Companies, Business Trusts and Other Bodies (Miscellaneous Amendments) Bill

Order for Second Reading read.

Mdm Deputy Speaker: Second Minister for Finance.

3.06 pm

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

Madam, this Bill makes four key sets of amendments to the Companies Act.

The first three sets of amendments are aimed at promoting a more pro-business environment whilst upholding market confidence and safeguarding public interest.

The fourth set of amendments, which applies to several Acts, permanently provides companies, business trusts and variable capital companies with the option to conduct fully virtual or hybrid meetings. Let me now take Members through the four key sets of amendments.

The first set of amendments at clause 10 makes refinements to the framework for the compulsory acquisition of shares under section 215 of the Companies Act. When a prospective buyer seeks to acquire a company, he or she may be able to obtain acceptances from a significant majority of shareholders but still be unable to obtain the approval of all the company's shareholders for his bid. This could be the case if minority shareholders are intentionally holding out for a higher offer.

Therefore, the compulsory acquisition framework under section 215 of the Companies Act allows the buyer to acquire the shares of dissenting shareholders, on the condition that his offer is accepted by at least 90% of the company's other shareholders who are unaffiliated with the buyer. This is also known as the 90% threshold for compulsory acquisition.

The intent of such a framework is to address stalemates, such as the scenario mentioned earlier, while safeguarding the rights of minority shareholders. Under the compulsory acquisition framework today, shares held by the buyer as well as shares held by nominees and corporations related to the buyer, are already excluded from the computation of the 90% threshold.

We have been monitoring the use of the compulsory acquisition framework over the years and have observed attempts by some shareholders to circumvent the existing exclusions by making an acquisition offer through special purpose vehicles. This would allow their shares to be included in the computation of the 90% threshold and make it easier to trigger the right of compulsory acquisition.

Such practices may be unfair, especially if the buyer is already a controlling shareholder with a significant proportion of the shares of a company. Minority shareholders may then have little bargaining power in relation to the offer price.

As such, we will make amendments to tighten the compulsory acquisition framework, by expanding the definition of persons and entities who are considered to be related to the buyer. Specifically, three additional categories of persons will be excluded when computing the 90% compulsory acquisition threshold.

These three categories are: (a) bodies corporate who are controlled by the buyer; (b) persons who are controlled or can be influenced by the buyer to approve of his takeover offer, for example, his close relatives and bodies corporate controlled by such persons; and (c) persons who control the buyer and the bodies corporate controlled by such persons. This means that even if a person makes an offer through a special purpose vehicle, the person's shares will be excluded from the computation of the 90% threshold since the person also controls the special purpose vehicles.

These additional exclusions will apply prospectively to an offer made on or after the commencement date of the amendment. These exclusions will also apply to revised offers if the original offer is made before the amendment's commencement but is later revised on or after the commencement date.

This amendment will provide greater protection to minority shareholders. The Government will continue to monitor the market and update our legislation where necessary, to ensure fair commercial practices.

The second set of amendments at clauses 5 and 28 relate to the disqualification of persons as directors under section 155A of the Companies Act. Currently, any disqualified director who wishes to act as a director of a company must apply to the Court for permission to do so. This requires an application by the disqualified director and various supporting documents, such as affidavits and submissions. This process can be cumbersome, costly and lengthy.

Under the Bill, we will allow disqualified directors to apply to the Registrar of Companies for permission to act as a director of a company. This will shorten the process and also make it cheaper for disqualified directors to do so.

Directors disqualified under section 155A can continue to apply to Court for permission to act as a director of a company. However, a disqualified director who has applied to the Registrar for permission to act as a director of a company will not be allowed to simultaneously apply to the Court for permission while the application to the Registrar remains pending.

We have also reviewed the length of the disqualification period under section 155A. Currently, the length of the disqualification period is fixed at five years for all disqualified directors. To better reflect the culpability of a disqualified director, the Bill will reduce the disqualification period for first-time disqualified directors to three years, while keeping that for repeat disqualified directors at five years.

Third, the amendments clarify when the disqualification provision under section 155A(1) applies. The Court of Appeal has held that based on the ordinary meaning of the current language of section 155A(1), where a director has had one company struck off previously and subsequently has two companies struck off on the same day, section 155A does not apply.

We have studied the Court's decision carefully and have decided to amend the section to make clear the policy intention, which is that directors are disqualified so long as they have had at least three companies struck off by the Registrar. A director with three companies struck off by the Registrar within five years would be hard put to argue that these occurrences are entirely fortuitous. It suggests a consistent pattern of the director not fulfilling his or her statutory obligations. That is the underlying rationale of this disqualification provision and the amendments will enable it to be given proper effect.

The third set of amendments at clauses 9 and 11 serves to update the penalties imposed on directors of companies for the failure to prepare and table financial statements in compliance with the prescribed accounting standards in Singapore.

Today, companies incorporated in Singapore and their directors must comply with the Companies Act, which requires them to present their financial statements in accordance with the prescribed accounting standards. The financial statements must give a true and fair representation of the company's performance.

The Accounting and Corporate Regulatory Authority (ACRA) regularly reviews its penalty regime by comparing that with those in other leading common law jurisdictions. We found that when compared to equivalent offences in other jurisdictions, there is scope to increase our penalties.

Therefore, we will increase the maximum penalty from the current $50,000 for offences relating to not having true and fair financial statements that comply with the accounting standards.

The maximum penalty for cases where there is no intent to defraud will be raised to $250,000.

The maximum penalty for offences where there is intent to defraud will be raised to $250,000 and three years' imprisonment.

This is necessary to deter corporate malfeasance and to signal the seriousness with which we view fraud-related offences.

Finally, the fourth set of amendments will permanently provide companies, business trust and variable capital companies with the option to conduct fully virtual or hybrid meetings. The amendments for the companies are provided for under clauses 2, 6, 15 and 16 of the Bill. Similar amendments will also be made for business trusts and variable capital companies.

Today, our laws provide for general board and other types of meetings to be conducted, but do not explicitly specify the mode of conduct – for instance, whether these meetings may be held physically, virtually or in a hybrid manner.

During the pandemic, to provide greater clarity, we introduced temporary legislation to enable companies, business trust and variable capital companies to hold meetings virtually so that they could continue to convene meetings in a manner that minimised COVID-19 transmission risks. The temporary legislation will cease on 1 July 2023.

To continue enabling virtual or hybrid meetings, in addition to the physical meetings which they are already able to hold under existing legislation, we will make enabling provisions to clarify that companies, business trusts and variable capital companies may conduct their meetings, including general meetings in a hybrid or fully virtual manner from 1 July 2023.

The enabling provisions mean that entities' constitutions and the regulations issued by the respective regulators will ultimately determine if such meetings are allowed and how they are to be conducted. Entities can choose to continue with physical meetings, if they prefer.

Due to the use of technology, some virtual hybrid meetings may encounter technical issues that may be beyond the control of the entities. Under the amendments, such technological disruptions, malfunctions or outages, in and of themselves, will not cause a meeting to be invalidated. However, we will provide a safeguard for shareholders to apply to the Court if these technical issues result in substantial injustice.

This is consistent with the approach adopted for other types of procedural irregularities that occur during company proceedings.

The amendments will facilitate the use of electronic media and technology, by providing entities with the flexibility of holding hybrid or virtual meetings, while ensuring that shareholders rights are upheld.

In conclusion, Mdm Deputy Speaker, we review the Companies Act regularly to keep pace with changing market conditions and technologies, while upholding market confidence and safeguarding public interests. This ensures that the companies operate in a responsible and ethical manner with a focus on creating long-term value for all stakeholders. Mdm Deputy Speaker, I beg to move.

Question proposed.

Mdm Deputy Speaker: Mr Louis Ng.

3.18 pm

Mr Louis Ng Kok Kwang (Nee Soon): This Bill will allow companies and other corporate entities to conduct virtual or hybrid general meetings. This aligns our company and corporate law provisions with the technological reality of the business environment today. I have three points to make.

My first point is on the Court's power to invalidate meetings. The new section 392(2A) allows the Court to declare a meeting invalid if there is a technological disruption, malfunction or outage that has or may cause substantial injustice that cannot be remedied. Can the Minister provide examples on what the Court should deem as substantial injustice that cannot be remedied? A technological disruption may affect only a portion of the proceedings for a meeting.

It is not clear from the new provision if the Court has the power to declare only part of the meeting invalid. Can the Minister clarify whether the Court has the power to invalidate only a portion of a meeting if a technological disruption affects only a limited portion of the meeting?

My second point is on the deliberate or malicious disruption of meetings. Virtual or hybrid meetings that are held virtually may expose the company to greater risk of disruption by malicious actors through technological means. For instance, if a meeting is not proceeding in the manner desired by one party, it is possible that the party may set out to disrupt the meeting such that it is later invalidated by the Court. Can the Minister share if the Ministry has considered the need to introduce new offences for individuals who take steps to disrupt meetings with the intention that the meeting proceedings be invalidated?

My third and final point is on the requirements for meetings held using virtual meeting technology. The Bill clarifies how requirements applicable to a company and other corporate entities' meetings are applied for a meeting held using virtual meeting technology. Feedback in the public consultation on the Bill included a suggestion to grant more flexibility on how the identity of persons attending and voting at meetings should be verified.

A number of provisions allow the directors of the company or corporate entity to determine requirements on the conduct of virtual meeting technology if requirements are not prescribed by the Constitution. These include the method for verifying the identity of persons voting, the mode of synchronous communication and the mode for making a document available.

It is practical to provide flexibility for the directors to decide how these requirements should be met given the practical consideration for their entities. However, basic safeguards or requirements should be set to ensure the integrity of meetings. Can the Minister share if guidance will be provided to directors on best practices in determining the requirements that should be applied for the conduct of meetings?

Madam, notwithstanding these clarifications, I stand in support of the Bill.

Mdm Deputy Speaker: Mr Dennis Tan.

3.21 pm

Mr Dennis Tan Lip Fong (Hougang): Mdm Deputy Speaker, I declare that I am a practising lawyer, whose work routinely involves issues on company law matters.

I will be speaking briefly on the intent of this Bill to amend the Companies Act 1967, the Business Trusts Act 2004, the Variable Capital Companies Act 2018 and the Singapore Labour Foundation Act 1977 to provide for meetings using virtual meeting technology. Such meetings may include annual general meetings (AGMs), extraordinary general meetings or other type of meetings.

The amendments provide for meetings to held in three scenarios: one, at a physical place; two, at a physical place and using virtual meeting concurrently, that is, a hybrid meeting; and three, just using virtual technology only.

One of the greatest lessons which COVID-19 has taught us is to hold virtual meetings like over Zoom or Microsoft Teams, instead of requiring in-person meetings. We learned how to hold a variety of online meetings. Besides board or business meetings, we have got used to having classes, seminars, conferences over Zoom. We even had so-called online rallies during the General Election 2020.

In fact, some of us are so used to having virtual meetings that we cannot go back to having some of our physical meetings and have continued with virtual meetings. I therefore welcome the statutory recognition of virtual meetings in some of our laws under this Bill.

Mdm Deputy Speaker, virtual AGMs and shareholder meetings for companies were introduced under the COVID-19 (Temporary Measures) Act in 2020. The COVID-19 (Temporary Measures) (Alternative Arrangements for Meetings) Orders enabled entities such as companies, variable capital companies and business trusts to conduct meetings electronically, notwithstanding any prior prohibitions under the law or under the entities' constitutions or other governing instruments.

It was actually meant as a temporary measure to comply with safe-distancing requirements during the pandemic. The proposed amendments will allow companies to hold their AGMs and shareholder meetings virtually, even after the enabling COVID-19 provisions allowing virtual meetings are revoked in July.

Mdm Deputy Speaker, I do, however, understand that the amendments recognising virtual meetings are subject to each company's constitution. So, if I understand correctly, companies can still stipulate in their constitution that an AGM, for example, needs to be carried out physically, effectively excluding a person attending virtually.

While it remains to be seen how many of our companies will retain virtual meetings or having hybrid meetings, there are some who question whether the Bill should even have retained the rights of companies and their management to insist on 100% physical attendance.

One of my Hougang residents, a full-time investor, shared some concerns on this. He said that allowing shareholders the option to attend the meetings virtually will also enable those who are not able to be physically present to tune in and receive updates from the company's management. He is concerned that even with the proposed changes, many companies may still be requiring or insisting on physical attendance alone or may not allow virtual or hybrid meetings.

For investors like himself who may be shareholders of different companies, with many companies having their financial year ending on 31 December, most of them will be conducting their AGMs at around the same time. On some days, shareholders may have to attend different AGMs within the same day or even at the same time but at different locations. If many companies are still insisting on physical attendance alone and do not allow virtual or hybrid meetings, many shareholders like my constituent may not be able to make it to all the meetings and have to pick and choose which meeting to attend. He feels that such a scenario will be a step backward from our current situation and as a digital nation, and there might be a wastage of some of the extensive resources already invested in technology which made possible the many virtual meetings for companies and organisations.

I certainly hope that most of our companies will at least provide hybrid options for meeting attendance in line with our current common practice of having virtual meetings and not make physical meetings for meetings, such as AGMs, a mandatory requirement.

Having said that and in all fairness, there are benefits to having physical meetings. In fact, the challenge for some companies or organisations post-COVID-19 is how to get people back to work together physically again and resume physical meetings, having gotten used to working and having meetings virtually.

On the other hand, allowing online meetings will also reduce the need to travel or commute for meetings. It allows people to attend meetings while they are away or travelling. It may also reduce travelling and commuting and contribute to our nation's net-zero goals too. I certainly favour keeping such an option open and I would agree with my resident that allowing hybrid meetings may well boost overall attendance.

Mdm Deputy Speaker, next I have one clarification for the Minister. I note that the Bill does not seem to address the issue of where any such virtual or hybrid meetings would be deemed to be held jurisdictionally. I am concerned that the amendments today should not bring any unintended ambiguity or implication on the deemed location of such virtual or hybrid meetings, especially if the people attending some of these meetings would be in different jurisdictions and thereby having any knock-on effect on other issues, such as the tax residency of a Singapore-incorporated company.

Mdm Deputy Speaker, apart from the concerns I have raised, I support the Bill.

Mdm Deputy Speaker: Minister Indranee Rajah.

3.27 pm

Ms Indranee Rajah: Mdm Deputy Speaker, I would like to thank Mr Louis Ng and Mr Dennis Tan for their comments and support of the Bill. Mr Ng raised three points of clarification on fully virtual or hybrid general meetings, while Mr Tan sought clarification on the locations of virtual meetings and its implications, and also raised the point with regard to whether physical meetings may be still insisted upon by companies. Let me address these in turn.

First, Mr Ng asked about the Court's power to invalidate meetings. As I had explained in my speech earlier, the new section 392(2A) under clause 15 of the Bill will allow shareholders to apply to the Court for a company's meeting to be invalidated, if they suffer substantial injustice due to disruptions, malfunctions or outages that are technological in nature.

Whether or not there has been "substantial injustice" will be decided by the Court depending on the facts and circumstances of the case. The established principles in determining the threshold of "substantial injustice" that have been applied to the existing section 392(2), which the new section 392(2A) is modelled on, include the following.

First, there must be a direct link between the technological disruption, malfunction or outage and the injustice suffered.

Second, the injustice must be "substantial", in that it was real rather than theoretical or fanciful.

Third, the aggrieved party must show that there may or could have been a different result in the meeting, if not for the occurrence of the technological disruption, malfunction or outage.

And fourth, the determination of substantial injustice involves a holistic weighing and balancing of the various interests of all the relevant parties.

In other words, the Court will take a holistic and balanced approach in determining whether a meeting should be invalidated, depending on the facts of the case.

While the Court has the power to invalidate all or only a portion of a meeting, it will be used judiciously. Invalidation is usually the relief of last resort, where other remedies would not be appropriate, in order to achieve a just result – for example, in cases where the substantial injustice suffered cannot be otherwise remedied by any other order of Court.

Next, Mr Ng asked if we have considered introducing new offences to punish individuals who disrupt fully virtual or hybrid meetings through technological means with the malicious intention to invalidate these meetings. At this juncture, there is no need to introduce new offences for such a situation. There are existing legislative levers, such as the Computer Misuse Act of 1993, to investigate any deliberate or malicious disruption such as by way of hacking.

Mr Ng also asked if guidance will be provided on the best practices for conducting meetings using virtual meeting technology. The answer is yes. The various regulators have already issued or will issue materials drawing from the lessons learned in conducting such meetings during the COVID-19 pandemic. For instance:

(a) the ACRA will be issuing a set of frequently asked questions (FAQs) to directors and companies on the legislative amendments for virtual and hybrid meetings. These FAQs will be updated on an ongoing basis to address common queries received from the public.

(b) Singapore Exchange's (SGX's) Practice Note 7.5 on General Meetings also provides more detailed guidance to listed issuers on how hybrid general meetings may be conducted. The practice note provides details on the requirement to provide shareholders with the opportunity to ask written questions within a reasonable time prior to general meetings and the safeguards required to validate votes.

(c) in addition, the SGX, the Singapore Institute of Directors and the Chartered Secretaries Institute of Singapore outlined standards for service providers of virtual meeting technology. This set of standards enhances the market's understanding of virtual meeting technology and facilitates effective shareholder engagement.

Mr Tan had raised a couple of points – the first on what happens if companies still insist on having physical meetings.

As far as the amendments go, what the amendments do is that they provide an additional option. So, currently, you can have physical meetings, but what the legislation does is that it enables companies to also choose a hybrid option or a virtual option. We do not want to be overly prescriptive because, generally, this is something that should be left for companies to decide. And I think one of the things that investors will surely take into account is the ease and convenience with which they can transact their dealings with the company.

Clearly, this is something that we will watch and see whether any further amendments need to be made, but the current situation is such that the options are there. We leave it to the companies to determine what is best for themselves in terms of how to conduct business. And I feel fairly sure that if they chose a course of action that was inconvenient to their shareholders and their investors, the likelihood is that the shareholders and investors will give the necessary feedback that will enable the company to change its practice.

The second clarification that Mr Tan had raised was where virtual meetings would be deemed to be held jurisdictionally and the implications that that might have on the tax residency of a company.

The Companies Act in general, as it currently stands, does not prescribe jurisdictional requirements for where company meetings are deemed to be held. And the amendments being introduced today do not make any change to this position. So, in short, nothing that is being moved for the amendment today will change what is currently the law under the Act.

Specifically, the amendments only clarify that nothing in the Companies Act prevents board of directors' meetings from being conducted virtually and do not change the current position in the Companies Act where board of directors' meetings may be conducted virtually.

Similarly, the tax residency of a company will continue to be determined by where the business is controlled and managed, which is where the decisions on strategic matters are made. Ultimately, a company's tax residency would be determined on the facts and circumstances of each case.

I think that the specific question that Mr Tan has in mind is that because in the case of a virtual meeting you do not have one particular location – so, where do you say that the meeting has been held?

Thus far, the Courts have been able to make determinations on where the company's place of residence is for various purposes. I would not think that that would be very different in this case. So, without in any way constraining how the Courts may decide to determine the matter, one imagines that the Court would apply first principles such as, for example, looking to see where the company has its management and control located, and relevant factors may include where the meeting was organised, where the material was sent from; basically, where the organisational centre of that meeting was.

But like I said, I do not wish to constrain the Courts in any way and they should have the full ability to decide based on the facts and circumstances of each case.

These amendments will enable entities to conduct virtual or hybrid meetings should they do so and they should be mindful of the regulations issued by the respective regulators. So, for example, SGX has publicly communicated that SGX-listed issuers may conduct physical or hybrid general meetings from 1 July 2023 onwards. This provides issuers added flexibility to decide the format of meeting that suits their shareholders needs and facilitates shareholder engagement.

Mdm Deputy Speaker, let me conclude. These proposed amendments will permanently provide companies, business trusts and variable capital companies with the option of conducting fully virtual or hybrid meetings through the use of technology. The other amendments also strengthened Singapore's corporate governance regime by upholding market confidence and safeguarding public interests. These amendments are crucial to ensure that our legislation remains relevant and future ready. Mdm Deputy Speaker, I beg to move.

3.36 pm

Mdm Deputy Speaker: No clarifications? Alright.

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.

Mdm Deputy Speaker: Order. I propose to take a break now. I suspend the Sitting, and will take the Chair again at 4.00 pm.

Sitting accordingly suspended

at 3.39 pm until 4.00 pm.

Sitting resumed at 4.00 pm.

[Deputy Speaker (Ms Jessica Tan Soon Neo) in the Chair]