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Amendment To Companies Act
June 2005 | Corporate | Business Bulletin

On 16 May 2005, the Companies (Amendment) Bill 2005 was passed by Parliament and will come into effect on such date as the Minister may by notification in the Gazette, appoint. The Bill will make major amendments to the Singapore company law regime.

We look briefly at the amendments and some of the implications. The latest amendments to the Companies Act ("the Act") set out in the Bill implements most of the recommendations made by the Company Legislation and Regulatory Framework Committee ("CLRFC") appointed by the government in 1999 to review the corporate regulatory framework of Singapore. The final report of the CLRFC was accepted by the government in 2002.

The Bill covers, among other things, the following:

1. abolishing the concepts of par value and authorised capital;
2. providing a capital reduction process not requiring court sanction;
3. liberalising financial assistance restrictions on the acquisition of shares;
4. permitting share buybacks and redemption of preference shares, by companies out of capital or distributable profits;
5. introducing treasury shares; and
6. adopting an amalgamation process for companies without court order.

Par Value and Authorised Capital
The new amendments abolish the concepts of par value of a share and authorised capital. The concept of par value is considered outdated and not an accurate indicator of a company’s value. Removal of authorised capital removes the upper limit on the number of shares that a company may issue, which limit is thought to serve no prudent purpose. The amendments do not affect the relevancy of issued and paid capital of a company, which will no longer be measured against the nominal par value of the shares, but instead against the actual number of shares issued and the capital actually paid up.

Capital Reduction
Under section 73 of the current Act, a company was permitted to reduce its share capital only if authorised by its articles by special resolution and subject to confirmation by court order. Section 73 is repealed by the Bill and replaced with new Sections 78A to 78K.

The new Sections 78A to 78K introduce an alternative capital reduction regime, which removes the need for court sanction for reduction of capital under certain conditions, though preserving the procedure for capital reduction by court order (new section 78I). Companies may reduce their share capital through shareholders’ special resolution subject to any restriction in company’s memorandum or articles against capital reduction by the new procedure and subject to meeting certain solvency and publicity requirements. The directors of the company must make and file a solvency statement, which must be made available to the shareholders and creditors of the company.

The Ministry of Finance has indicated that regulations will be made to prescribe that public companies will be required to publish a notice of reduction in advance in a national newspaper; and that private companies may either publish in a newspaper or inform their creditors directly by notice. The amendments also provide for an objection procedure for creditors against the capital reduction. The company must also inform the Comptroller of Income Tax of the passing of the special resolution for capital reduction.

Financial Assistance
Financial assistance restrictions in section 76 of the Act have also been eased, allowing assistance by a company to a third party for acquisition of its or its holding company’s shares up to 10% of the aggregate paid up capital and reserves of the company, or if all the shareholders agree to provide assistance. A solvency statement of the company has to be made by its directors to support the assistance.

Section 76 has also been amended to clarify that representations, warranties and indemnities provided by the company, in good faith and in the ordinary course of commercial dealings, in the context of an offer of shares in the company to the public, will not be construed as financial assistance.

Share Buyback
Prior to the amendments, share buybacks by a company were permitted to be funded only out of its distributable profits. The amendments will allow companies to buy back shares or redeem preference shares out of profits or paid-up capital subject to solvency requirements.

Treasury Shares
Currently all shares bought back by a company must be cancelled. The amendments provide for companies to hold re-purchased shares in treasury instead of cancelling them. By introducing treasury shares, the amendments hope to ease capital restructuring and facilitate future capital raising without the issuance of new shares. Voting and dividend rights of re-purchased shares are suspended while held in treasury.

Amalgamation
Finally, new sections 215A to 215J allow amalgamation of companies, including holding companies and their subsidiaries, without a court order. The amalgamation proposal must be approved by shareholders’ special resolutions in general meeting of each amalgamating company, and supported by solvency statements of each company and of the amalgamated company, made by the directors of each amalgamating company. The directors of each amalgamating company must send the amalgamation proposal to each secured creditor of the company and publish the proposal in at least one daily English newspaper circulating generally in Singapore. The court may modify or injunct the amalgamation if, on application by a shareholder or creditor of the amalgamating company, it is shown that the amalgamation would unfairly prejudice a shareholder or a creditor of an amalgamating company. The procedures may be simplified for amalgamation of a holding company and any of its wholly owned subsidiaries, or between the subsidiaries, subject to solvency requirements.

The government has announced that it will continue to look into implementing the few remaining recommendations of the CLRFC, including its recommendation to adopt the UK’s statutory restatement of general principles of directors’ duties, as well as regularly review the laws to keep up with global developments. The government has consistently strived to update Singapore’s legal regime to provide flexibility and the appropriate structures to enhance Singapore’s attractiveness for business.