Companies Act amended to enhance transparency

Parliament also passed changes to two related laws yesterday. The existing rules governing limited liability partnerships will be changed to reflect those of the Companies Act. In addition, amendments to the Trustees Act require trustees to maintain
Parliament also passed changes to two related laws yesterday. The existing rules governing limited liability partnerships will be changed to reflect those of the Companies Act. In addition, amendments to the Trustees Act require trustees to maintain beneficial ownership information and proper accounting records of express trusts.ST FILE PHOTO

Other changes seek to help firms restructure debts and reduce regulatory burden

Companies that fall on hard times will find it easier to restructure their debts under changes made to the Companies Act yesterday.

New rules will also kick in by the end of this month to improve transparency in the corporate sector, while some existing regulations will be relaxed for greater ease of business under amendments approved by Parliament yesterday.

Senior Minister of State for Finance and Law Indranee Rajah said the changes "will give business entities in financial difficulties greater flexibility to restructure and survive".

The first set of changes involves the Companies Act adopting various elements of Chapter 11 of the United States bankruptcy code.

When the new provisions kick in, the High Court will be able to order a moratorium in favour of a company proposing or planning to propose a scheme of arrangement for debt restructuring. A scheme of arrangement involves creditors voting on a restructuring proposal.

The moratorium - a temporary protection that stops creditors from claiming the assets of a firm - will be issued automatically upon application for up to 30 days, and it will have a worldwide effect.

  • CHANGES AT A GLANCE

    1 Easier debt restructuring

    • Automatic moratorium for up to 30 days with global effect
    • Rescue financing given higher priority over other debts

    2 Greater transparency
    • Companies to maintain registers of beneficial owners
    • Companies to maintain registers of nominee directors

    3 Reduced regulatory burden
    • Private firms exempted from holding AGMs
    • Foreign companies can transfer registration to Singapore

The lack of a globally recognised moratorium is said to be behind Pacific Andes Resources Development's decision to seek bankruptcy protection in the US last year even though it is listed here.

Other changes in this area will empower the High Court to issue a judicial management order when a company is "likely" to be unable to pay its debts. This loosened clause will allow a judicial management process to start earlier. The court will also be able to give rescue financing "super-priority" over all other debts.

MPs called these amendments timely and appropriate, as the oil and gas sector faces increasing default risks while small and medium-sized enterprises (SMEs) are struggling for working capital.

Mr Edwin Tong (Marine Parade GRC) noted the wider social interest that the rules will preserve, as liquidated companies mean a loss of jobs and livelihoods for Singaporeans. There were 118 winding-up applications in the first half of last year, with 85 liquidated, a high level compared with the past 10 years, Mr Tong noted.

Mr Patrick Tay (West Coast GRC) urged the rules to be further enhanced so that workers of insolvent companies are not neglected in the debt restructuring process.

The second set of changes to the Companies Act will help ensure better transparency and governance.

These include a new requirement for companies to maintain registers - key information such as name and residential address - of their beneficial owners, which are persons or entities with a significant interest or control over the companies. Locally incorporated companies will also be asked to maintain the register of nominee directors, who must in turn disclose the particulars of their nominators.

Nanyang Business School Associate Professor Victor Yeo said this is a boost to Singapore's anti-money laundering regime amid increasing global focus on this front.

"(The new rules) make it easier for regulators to track down foreign holding companies and, in turn, cross-border fund flows. I imagine this could help in cases like 1MDB," he told The Straits Times, referring to the corruption and money laundering scandals around Malaysia's state investment fund.

The transparency-related amendments are expected to kick in by March 31, but a transitional period of 60 days from the start date will be given.

The third set of changes will reduce some regulatory burden. The key amendment here is that all private companies will be exempted from holding annual general meetings (AGMs), subject to safeguards. A new regime will also be in place to allow foreign companies to transfer their registration to Singapore.

The exemption of AGMs will be particularly helpful for SMEs such as interior design firm Apexid. Company director Robin Ng said: "For small companies like mine, we usually hire secretarial firms to handle filing of financial statements and AGMs. Without AGMs we can just file the statements ourselves. This is a welcome move - the less compliance cost, the better for SMEs."

Parliament also passed changes to two related laws yesterday. The existing rules governing limited liability partnerships (LLPs) will be changed to reflect those of the Companies Act.

This means LLPs - a type of entity where individual partners are shielded from liabilities not caused by their own negligence - will be asked to maintain registers of controllers. A LLP's liquidator must also retain its records for at least five years. These amendments will also kick in by March 31, with a 60-day transitional period, Ms Indranee said.

Changes to the Trustees Act were also passed yesterday. The amendments require trustees to maintain beneficial ownership information and proper accounting records of express trusts.

This entails new provisions to empower the Law Ministry to prescribe duties on trustees to obtain and maintain financial records. A breach of these rules can bring a penalty of up to $1,000.

A version of this article appeared in the print edition of The Straits Times on March 11, 2017, with the headline 'Companies Act amended to enhance transparency'. Print Edition | Subscribe