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'Safe Harbour' Exemptions Under The Securities and Futures Act
September 2005 | Corporate | Business Bulletin

Introduction 
The Securities and Futures Act (Chapter 289) of Singapore (the "Securities and Futures Act") was enacted in 2001 to regulate activities and institutions in the securities and futures industry in Singapore. The Securities and Futures Act sets out, amongst other things, the framework and legal requirements relating to all offers of investments of securities in Singapore.

On 25 January 2005, Parliament enacted the Securities and Futures (Amendment) Act 2005 (the "Amendment Act") which adopted most of the recommendations of the Company Legislation and Regulatory Framework Committee. Except for the amendments in relation to Part XIII of the Securities and Futures Act, the rest of the Amendment Act has come into effect on 1 July 2005.

This article will discuss the two new exemptions introduced by the Amendment Act. These exemptions, which form part of the amendments to Part XIII of the Securities and Futures Act, have not come into effect as at the date of this article.

Two main exemptions to the prospectus requirement
Prior to the Amendment Act, a prospectus is required in order for a person to make an "offer to the public" of securities for investments. The Securities and Futures Act, however, does not define what amounts to an "offer to the public" and an issuer of securities for investment would have to rely on decided judicial cases for guidance. The Amendment Act removes the existing distinction between public and private offers and replaces that with an approach requiring a prospectus for all offers of investments, unless specifically exempted under the Securities and Futures Act. In this regard, it introduces, amongst other things, two new exemptions that will allow small offers and private placements to be made without a prospectus.

1. Small offer exemption
To qualify for the small offer exemption, an offer must satisfy the "personal offer" test and the total amount raised through the offer must not exceed S$5 million during any 12-month period. An offer will be considered a "personal offer" if it is made on the basis that the offer may only be accepted by the prospective investors alone and the offer is made to prospective investors who have previous contact, previous professional or other connections with the issuer, or who have previously indicated that they are interested in offers of that kind.

In addition, certain formal requirements and marketing restrictions would have to be observed. The offer must explicitly include a statement to the effect that the offer is made in reliance of the exemption and is not accompanied by any prospectus and a notification highlighting the resale restrictions applicable to a small offer. The offer may not be accompanied by any advertisement calling attention to the offer and no selling or promotional expenses should be paid in connection with the offer. Securities acquired under this exemption may only be resold (a) with a registered prospectus, (b) where the subsequent offer is in itself a personal offer or (c) six months after the initial acquisition without a prospectus or compliance with the "personal offer" requirement.

2. Private placement exemption
Private placements are offers of securities made to not more than 50 investors within any 12- month period provided that such offers are not accompanied by any advertisement and no selling or promotional expenses is paid in connection with the offer. In ascertaining the number of investors to whom an offer is made, an offer made to an entity or a trustee will be considered an offer made to a single investor if the entity or trust was not formed primarily to acquire the securities offered or to circumvent the limit on the number of investors.

Both the private placement and small offers exemptions further provide that closely related offers must be aggregated when considering whether the prescribed capital threshold (under the private placement exemption) or the number of investors approached (under the small offer exemption) has been observed. Accordingly, an issuer may not undertake a large offer in the guise of numerous smaller offers that would individually satisfy the exemptions.

Conclusion
In adopting the approach of specifying all instances where a prospectus will not be required, the Amendment Act has removed the ambiguity inherent in the Act in relation to what amounts to an "offer to the public". This is an astute step forward and by clarifying the parameters within which capital-raising exercises may be undertaken without incurring regulatory costs to satisfy the prospectus requirement, the exemptions discussed in this article will facilitate capital raising by small and medium enterprises.

At the same time, by providing that closely related offers may be aggregated in considering the small offer and private placement exemptions, the Amendment Act has achieved a balance by ensuring that these exemptions are not easily circumvented. What remains to be considered are the factors that the Monetary Authority of Singapore will prescribe as relevant in determining whether apparently separate offers are to be treated as closely related offers that merit aggregation under the exemptions.