1. Following the moves in Australia, China, Japan, the UK and the US to safeguard strategic sectors, the Ministry of Trade and Industry recently introduced the Significant Investments Review Bill (Bill) earlier this month, to ensure the continuity of critical entities in light of the increasing geopolitical tensions across the globe. With this new law, it is hoped that by imposing certain safeguards for government oversight with regard to strategic sectors, the resilience of Singapore’s economy would be strengthened, and our national security would be enhanced.
2. The second reading of the Bill is expected to be in January 2024, and if the Bill is passed, it will likely take effect a few months later.
3. Currently, businesses, including critical businesses are regulated by a range of sectoral legislation, which include ownership and control safeguards, to monitor and manage entities in regulated sectors such as telecommunications, banking and utilities. The Bill is meant to complement existing legislation by regulating entities which are not adequately covered under these legislation.
4. Only entities that are critical to Singapore’s national security interests will be designated under this regime (designated entities) and will be regulated. Entities which have acted against Singapore’s national security interests may also have their transactions reviewed under certain circumstances, even if they have not been designated.

Primary Features of the Bill

(A) Provisions that Apply to Designated Entities

Under the new regime, entities which are incorporated, formed, or established in Singapore; carry out activities in Singapore; or provide goods and services to persons in Singapore may be designated as significant investments, and will be subject to the following requirements:

1. Notification or approval obligations for specified changes in ownership or control of designated entities will be imposed on buyers, sellers and the designated entities. For instance, buyers into designated entities are required to notify the Minister after becoming a 5% controller; and to seek the Minister’s approval before becoming a 12%, 25%, or 50% controller, an indirect controller, or acquiring as a going concern (parts of) the business or undertaking. Sellers are required to seek the Minister’s approval when ceasing to be a 50% or 75% controller. Designated Entities need to notify the Minister of the above-mentioned changes in ownership and control after becoming aware of the events. Transactions that occur without the necessary approvals will be rendered void, but materially affected parties can apply for validation notices.
   
   
2. Remedial directions may be issued under certain circumstances. For example, a party may be ordered to transfer or dispose of equity interests held in the designated entities, if conditions of approval have not been complied with.
   
   
3. Designated entities will be required to seek approval for the appointment of key officers such as the chief executive officer, directors, and the chairperson of the board. Such officers may be removed if they have been appointed without approval or if conditions of approval are breached. The Minister may also remove key officers in the interest of national security.
   
   
4. Designated entities will also be subject to other provisions to ensure the security and reliability of their critical functions. For example, designated entities cannot be voluntarily wound up or dissolved without the Minister’s consent. Should national security issues arise or should the delivery of essential services be disrupted, orders can be given to direct the assumption of control of the designated entities’ affairs, business, and property, to ensure their continuity.

(B) Provisions that Apply to Any Entity that Has Acted against National Security Interests

The Bill will also empower the Minister to review ownership or control transactions involving an entity that has acted against Singapore’s national security interests even if the entity has not been designated. Targeted actions can be taken, such as directing the transacting party to dispose his equity interest in the entity.

(C) Provisions for Reconsideration Requests and Appeals

In the event that parties that wish to seek reconsideration for decisions by the Minister, and for further appeals to an independent Reviewing Tribunal. Under the proposed Bill, the reviewing Tribunal will consist of three individuals appointed by the President on the advice of the Cabinet, including the chairperson who is a Supreme Court judge.

Impact on Businesses in Singapore

1. We expect that the main impact on businesses which operate in strategic sectors is that any shareholding or leadership changes would be subject to government approvals. These businesses may also be subject to certain additional laws which may prevent them from being voluntarily wound up or dissolved without approval.
2. While it is still unclear which specific sector would be regulated under the new Bill, because of the Ministry of Trade and Industry’s repeated pronouncements that it is critical for Singapore to remain open and connected to the world, we would expect that Singapore would continue to take a nuanced approach toward regulating businesses. In this regard, it would bear noting that one critical difference between Singapore and many other countries is that the proposed legislation applies to both local as well as foreign investors, so that all investors are on a level playing field, regardless of nationality.