AC2302 Company Law & Corporate Governance

Seminar Solutions 8A

Discussion Questions

A. What are the key rules governing disclosures by:

 officers of the company;
 shareholders;
 the company itself
in relation to the promotion of good corporate governance? How do these rules promote good
corporate governance?

- Disclosure for Officers: Seminar Notes 8AB

- Disclosure for Substantial Shareholders: Seminar Notes 8AC
- Disclosure for Company: Seminar Notes 8AD

B. Revisit the concepts of “direct interest”, “indirect interest” and “deemed” interest in shares as
they relate to “substantial shareholders”.

- Concepts of Interest in Shares: Seminar Notes 8AA (1)

 How is a “substantial shareholder” defined?

- Definition of Substantial Shareholder: Seminar Notes 8AC (1)

 Under what circumstances must a substantial shareholders comply with disclosure

requirements relating to their interests in shares?

- Criteria for compliance: Seminar Notes 8AC (2)

C. What are key general disclosure obligations of companies? Are there additional disclosure
obligations for listed companies?

- Key general disclosures: Seminar Notes 8AD (1)

- Additional disclosures for listed companies: Seminar Notes 8AD (2)

 Examine section 203 of the SFA and Chapter 7 of the Listing Manual. How do they
interact with each other and what are their purposes?

- Seminar Notes 8AD (2)(b)

  Explain what is an ‘Interested Persons Transaction’ under chapter 9 of the SGX
Listing Manual and its relationship with section 156 of the Companies Act.

- Seminar Notes 8AD (2)(d)

 Broadly explain the various circumstances whereby a listed company would have to
comply with disclosure and approval requirements when it acquires or disposes of
assets.

- Seminar Notes 8AD (2)(e)

Case Study

(a)(i) Based on only Registered SH: Alex, Tony, Chin Holdings are definitely substantial shareholders.
But still need to know whether they have deemed interests.

The table shown only gives the registered shareholdings of the respective shareholders in MGG. It is
also possible that members such as Tony, Alex, SK & Chin Holdings, and other members not in the
table at all, have indirect/deemed interests in the shares of MGG as well, which cannot be
determined from the registered shareholdings based on the register of members alone. Hence,
information is needed from each of them to determine:

- [S4 (1) SFA] Authority/control over disposal: Whether each of them has authority to dispose
of or exercise control over disposal of securities

- [S4 (3) SFA] Shares held in trust: Whether each of them knows/has reasonable grounds for
believing that he has an interest under a trust, e.g. any of the nominee companies in the
table

- [S4 (4) SFA] Deemed Interest in shares held by body corporate that person can control:
o Whether any company in the table (E.g. Chin Holdings Pte Ltd) is accustomed/ under
obligation to act in accordance with each of their directions
o Whether each of them has a controlling interest in any of those companies

- [S4 (5) SFA] Deemed interest in shares held by body corporate in which a person/his
associates are entitled to control exercise of minimally 20% of votes:
o Where each of them, or his associates, are entitled to exercise/control exercise of at
least 20% of votes attached to voting shares in any of the companies listed in table
o Hence, also need each of them to disclose if they have any such associates in any of
the companies listed in the table (e.g. Chin Holdings Pte Ltd), as defined by S4 (6)
SFA

- [S4 (7)(b) SFA] Interest in shares held by nominee banks (e.g. OCBC Nominees)
With this set of information, we will be able to determine, as at date of preparation of Register of
Substantial Shareholdings, the interest in shares of all members. Register will only include
substantial shareholders in MGG, i.e. those with interests in 1 or more voting shares in MGG and
total votes attached to those shares is at least 5% of total votes attached to all voting shares of MGG
(excluding treasury shares). In other words, SK will only be included if he has deemed interest in
shares, which, together with actual holdings, add up to at least 5% of total votes.

For nominee companies such as OCBC Nominees Pte Ltd and DBS Nominees Pte Ltd, who are agents
holding shares on behalf of their principals, any principals who are the beneficial owners of at least
5% of total voting shares in MGG (including interest in such shares) via any of the nominee
companies are also required to notify company. Hence, the information about shareholdings (as per
above) must be obtained from such principals. S137A & S137B provides safeguards for both agent &
principals to make sure that principal complies with notification requirements.

Substantial shareholders, as above, are required to notify MGG in writing of their interest in shares
within 2 business days after person is aware that he is a substantial shareholder by SFA S135.
Similarly, substantial shareholder has to inform MGG within 2 business days of becoming aware of
any changes in interests [SFA S136] or cessation to be substantial shareholder [SFA 137]. Otherwise,
it constitutes a criminal offence. In addition, for cases of non-compliance, SFA 137F allows MGG to,
by written notice, require members to inform it as to whether member holds any voting shares in
MGG as beneficial owner or trustee. Where company receives disclosure from member, they can
send a further tracing notice to any person named in disclosure.

(a)(ii) Given that Chin Holdings Pte Ltd currently holds 5.04% registered shareholdings in MGG, it
likely meets the definition of a substantial shareholder as per SFA S2 (4). We discuss 2 circumstances
where Chin Holdings would have to comply with disclosure requirements relating to changes in
shareholdings.

The first case is any increase in shareholdings of MGG Ltd. By SFA S136, Chin Holdings need to
disclose to MGG via written notice changes in percentage level of interests in voting shares, within 2
business days after becoming aware of the change. Percentage level is defined as total votes
attached to voting shares in which Chin Holdings has interests, as a % of total votes attached to all
voting shares of MGG, rounded down to nearest whole number. In the case whereby Chin Holdings
do not have indirect interest in shares of MGG, i.e. only 5.04%, it would only need to comply with
disclosure requirements if it gains at least 0.96% more shares (to 6.0% or more). If it has indirect
interests, then it will comply if there is any increase/decrease in interests to the next whole number
(rounded down). Note that this is unlike officers of MGG (i.e. Alex, Tony, SK), who have to disclose
any change in shareholdings.

The second case is decrease in shareholdings of MGG such that Chin Holdings cease to be a
substantial shareholder. This occurs if MGG’s shareholdings (assuming no indirect interests) fall
below 5% of total votes attached to all voting shares of MGG. In such case, by S137 SFA, Chin
Holdings must send written notice to MGG within 2 business days after becoming aware that it
ceases as substantial shareholder.

Also mention S137A and S137B, since for Chin Holdings, it is the agents that trade on its behalf.
Person must take reasonable steps to ensure that agent notifies him ASAP to enable him to comply
with notification requirements. Agent must give principal notice of any such shares
acquired/disposed ASAP to enable latter to comply with notification requirements. Both no later
than 2 business days.

(b) Alex is the Director & CEO of MGG. The fact that he is diagnosed with renal failure is likely to
count as a material information – such information could likely affect the value of MGG’s securities.
Also, it is not likely to fall under Rule 703 (3) of SGX Listing Manual for information where disclosure
need not apply. Hence, under SGX Listing Manual Rule 703 (1) on Disclosure of Material Information,
MGG has to announce this information to the public.

Additionally, if Alex ceases to be the CEO and director of MGG and another person is instead
appointed, MGG needs to comply with SGX Listing Manual Rule 704, and immediately announce the
occurrence of this specific event.

If MGG fails to comply with requirements in SGX Listing Manual, SGX can impose sanctions against
MGG and/or its officers, including public reprimands, trading suspensions, de-listing. In addition, SFA
S203 kicks in. SFA S203 states that listed corporation like MGG shall not intentionally, recklessly or
negligently fail to notify SGX of required disclosure obligations. Otherwise, MGG may receive a civil
penalty order; or if non-compliance is carried out intentionally or recklessly, MGG shall be held guilty
of an offence. Where offence is proved to be committed with consent or connivance of, or
attributable to any neglect on the part of any officer of MGG, the officer and MGG shall be guilty of
that offence under SFA S331.

(c) Given that the question pertains only to the disclosure obligations of MGG, we shall not discuss
issues such as duty to avoid COI & S156, which are disclosure obligations of directors such as SK. In
general, CA S199 (1) states that every company is required to keep accounting and other records.
Thus, regardless of the option that MGG would take, the relevant accounting entries must be made
to comply with S199. Secondly, if the ultimate agreement made would materially affect value or
price of its securities, MGG would need to comply under SGX Listing Manual Rule 703 (In the early
stages of negotiation where nothing is confirmed, and information is confidential to keep the deal
competitive, S703 (3) exception could apply – But once deal is confirmed, should disclose under
Rule 703 if likely to affect share price materially).

If MGG purchases patents from LSK Pte Ltd, Chapter 9 of SGX Listing Manual on Interested Person
Transactions (IPT) may apply. This is because the patent purchase (the transaction in question) may
involve an entity at risk, i.e. MGG, and an interested person, if LSK Pte Ltd qualifies to be an
associate of SK or Chin Holdings (only if Chin Holdings is controlling shareholder of MGG). Hence, the
first information required is any such information relating to whether LSK Pte Ltd qualifies as an
associate of SK or Chin Holdings, and also whether Chin Holdings if a controlling shareholder of
MGG. Next, if this qualifies as IPT, then the next information needed is: (a) MGG’s (or its group’s)
latest audited net tangible assets; (b) details about previous dealings with LSK Pte Ltd in the same
Financial Year. Both information would combine to determine if immediate announcement and/or
shareholder approval is required. This is provided the patent purchase would not be transacted at
below $100,000 – otherwise no disclosure obligations or shareholder approval is required under
Chapter 9.

Is LSK an interested person? For transaction between LSK and MGG:

- LSK cannot be a director or CEO, since LSK is not a natural person.

- LSK as a controlling shareholder of MGG, if LSK controls 15% shares of MGG. May happen if
LSK have deemed interest in MGG (E.g. own shares through nominee companies)
- LSK as an associate of director, CEO, controlling shareholder of MGG, yes if:
o Where SK is a Director, CEO, controlling shareholder of MGG: If SK’s immediate
family members or company in which he and his immediate family owns 30% in LSK,
then LSK is SK’s associate
o Where Chin Holdings is a controlling shareholder of MGG: If Chin Holdings owns 30%
in LSK, then LSK is Chin Holding’s associate

For wholly owned subsidiary, Chapter 9 may also apply since to make LSK a wholly owned subsidiary,
MGG would need to buy shares from the current shareholders of LSK. IPT may apply since current
shareholders include SK and Chin Holdings, who may be interested persons. Hence, for transaction
between SK/Chin Holdings and MGG:

- SK is a director of MGG. Entity at risk is MGG. Definitely IPT.

- Chin Holdings may be a controlling shareholder of MGG (e.g. it has a lot more deemed
interest to make up 15%). Otherwise, Chin Holdings may be an associate of
director/CEO/controlling shareholder of MGG; for example, if Alex (director/CEO) or Tony
(director) holds more than 30% shares in Chin Holdings (associate).

Regardless of either transaction, chapter 10 of SGX Listing Manual would apply. Given that this is an
asset acquisition, information required includes: (a) net profits attributable to LSK Pte Ltd compared
to MGG’s net profits; (b) aggregate value of consideration given to LSK Pte Ltd compared to MGG”s
market capitalization; and (c) number of equity securities issued by MGG as consideration for
acquisition compared with MGG’s existing number of equity securities. These would be required to
compute bases under Rule 1006, to determine disclosure/approval obligations of MGG.