AC2302 Company Law & Corporate Governance

Seminar Notes 8A

A. Introduction: Disclosure Obligations

- Companies, their officers and members are subject to various disclosure obligations
o Required to make certain information available to parties who wish to find out more
about the company
o Disclosure obligations for listed companies are more onerous than for unlisted ones
 Provide more information and greater transparency to market participants

1. Concept of Interests in Shares [S7]

- S7 CA is relevant for:
o Determining directors’ & CEOs’ interests in shares, which must be notified to
company under CA S165
o Determining “20% threshold” for CA S163, on prohibition against grant of financial
assistance to director-related companies
o Determining interests of substantial shareholders in Gazetted entities for disclosure
obligations pursuant to Part IV, Div 4, CA

- S4 SFA is relevant for:

o Determining directors’ & CEOs’ interests in shares, which must be notified to
company under SFA S133
o Determining interests of substantial shareholders of listed corporations for
disclosure obligations pursuant to Part VII, Div 1, Subdiv 2, SFA
- Revision/Summary on Provisions:

- Other deemed interest provisions:

o SFA S4 (1): Person has interest in securities if he has:
 Authority to dispose of those securities
o SFA S4 (3): Person is deemed to have interest in securities if:
 Property held in trust includes securities AND
 Person has interest under trust
o SFA S4 (7): Person deemed to have interest in security if/where he:
 Entered into contract to purchase a security
 Has a right to have security transferred to himself
 Has a right to acquire security under an option
 Is entitled to exercise right attached to a security, not being security of
which he is registered holder

- SFA S4 (10): Deemed interest disregarded for:

o Interest of person who holds security as bare trustee
o Person whose ordinary business includes lending of money
 If he holds security for purpose of transaction w.r.t. lending of money
 o Interest held by him by reason of his holding prescribed office
o Interest of company in its own securities where it acquired under share buyback
o Prescribed interest

2. Terminologies & Definitions

- Associate: In the case of a company (i.e. person is associate of company):

o In relation to director, CEO, substantial shareholder or controlling shareholder
(being an individual):
 His immediate family;
 Trustees of any trust of which he or his immediate family is a beneficiary or,
in the case of a discretionary trust, is a discretionary object
 Any company in which he & immediate family together (directly or
indirectly) have an interest of 30% or more
o In relation to a substantial shareholder or controlling shareholder (being a
company):
 Any subsidiary, holding company, related company of controlling
shareholder
 Company in which controlling shareholder has at least 30% shares in

- Associated Company: Company in which shares held by the listed company or group are:
o At least 20% AND
o Not more than 50% of its shares

- Controlling Shareholder: A person who:

o Holds directly or indirectly 15% or more of the total number of issued shares
excluding treasury shares in the company
 SGX may say that person who satisfies this is not a controlling shareholder
o In fact exercises control over a company

- Immediate Family: A person’s

o Spouse, sibling, parent
o Child, Adopted child, step-child

B. Disclosure Obligations for Officers (Directors & CEOs)

1. Director Duties to Avoid COI [S156 + Common Law]

- Directors need to make disclosures either to BOD or GM when faced with COI situations
o Failure to disclose potential COI gives rise to breach of directors’ duties either at:
 Common Law
 Statute (CA S156)
2. Director and CEO Interests in Shares [CA S165, SFA S133]

- CA S164: Company required to maintain register of directors’ and CEOs’ shareholdings

o Directors & CEOs are required to notify company of:
 Interests they have in company’s shares
 Any changes to such interests
o Requirement for notification is found in:
 Unlisted Companies: CA S165
 Listed Companies: SFA S133

- Note: Difference between Substantial Shareholder & Director/CEO

o Directors and CEOs need to give notice of all changes w.r.t. interests in shares
 Contrast with notice requirements for substantial shareholders (% level
only)
o Directors & CEOs: Interests in shares of family members = interests of Director &
CEO
 Substantial shareholders  No need to count family members interest

(a) CA S165 for Unlisted Companies

- Meaning of Interest in Shares:

o Registered Shareholdings
o Interests of Spouse and Children below age of 18 who are also not directors
o Interests in shares as per CA S7

- Notification:
o Notification in writing within 2 business days after date which:
 Person became director or CEO
 Person acquired interest
 Change in interest takes place
o Defence for director or CEO:
 Proves that his failure to notify was due to lack of awareness of the fact that
caused him to be required to notify

- Consequence:
o Fine not exceeding S15,000
o Imprisonment up to 3 years
o Further fine of S1,000 every day the offence continues

(b) SFA S133 for Listed Companies

 - Meaning of Interest in Shares:
o Registered Shareholdings
o Interests of Spouse and Children below age of 21 who are also not directors
o Interests in shares as per SFA S4

- Notification: Notice containing information prescribed by MAS in prescribed form:

o For change in particulars of interest:
 Within 2 business days after director/CEO becomes aware of change
o For other cases: Within 2 business days of later of:
 Date on which director/CEO is appointed as such
 Date that the person acquired interest

- Consequence:
o If contravention was intentional/reckless:
 Fine not exceeding S250,000
 Imprisonment up to 2 years
 Further fine of S25,000 every day offence continues
o If contravention was not intentional and not reckless:
 Fine not exceeding S25,000
 Further fine of S2,500 every day offence continues
o No proceedings for an offence where civil penalty order has been made against or
agreed to by the offender

C. Disclosure Obligations for Substantial Shareholders

- Substantial shareholders are required to make disclosure about their shareholders

o Generally applies only to listed corporations
o Governed by Part VII, Div 1, Subdiv 2, SFA

1. Definition of Substantial Shareholder

- SFA S2 (6): Substantial Shareholder = Person who has substantial shareholding in corporation
o SFA S2 (4): Substantial Shareholding =
 Interests in 1 or more voting shares in company AND
 Total votes attached to those shares is at least 5% of total votes attached to
all voting shares of corporation (excluding treasury shares)
o Interest: Includes deemed interest under SFA S4

2. Notice Requirements for Substantial Shareholders [SFA S135 – S137]

- Substantial shareholders required to notify corporation in writing of:

o SFA S135: Within 2 business days after person is aware he is substantial shareholder,
  Particulars of voting shares in which they have an interest
 Nature & extent of interest
o SFA S136: Within 2 business days after becoming aware of the change:
Changes in % level of person’s interests in voting shares
% level = Total votes attached to voting shares in which SS has interests, as a
% of total votes attached to all voting shares, or class of shares concerned
 Rounded down to nearest whole number
o S137 SFA: Within 2 business days after becoming aware that he has ceased to be
one
 Ceasing to be a substantial shareholder of corporation

- Where a person arranges for an agent to hold, acquire, dispose voting shares on his behalf:
o S137A: Person must take reasonable steps to ensure that agent notifies him ASAP to
enable him to comply with notification requirements
 No later than 2 business days
o S137B: Agent must give principal notice of any such shares acquired/disposed ASAP
to enable latter to comply with notification requirements
 No later than 2 business days

- It is an offence
o If:
 Any notification requirement is not complied with
 In complying, person furnishes information which is false/misleading
o Penalties:
 Criminal penalties
 Alternative: Civil penalties
 Court also has broad powers to make various orders

D. Disclosure Obligations for Companies

1. General Reporting and Disclosure Requirements

(a) Financial Records [S199]

- CA S199 (1): Every company is required to keep accounting and other records
o So as to:
 Sufficiently explain transactions and financial position of company
 Enable true and fair financial statements to be prepared
o Keep those records such that they can be conveniently and properly audited

(b) Financial Reporting [S201]

- S201: Directors of every company must lay before company, at AGM, its financial statements
prepared in accordance with requirements of applicable accounting standards
o Within:
 18 months after incorporating company
 Subsequently at least once every calendar year, at intervals of ≤ 15 months
o Financial statements made up to a date:
 Listed Companies: ≤ 4 months before date of meeting
 Other Companies: ≤ 6 months before date of meeting
o S201 has since been amended based on the 2017 Amendment
 Refer to Seminar Notes 8F (1) below

- Financial statements must be accompanied by directors’ report

o Containing prescribed information
o Made according to resolution of directors
o Signed by at least 2 directors
(c) Minute Books and Registers [S188, S189]

- CA S188: Companies required to keep minute books which record proceedings of members’,
directors’ & managers’ meetings
o S189: Members entitled to inspect record of proceedings of members’ meetings
 But not records of proceedings of directors’ & managers’ meetings

- Companies also required to maintain other registers

o Open to inspection by members & other parties

(d) Information lodged with ACRA

- Companies required to lodge various documents with ACRA:

o S26 (2) & S33 (9): Alteration of Constitution
o S186: Copies of special resolutions & resolutions which bind any class of
shareholders
o S173 (6): Notification of particulars of its directors, managers, secretaries, auditors
 And changes thereof
o S71 (1A): Notification of alteration of share capital
o S197: An annual return

2. Additional Disclosure Obligations for Listed Companies

- Listed companies subjected to various disclosure obligations by SFA, SGX Listing Manual
o Promote transparency in securities market
o Level playing field for investor
o Mechanisms for improved corporate governance
 (a) Announcing interests in shareholdings (and changes) [SFA S137F – S137G]

- SFA S137G: When director, CEO, substantial shareholder notifies listed corporation of their
interests in shares & any changes, corporation has to announce/disseminate information
o To be done as soon as practicable
 No later than end of business day following day of receipt of notice
o SFA S137G (4): Corporation is guilty of offence if:
 It fails to comply with requirement
 In purported compliance, it announces materially misleading information
o SFA S137G (5): Officer is guilty of offence if:
 Intentionally, recklessly, negligently involved in corporation’s contravention
o For breaches by both corporation & officer:
 Civil penalty order may be made against them

- SFA S137F: Listed corporation may, by notice in writing, require members to inform it as to
whether member holds any voting shares in corporation as beneficial owner or trustee
o Notice in writing must indicate:
 For whom member holds shares as trustee
 The nature of that person’s interest
o Where company receives disclosure from member, they can send a further tracing
notice to any person named in disclosure
 Follow-up notices if there are several layers of persons/entities
o Offence for a person to whom notice is served to:
 Fail to comply with notice
 Give false statements in response to notice
o Function of tracing provision:
 Enables listed company to discover who controls voting rights
 Assists in proper functioning of takeover provisions

(b) Continuous Disclosure Obligations [Chap 7, SGX Listing Manual]

- Rules require listed company to disclose information relating to company as and when they
take place (i.e. continuously) through an announcement via SGXNET
o SFA S203: Offence if company does not comply

- SLM, Rule 703 (1): Disclosure of Material Information

o Issuer must announce any information known to issuer concerning it, its
subsidiaries, or associated companies, which:
 Is necessary to avoid establishment of false market in issuer’s securities OR
 Would be likely to materially affect price/value of its securities
o Rule 703 (2): Does not apply where:
 Information would be a breach of law to disclose
 o Rule 703 (3): Does not apply where:
 Reasonable person would not expect information to be disclosed AND
 Information is confidential to the company AND
 Information concerns an incomplete proposal/negotiation OR
 Information is insufficiently definite to warrant disclosure OR
 Information is generated for internal management purposes of entity OR
 Information is a trade secret
o Also necessary to comply with SGX’s Corporate Disclosure Policy
- SLM, Rule 704: Lists specific events, occurrence of which warrants immediate
announcement
o General matters of significance relating to company, such as:
 Any change of address of company’s registered office
 Proposed alteration of company’s constitution
 Calls on partly paid securities
o Appointments or cessation of office of key persons (E.g. Directors, CEO)
o Appointment of special auditors
o Information concerning General Meetings
o Specified significant acquisitions or realisations of shares
o Winding-up or judicial management applications
o Results and declaration of dividends
o Book closure dates
o Dealings in treasury shares
o Grant of options or shares under employee share/share option scheme
o Use of IPO proceeds
o Loan agreements or issue of debt securities that make certain references involving:
 Shareholding interests of controlling shareholders
 Change in control of company

(c) Disclosure in Annual Report

- Chap 7 & 12 of SLM provides for specified information that is to be included in annual report
to be given to shareholders of listed corporation
o Rule 710: Corporations must describe corporate governance practices with specific
references to principles of Singapore Code of Corporate Governance
 Disclose also any deviation from any guideline of the Code
 Provide appropriate explanation for such deviation in annual report

(d) Disclosure in Interested Person Transactions (IPT) [Chap 9, SGX Listing Manual]

- Listed companies need to make disclosures w.r.t. IPT

o IPT is different from CA S156 although both deals with situations of conflict
 Covers more persons that just director & CEO
  Covers not just listed company but their subsidiaries & associated
companies
 May require disclosure or shareholder approval depending on quantum
o Provides for a specific type of conflict situation
 Where person closely associated with company transacts with it

- IPT: Involves an “entity at risk” and an “interested person”

o Rule 904: Interested person (i.e. Person in conflict):
 Director, CEO, controlling shareholder (≥ 15%) of listed corporation
 Associate of any such director, CEO, controlling shareholder
o Rule 904: Entity at risk:
 Issuer (i.e. Listed Corporation)
 Unlisted subsidiary of issuer
 Unlisted associated company of issuer, which is controlled by the listed
group OR listed group + interested persons [Associate = 20% to <50%]
o Transactions include:
 Provision or receipt of financial assistance
 Acquisition, disposal, leasing of assets
 Provision or receipt of services
 Issuance or subscription of securities
 Granting or being granted options
 Establishment of joint ventures or joint investments
o Transactions above are IPT regardless of:
 Whether or not in the ordinary course of business
 Whether or not entered into directly/indirectly

- Rule 905: Threshold for immediate announcement:

o If single IPT’s value is at least 3% of group’s latest audited net tangible assets:
 Make immediate announcement of the IPT
o If sum of all IPTs entered into with same interested person during same FY is at least
3% of group’s latest audited net tangible assets:
 Make immediate announcement of latest and all future transactions
entered into with the same interested person during that FY
o Exception: Where transaction is below $100,000

- Rule 906: Threshold for shareholder approval:

o If single IPT’s value is at least 5% of group’s latest audited net tangible assets:
 Obtain shareholder approval for the IPT
o If sum of all IPTs entered into with same interested person during same FY is at least
5% of group’s latest audited net tangible assets
 Obtain shareholder approval for the latest (only) IPT
  Exclude in aggregation any IPT previously approved by shareholders, OR is
the subject of aggregation with another transaction approved by
shareholders
o Exception: Where transaction is below $100,000

- Summary of Rules 905 & 906: Compare single/sum of IPT against group’s latest audited NTA
o If below 3%:
 No immediate announcement
 No shareholder approval
o If between 3% (inclusive) and 5% (exclusive):
 Immediate announcement of single/all IPT
 No shareholder approval
o If 5% and above:
 Immediate announcement of single/all IPT
 Shareholder approval for latest IPT

(e) Disclosure for certain Realizations & Acquisitions [Chap 10, SGX Listing Manual]

- What the company needs to do depends on size of bases under Rule 1006:
o Net asset value of assets to be disposed of (Not Applicable for Asset Acquisition)
 Compared to group’s net asset value
o Net profits attributable to assets acquired/disposed of
 Compared to the group’s net profits
o Aggregate value of the consideration given or received
 Compared with issuer’s market capitalization (total number of issued shares)
o Number of equity securities issued by the listed co as consideration for an
acquisition
 Compared with the number of equity securities previously in issue
o Aggregate amount of reserves to be disposed of (Not Applicable for Asset
Acquisition)
 Compared with aggregate of group’s reserves
 (f) Consequences of Non-Compliance with SLM Disclosure Obligations [SFA S203]

- Consequences of Non-compliance with SGX Listing Manual:

o SGX impose sanctions against corporation and/or its officers
 E.g. Public reprimands, trading suspensions, de-listing
o SFA S203: Listed corporation shall not intentionally, recklessly or negligently fail to
notify SGX of required disclosure obligations; Otherwise:
 Civil penalty order against corporation
 If intentional/reckless: Corporation guilty of offence

E. Information to be Lodged with ACRA by Company (Supplementary)

1. Disclosure of Particular Events to ACRA

- CA requires companies to disclose to ACRA details of certain events when they occur
o Method of disclosure:
 Using many forms prescribed for use under CA OR
 File requisite notices electronically
2. Annual Return

- S197: Every company is required to lodge an annual return with Registrar

o For companies having share capital and keeping branch register outside SG:
 Lodged within 60 days after AGM
o For all other companies:
 Lodged within 30 days after AGM

- For companies who dispensed with holding AGM under S175A:

o For companies having share capital and keeping branch register outside SG:
 Lodged within 60 days after start date
o For all other companies:
 Lodged within 30 days after start date
o Start Date = Later of:
 Date on which company sent a copy of its FS and balance sheet to all
persons entitled to receive notice of GMs under S203 (1) OR
 Date on which all resolutions by written means were passed

- Taking into account the changes in 2017 Amendment on AGM dates, the table below shows
the time frame for lodging annual returns
o Time frame for AGM:
 Listed Company: Must hold AGM within 4 months of end of FY
 Unlisted Company: Must hold AGM within 6 months of end of FY
o The below table also applies to companies dispensed with holding AGM
  Members of such private companies may however require company to hold
AGM upon giving required notice under S175A (4)
 If company had already lodged annual return by the time the AGM date is
set, company must notify Registrar of date of AGM within 14 days after that
date

- S197 (1B): Permits companies to apply for time extension to file annual returns

(a) Information in Annual Return

- Annual return is in a prescribed form and may be accompanied by prescribed documents

o According to class/description of company, the following may differ:
 Particulars contained in annual return
 Documents to accompany annual return
o Annual return may be filed by:
 Company officers, i.e. director or company secretary
 Professional films, i.e. audit firm, law firm, corporate secretarial firm

- Documents accompanying annual return:

o Statement as to where the register of controllers & nominee directors are kept
 May be kept at company’s registered office OR
 May be kept at registered office of a registered filing agent of company
o Statement of directors
o Financial statements
o Auditors’ report on financial statements
 Unless exempt from audit requirements [S205B, S205C]
o Confirmation of solvency for only exempt private company
 Show that it is able to meet its liabilities as and when they fall due

- To be exempted from audit:

o For single company (not part of a group), it must be either:
 Small company, as defined in 13th schedule
  Dormant (no accounting transaction occurs) from time of formation OR
since end of previous FY
o For company that is part of a group, it must be:
 Small company AND
 Group must be small group

F. Periodic Financial Reporting (Supplementary)

- Pt VI of CA: Contains financial reporting and audit requirements that apply to companies
o Investor protection mechanism: Requires managers, directors to disclose the
financial position, management, operation of company
 Reduce extent to which members are vulnerable to fraud, negligence or
over-reaching by company’s management
o Enable members to use their control rights in an informed manner
 By allowing access to performance of company’s management periodically
 Important corporate governance measure
o Important in maintaining an informed and transparent market for securities
 Via provision of standardized information about companies’ performance

1. Financial Statements (As per 2017 Amendment)

- S201 (1): Directors of every company must lay before company, at its AGM, the FS for the FY
w.r.t. the AGM that is being held
o Companies which require time extension to prepare FS:
 Have to apply to extend time frame within of holding AGM instead

- For consolidated reporting by companies in a group:

o Directors of the parent company, at end of FY, must lay before company, at its AGM:
  The consolidated FS for the FY w.r.t. the AGM that is being held
 The balance sheet of parent company at end of FY
o 2 documents serve different functions:
 Consolidated FS: Deals with financial position & performance of group
 Balance Sheet: Deals with state of affairs of parent company

(a) For companies exempted from laying FS before company

- Companies which need not hold AGM under S175A:

o Private company, with resolution passed unanimously by members at GM to
dispense with holding AGMs
o Private company, which has sent to all persons entitled to receive notice of GMs, a
copy of its FS, and auditor’ report where required, within prescribed period
 Unless member/auditor of company require GM to be held to lay the
relevant documents before the company
 Can be done by notifying company within 14 days of sending out documents
o Private company, which is also a dormant relevant company, and whose directors
are exempted by S201A from compliance with S201
 Dormant as determined by S205B and S205C
 Not a listed company or subsidiary of listed company
 Total assets at any time during FY does not exceed $500,000
 If parent company: Group’s consolidated assets at any time during FY does
not exceed $500,000

(b) Time period for sending out FS

- Copy of FS or Consolidated FS must be sent to all persons entitled to receive notice of GM

not less than 14 days before date of AGM
o Unless all persons entitled to documents agree to a less-than-14-day period

- For companies which dispense with need to hold AGM under S175A:
o Minimally 28 days before end of period allowed for laying of those documents
o Maximally 5 months after end of FY to which documents relate

(c) Contents of FS

- FS contains:
o Profit and Loss account for period since preceding account, made up to a date:
 Listed Company: Not more than 4 months before date of AGM
 Other Company: Not more than 6 months before date of meeting
o Balance Sheet
 As at date to which P/L account is made up
o Consolidated FS
  Where applicable

- For parent company, directors must cause to be made out & laid before company at AGM:
o Consolidated financial statements for FY w.r.t. which AGM is held
 Dealing with financial position and performance of group in that FY
o Balance sheet at end of FY
 Dealing with state of affairs of parent company

- Other documents to be attached to FS:

o Directors’ Statement: Signed on behalf of BOD by at least 2 directors
 Containing information set out in 12th schedule of CA
o Auditors’ Report, where necessary
 Contents prescribed under S207 (2) of CA

- For listed company, to reduce cost:

o S203A: Company can send summary FS to members, instead of full set of FS
 Subject to compliance with regulations

(d) Standards required of FS

- P/L account and Balance Sheet have to:

o Comply with requirements of relevant Accounting Standards
o Give a true and fair view of financial position & performance of company

- Before FS and balance sheet are made, directors have to take reasonable steps:
o To ascertain what action has been taken w.r.t. writing off of bad debts & making of
provision of doubtful debts
 Ensure that all known bad debts are written off
 Ensure that adequate provision is made for doubtful debts
o To ascertain whether any current assets are unlikely to realize, in ordinary course of
business, their value as shown in accounting records; If yes:
 Write down assets to an amount expected to be realized OR
 Make adequate provision for difference between value shown in accounting
records and expected realized value
o To ascertain whether any non-current asset is presented at a value that exceeds its
recoverable amount (either in use or at disposal); If not:
 Make adequate provision for writing down the asset OR
 Include in FS any information and explanations so as to prevent FS from
being misleading, as a result of overstating the asset’s amount

- For companies that need to have accounts audited:

o Directors must take reasonable steps to ensure that FS are audited minimally 14
days before AGM
2. Directors’ Statement

- Contents of directors’ statement (signed by 2 directors on behalf of BOD):

o Whether, in directors’ opinion, the FS gives a true & fair view of the financial
position and performance of company, for period covered
o Whether, as at date of statement, there are reasonable grounds to believe that the
company can pay its debts as and when they fall due
o Any arrangements, to which company is a party, which enables directors to acquire
benefits by acquiring shares/debentures of company or any other body corporate
o Whether each director was interested in shares in/debentures of the company or
any other body corporate, and details of such interest

3. Listed Companies: Other periodic financial disclosures

- Rule 705, SLM: Requires listed company to announce its FS

o Rule 705 (1): Announce FS for full FY
 Immediately after figures become available
 Not later than 60 days after relevant financial period
o Rule 705 (2): If market cap > $75 million: Must also announce FS for 1st 3 quarters
 Within 45 days after each quarter end

- Additional information to be included in listed company’s annual reports, as per SLM

o Rule 710: Provide information about company’s corporate governance practices
o Rule 1207 (4): Discuss operating & financial performance and business outlook (OFR)
 Guide for Operating & Financial Review: Set of best practice guidance in the
preparation of OFR
o Rule 711A: Issue sustainability report for FY, within 5 months after end of FY
 Material environmental, social, governance (ESG) factors
 Policies, practices, performance
 Targets
 Sustainability reporting framework
 Board Statement