re-domiciled to Singapore under the new inward re-domiciliation regime can represent themselves as Singapore-registered companies upon issuance of the Notice of Transfer by ACRA, or only after ACRA is satisfied with the submission of documents evidencing de-registration in the company's prior place of incorporation.

Under the new regime, a re-domiciled company will be treated as a Singapore-registered company upon issuance of the Notice of Transfer. However, if the company subsequently fails to submit documents showing its de-registration from its country of domicile, ACRA may revoke its registration in Singapore.

Mr Louis Ng has also suggested giving re-domiciled companies an additional 30 days, on top of the proposed 60 days, to issue share and debenture certificates. The proposed 60-day period in the Bill is equivalent to that of public companies to issue share and debenture certificates. The proposed period is sufficient for re-domiciled companies since the certificates will be for existing shares or debentures that are issued under the law of jurisdiction from their home jurisdiction. Furthermore, the interest of the share or debenture holders in obtaining the certificates also have to be considered.

Mr Louis Ng has asked about the circumstances under which the Registrar will approve a company's application to have its first financial year longer than 18 months. It is not prudent to comprehensively set these out as the reasons will vary with the unique circumstances of each company. The registrar will assess each application based on its own merits.

Mr Louis Ng's other question is on the five-year record retention period for struck-off companies. The Bill sets out the minimum retention period. We have set it at five years after considering the five-year period set by FATF and GF. The UK and Hong Kong also adopt similar periods.

Let me now turn to Mr Murali Pillai's comments on the register of controllers. First, Mr Pillai has asked whether the Government has considered delaying the implementation of the register of controllers until such time when there is a level playing field amongst major financial centres.

There is strong and growing international momentum to increase transparency of beneficial ownership through the implementation of registers of controllers. In June 2015, the European Union issued the Fourth Anti-Money Laundering Directive to require member states to maintain central or public registers of beneficial owners. Australia and Hong Kong are also conducting public consultation on similar reforms. We are also mindful of the impact of these changes. Thus, the Bill will only require companies to maintain the registers. We have also not gone as far as to require a central or public register of controllers.

Second, Mr Murali Pillai has asked about the amendment on establishing the state of mind of an entity for the purposes of criminal proceedings. Specifically, Mr Pillai has asked why the amendment adopts the "agency principle" and not the common law position on "identification principle".

Before I address this comment, let me first provide the context of the amendment and elaborate on the "agency principle" and the "identification principle" cited by Mr Pillai. The Companies Act contains offences that apply to companies. As a company is a legal entity, it can only act through individuals. The agency and identification principles are used to determine the state of mind of a company when ascertaining whether the company committed an offence. The "agency principle" states the mind of a corporation's officer, employee or agent as that of the company.

In contrast, the "identification principle" takes into account a narrower range of individuals, usually the senior management and company directors.

For the register of controllers, the amendment on the state of mind of an entity uses the "agency principle". This is because the proposed obligations for companies, such as sending notices to potential controllers, are likely to be performed by companies' officers and employees. The provision is also a standard clause in recent Bills, such as the Info-communications Media Development Authority Act 2016, SkillsFuture Singapore Agency Act 2016, Credit Bureau Act 2016 and the Government Technology Agency Act 2016.

Mr Murali Pillai has also suggested giving financial institutions access to the register of controllers to facilitate their customer due diligence processes. We have considered this issue carefully as the issue was also raised during our engagement with stakeholders. There were concerns about privacy and potential misuse if the register of controllers is available for public inspections. Such concerns apply even if access is limited to certain professional intermediaries. As this will be a new register, we decided to take a more conservative approach by restricting access to the register only to the Registrar and public agencies for the purpose of administering and enforcing their respective laws.

Let me now turn to some of the comments and questions raised by Mr Dennis Tan. I think the Member's first comment was why it was necessary to bring this Bill so quickly. He appreciated that there was a report but he had hoped for more time to consider.

In fact, the restructuring amendments on which the Member spoke were contained in the report for the recommendations to enhance Singapore as a restructuring hub. That report came out on 20 April 2016, and it has been in the public domain. We went for public consultation in October and December 2016, and effectively, substantively, the provisions that we are putting in place now are the same. There is very little change from the report because the comments that we got back were really sort of finetuning comments.

The Government gave its response on 20 February. We brought it in at this time really because, given the current economic climate, we do not want to lose the opportunity of Singapore being a restructuring hub with these enhanced provisions as soon as possible.

Mr Dennis Tan may recall a Pacific Andes Resources Development case. That was heard in September of last year and our High Court held that we did not have the jurisdiction to grant the worldwide moratoriums. That restructuring did not take place here.

In this current environment where you can actually see that there are many companies which have a need for restructuring, we felt that it was imperative to put these amendments in place as soon as possible, so that our Courts will not lose the opportunity to hear such restructuring cases and it would also be good for our professionals, especially those in the restructuring space, because the sooner this is in place, the sooner our people will be able to get their share of the work and do the restructuring work that is very much clearly in demand out there.

Mr Dennis Tan also asked whether ACRA will provide some literature on minority rights in view of these amendments. And the answer is yes. ACRA will put the materials on its website after the Bill is passed and it will continue to engage with companies to disseminate information to the minorities who will know what their rights are. I think that is an important thing to do.

Mr Dennis Tan also raised the point about inward re-domiciliation and said that he hoped that this would not incur the ire of some other countries. We certainly hope not. In so far as tax and corporate re-domiciliation are concerned, it is very important to establish or reiterate that, from the Singapore perspective, we are a jurisdiction where there must be substantive activity for tax purposes. We certainly do not wish to be a centre where you just come here purely for tax purposes without any underlying substantive activity. And we abide by the arms-length principle for pricing of related party transactions and there are also mechanisms in place for the exchange of information among tax authorities. So, I think the underlying principle here is that we are a substantive jurisdiction and not one of those where you can just come here purely for tax purposes.

Finally, Mr Dennis Tan asked about clause 25 and the portion which allows for the Minister to designate certain institutions. This relates to the carve-out of entities from judicial management. The thinking for this is really to consider excluding financial institutions. This was done with input from the Monetary Authority of Singapore (MAS). And the reason is that, for financial institutions, there is a bespoke resolution regime which is administered by MAS to restructure these entities. So, there is a specialist route or track for financial institutions.

Our current provisions already carve out some financial institutions like banks and insurance companies. What the amendments do is they will allow the Minister to designate some additional financial institutions but, primarily, it is because it is a specialist track and this is something which really best comes under the purview of MAS. Madam, with this, I beg to move.

Mdm Speaker: Any clarifications? Yes, Mr Edwin Tong.

Mr Edwin Tong Chun Fai: The Senior Minister of State mentioned that the sooner this is emplaced, the better. May I ask when it is intended that this be gazetted and to be taking effect?

Ms Indranee Rajah: As soon as possible after this Bill is passed.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Ms Indranee Rajah.]

Bill considered in Committee; reported without amendment; read a Third time and passed.