June 1, 2013
On 2 May 2013, the Ministry of Finance (MOF) and the Accounting and Corporate Regulatory Authority of Singapore invited the public to provide feedback on the draft Companies (Amendment) Bill 2013 (Draft Bill). The Draft Bill is the culmination of a review process which began in 2007. Earlier on 3 October 2012 the MOF accepted, with some modifications, the 217 recommendations made by the Steering Committee on the proposed amendments to the Companies Act. For a general commentary on the recommendations attention is drawn to the article titled “Administration of Companies in Singapore under the Proposed Changes to the Companies Act” first published in the March 2012 issue of the Rodyk Reporter.
This article focuses on a selection of three issues which were addressed in the review, considering the rationales behind the relevant provisions and the effect of the proposed amendments. These issues occur fairly regularly in the course of general corporate and commercial practice.
Written resolutions The current sections 184A to 184F were enacted in 2003 to facilitate shareholders of a private company in passing resolutions without having to meet in person. The enactments aligned the requisite thresholds for approval whether resolutions are passed at a meeting or in writing.
Prior to the enactments, shareholders had to be in unanimous agreement to pass circular or written resolutions. Ordinarily, as in the case of resolutions at a meeting of shareholders, 50% or 75% approval is required to pass ordinary or special resolutions respectively.
Certain safeguards were also put in place. A resolution to dispense with the holding of general meetings under section 175A(1) and a resolution for which special notice is required, such as pertaining to the removal of directors, liquidators or auditors, were excluded. This was to allow such persons an opportunity to be heard at a meeting of shareholders. Likewise the right of the minority to be heard has been protected in that holders of at least 5% of the voting rights in a company may require that a general meeting be convened instead of the resolution being passed by written means.
The Steering Committee recommended that the requisite majority vote requirements for the passing of written resolutions in private companies should not be changed while at the same time suggested some clarifications to the form and the manner in which such written resolutions should be applied.
The Draft Bill prescribes the following clarifications/amendments:
- A written resolution will be passed once the required majority signs (emphasis added) the written resolution, subject to a contrary provision in the memorandum or articles of the company.
- A written resolution will lapse after 28 days of it being circulated if the required majority vote is not attained by the end of that 28-day period. A company will have the flexibility to provide in its articles that a written resolution does not lapse, or will lapse within such shorter or longer period as the articles may prescribe.
- The procedures for written resolutions will also apply to unlisted public companies in addition to private companies.
The above clarifications to the procedures for the passing of written resolutions will further aid the process for companies to make decisions efficiently and expeditiously.
The solvency test was introduced as a safeguard when capital reductions without the need for the sanction of the court became permissible. Currently there are various solvency tests under the Companies Act in respect of different transactions. For instance the solvency statement to be given in the context of a financial assistance being rendered differs from that for share buybacks.
Under the share buyback provisions, the applicable solvency test is that of a company being able to pay its debts in full at the time of payment made in connection with the buyback.The Steering Committee found the foregoing test unduly onerous as “most companies would hold non-cash assets which would have to be liquidated if they were to pay their debts”. In contrast, the test under section 7A which is to be applied in relation to the giving of financial assistance, redemption of preference shares out of capital and reduction of share capital (Section 7A Solvency Statement) states that based on the company’s situation currently, there are no grounds on which the company could be found to be unable to pay its debts and the same being the case within the following period of 12 months, and that the value of the company’s assets will not become less than the value of its liabilities after the transaction in question. The Steering Committee found the latter test to be preferable.
Currently, the Section 7A Solvency Statement has to be in the form of a statutory declaration. The Steering Committee noted that, in practice, directors were reluctant to sign statutory declarations because of the perceived implications pertaining to such declarations under the Oaths and Declarations Act (Oaths Act). It was suggested that the requirement for the solvency statements to be made as statutory declarations was not probusiness keeping in mind that there were penalties for the making of false statements under the Companies Act.
Under the Draft Bill, the following changes in respect of solvency statements will be made:
- The Section 7A Solvency Statement will be adopted as a single uniform solvency test for all transactions except amalgamations.
- The Section 7A Solvency Statement as well as statements to be given under sections 215I and 215J will be by way of declaration rather than a statutory declaration subject to the Oaths Act.
The MOF is seeking feedback on whether there should be prescribed forms for solvency statements. It is suggested that having prescribed forms will better define the requirements for such statements, thereby contributing to a more uniform standard which everyone may rely upon.
The Companies Act prohibits the giving of financial assistance by a company for the acquisition of its shares or those of its holding company, unless the company may avail itself of the prescribed exceptions.
The express rationales for the prohibitions are to protect creditors and to preserve or maintain the capital of a company. The prohibitions are intended to prevent acts which deplete the assets of a company or put such assets at risk. However the Steering Committee received feedback that the prohibitions as currently drafted may have a broader application in effect than intended. The targeted mischief of protecting creditors and shareholders against misuse of and depletion of a company’s assets would also already be addressed under other provisions of the Companies Act dealing with improper and fraudulent trading in shares. Moreover the Steering Committee acknowledged that in private companies, shareholders exert greater control over any decisions that are made in relation to the giving of financial assistance.
Under the Draft Bill, the following refinements will be made to the regime on the giving of financial assistance:
- The prohibitions under section 76(1) and associated provisions relating to financial assistance shall be abolished for private (emphasis added) companies. The financial assistance prohibitions shall still apply to public companies and subsidiaries while an exception shall be introduced to permit the giving of such assistance if it does not materially prejudice the interests of the company or its shareholders or the company’s ability to pay its creditors.
- Further exceptions shall be introduced to the existing list under sections 76(8) and 76(9).
The removal of the financial assistance prohibitions for private companies is business-friendly and should enable many transactions to proceed which otherwise would have been not practicable or otherwise encumbered by the need to apply the current “white-wash” procedures.
The Draft Bill is available on the MOF website.
As the MOF has indicated that responses to the public consultation will likely be made available in the last quarter of 2013, it is anticipated that the amendments under the Draft Bill may be passed into law as early as the middle of 2014.