April 28, 2016
After a series of public consultations by the Steering Committee for the Review of the Companies Act, key provisions in the Companies Act (Cap 50) of Singapore (Companies Act) were identified for reform and refinement. The resultant Companies (Amendment) Bill 2014 incorporating such proposed amendments was passed by the Parliament in October 2014, with the changes to the Companies Act effected in two phases, on 1 July 2015 and 3 January 2016 respectively.
Eight days after the second phase of changes, on 11 January 2016, the Singapore Exchange Securities Trading Limited (SGX) introduced a consultation paper proposing amendments to the SGX Listing Rules for both Mainboard and Catalist for alignment with the Companies Act amendments, as well as policy positions highlighted by other recent statutory amendments (Consultation Paper). These proposed amendments deal with, among others, insurance coverage and indemnities for directors, voting by certain shareholders, and treatment of shares held by a subsidiary in its holding company. The proposed amendment which was afforded the most extensive discussion and questions in the Consultation Paper was in relation to electronic transmission of notices and documents.
Under the revised Companies Act, with effect from 3 January 2016, companies are permitted, and given the freedom of deciding whether, to specify in their constitution that electronic methods of transmission of notices and documents to their shareholders will be used. If and where so permitted under the constitution, consent of the shareholders is to be obtained.
Such consent may either be express, implied or deemed:
- “Implied consent” is if the constitution provides for the use of electronic communications and specifies the manner of such use, and provides that the shareholder shall agree to such mode of communication without the right to elect to receive physical copies of notices and documents.
- “Deemed consent” is similar to the foregoing, except that instead of shareholders not having the right to elect, the constitution specifies that shareholders will be given the opportunity to elect within a specified period of time whether to receive electronic or physical copies of notices and documents. To the extent that a shareholder fails to make an election within such time, consent will be deemed to have been granted.
In subsidiary legislation that also took effect on 3 January 2016, additional safeguards are provided for.
These safeguards include:
- mandatory notification directly in writing by the company to shareholders, under the deemed consent regime of, among others:
(a) the right of election whether to receive notices and documents by way of electronic communications or as a physical copy, and the consequences of failure to elect;
(b) the manner in which electronic communications will be used is specified in the company’s constitution;
(c) the election is a standing election but the shareholder may make a fresh election at any time; and (d) until the shareholder makes a fresh election, the election that is conveyed to the company last in time prevails over all previous elections as the shareholder’s valid and subsisting election in relation to all documents and notices to be given, sent or served;
- where a company gives, sends or serves any notice or document to a shareholder by way of electronic communications by publishing the notice or document on the company’s website, the company must give separate notice to the shareholder (using such means as may be specified in the company’s constitution) of the publication and the manner in which the notice or document may be accessed; and
- notices and documents relating to take-over offers or rights issues of the company are excluded from transmission by electronic means.
In the Consultation Paper, the SGX expressed its support of the move towards electronic transmission of notices and documents from the environmental, cost-savings and speed in accessibility perspective, but expressed its cognizance of concerns of shareholders who have yet to embrace technology. Additionally, the SGX recognised that once shareholders approve the implied consent regime as an amendment to the company’s constitution, an implied consent regime forces the electronic option on shareholders who may not have approved of the amendment, and noted that some shareholders may have concerns with an implied consent regime as it does not allow shareholders to subsequently elect for physical copies of notices and documents.
Accordingly, the proposal by the SGX in the Consultation Paper was to amend the listing rules to allow electronic transmission of notices and documents only if express consent or deemed consent is obtained, which excludes implied consent as a permissible regime. In addition, the SGX posed a question to consult the public on potential concerns with an implied consent regime and whether it should be allowed for listed companies.
On this note, it bears highlighting that the express consent and deemed consent regimes may be administratively laborious as, in both cases, prior consent from its shareholders will have to be obtained (whether deemed or expressly) for notices or documents to be given, sent or served in electronic form. In addition, to the extent consent is not obtained from some shareholders (whether expressly so under the express consent regime, or from opting out under the deemed consent regime), the company may have to cater for both channels to be maintained through physical and electronic means.
Document categorisation for electronic communication versus physical copies
While subsidiary legislation specifically excludes notices and documents relating to take-over offers or rights issues of the company from transmission by electronic means, the SGX goes beyond these two stated classes of corporate actions. In the Consultation paper, the SGX provides a list of corporate actions which ought to be sent by physical copy, on the basis that these actions may have a significant dilutive effect on a shareholder’s shareholding interest or have a substantial impact on a shareholder’s interest in the listed company, and which contain important procedural instructions and forms or acceptance letters shareholders may be required to complete. Apart from take-over offers or rights issue (which would fall squarely into such categories, and which is already precluded from electronic transmission), the SGX also set out a proposed extensive, non-exhaustive list of 12 matters falling within either of these categories. These matters include, among others, issuances of shares, company warrants and convertible securities (excluding those made pursuant to a general share issue mandate or share option or share scheme), preferential offerings, privatisation proposals, major transactions, very substantial acquisitions or reverse takeovers, merger, reorganisation or winding up proposals, interested person transactions (except for renewal of existing interested persons transaction mandate) and voluntary delistings. As proposed in the Consultation paper, only documents relating to routine matters would be sent by electronic means to reduce operational costs. Such routine matters include, among others, annual reports, share buyback mandates and share option schemes.
Accordingly, the SGX sought views on which documents ought to be included in each category.
Safeguards for electronic transmission
Apart from the safeguards prescribed by subsidiary legislation, the SGX proposes to adopt additional safeguards if website publication is chosen as the means of electronic transmission, to ensure shareholders are notified as and when documents are available on the website, such as via physical copies of notification letters, email or short message service. In addition, concerns on logistical issues on electronic transmission and the difficulty of ensuring the authenticity of return documents by shareholders to listed companies via electronic means, were raised. On this note, proposed solutions raised in the Consultation Paper include sending, by physical means, notices of meetings, notices that documents are available by electronic means, and procedural forms that shareholders may need to complete. Accordingly, the SGX sought feedback on proposed safeguards for the electronic transmission regime.
The electronic transmission regime was introduced into the Companies Act with the aim of enabling companies to reduce cost and increase efficiency, and accordingly the view taken by the Steering Committee for Review of the Companies Act was to ease the rules for electronic transmission and take a less prescriptive approach, with the aim of allowing companies to decide whether to adopt such a regime in its constitution, and how such electronic transmission should be effected. The Steering Committee for Review of the Companies Act, in an apparent recognition of the logistical difficulty for listed companies in introducing and administering such a regime with a large and fluid shareholder base without prejudicing any part of it, recommended that the SGX be at liberty to prescribe additional safeguards as may be appropriate for listed companies.
The multiple queries posed in the Consultation Paper thus reflect the cautious attitude that the SGX is taking in whether to allow electronic transmission for listed companies, and recognise the regulatory concerns of the SGX in introducing and administering such a regime, taking into account the interests of the shareholders of listed companies.
Consultation was closed on 21 February 2016, and the SGX is currently reviewing the responses received from market participants. It is unclear at this stage whether the SGX will permit electronic transmission, and if so permitted, the degree of safeguards to be introduced. However any consideration of safeguards ought not to limit or negate the potential advantages that electronic transmission seeks to offer. As it is, the stock exchanges in the United Kingdom, New Zealand and Hong Kong already allow for listed companies to communicate with its shareholders via electronic means, in varying extents, with the same underlying motivations behind the revisions to the Companies Act. It is therefore timely that the SGX has recognised the global market trend in this area, and introduced the Consultation Paper a mere eight days after the revisions to the Companies Act were effected. Various listed companies, in recognition of this likely trend, since January 2016, have introduced various forms of electronic transmissions through amendments to their constitution, though cautiously (and well-advisedly so) they have ensured that such amendments are only effective where the SGX’s listing rules permit.