Second Reading Speech By Lim Hng Kiang, The Second Minister For Finance On The Companies (Amendment) Bill 2004, at The Parliament, 6 Feb 200406 Feb 2004
Mr Speaker, Sir, I beg to move, "That the Bill be now read a second time".
2 Sir, in May 2003, the Companies Act was amended to implement 20 recommendations of the private sector-led Company Legislation and Regulatory Framework Committee, or the CLRFC. This Bill proposes further amendments to the Companies Act, taking into account other recommendations of the CLRFC and public feedback on the draft Bill. The changes will simplify and update provisions in the Companies Act to create a more robust regulatory environment for our companies and businesses.
3 In view of the public feedback received, the Ministry of Finance will defer the implementation of some of the recommendations such as the removal of par value and share buybacks out of capital and take more time to consult the business community on the operational details of their implementation.
4 Sir, I shall now highlight the main amendments proposed in the Bill.
Abolition of Ultra Vires
5 Currently, the Companies Act contains an 'ultra vires' doctrine and requires the proposed objects of a company to be stated exhaustively in its Memorandum. If the company performs an act that is not authorised by the object clauses, it will be considered 'ultra vires'.
6 Clauses 8 and 9 of the Bill amend Sections 22 and 23 respectively to abolish this requirement. Given that a company is already considered in law to be a legal person, it will be statutorily conferred all the powers of a natural person and will have full capacity to carry out any lawful business or activity. The amendment will also allow companies the choice to limit its capacity, rights or powers in its memorandum or articles of association to preserve the rights of internal redress by members against the directors. The amendment is in line with the current practices in New Zealand and the UK.
One Shareholder, One Director Companies
7 Currently, all companies are required to have at least two shareholders and two directors, with the requirement that at least one director must be locally resident.
8 This Bill amends the Companies Act to allow all companies, regardless whether they are public or private companies, to have one director and one shareholder. To preserve the accountability of such companies, we will retain the local residency requirement for at least one director.
9 There will be two additional safeguards. First, while the same person can be both the director as well as the shareholder, he cannot act as the company secretary. This ensures that there will always be an independent company officer. Second, the shareholders will be personally liable for the debts and obligations incurred by the company if it is left without a director for more than six months. One director, one shareholder companies are already permitted in New Zealand. I understand that the UK Government is also considering implementing such a regime.
10 Currently, a person intending to be an approved company auditor goes through two separate approval processes. First, he registers himself as a public accountant with the Public Accountants Board pursuant to the Accountants Act. Second, he applies to the Minister for Finance to be an approved company auditor under the Companies Act.
11 Clause 3 of the Bill streamlines the procedure and removes the statutory requirement for public accountants to have to seek approval from the Minister. Instead, any person who satisfies the registration requirements to be a public accountant under the Accountants Act will automatically be an approved company auditor.
Capital Raising by Private Companies
12 Currently, a private company is prohibited from raising capital by inviting members of the public to subscribe to its shares or debentures.
13 Clause 6 of the Bill removes the prohibition and allows private companies to raise capital through public offerings without converting to public companies, so long as they fulfil the disclosure requirements under the Securities and Futures Act.
Inclusion of Registration Numbers
14 In the Companies (Amendment) Bill 2002, one of the amendments was to dispense with prior screening of similar company names. As a result, the distinctive registration number of a Singapore-incorporated company, rather than its name, has become a more unique identifier for companies.
15 Clause 28 of the Bill amends the Companies Act to require a company to show its registration number on all business letters, statements of account, invoices, official notices and publications issued by the company. Taking into account feedback from businesses, the Government will grant companies a grace period of six months after the amendment comes into force for companies to use up their existing stock of stationery and to modify their internal systems to comply with the new regulation.
16 Currently, the Companies Act imposes a penalty for directors who fail to comply with the prescribed financial reporting standards and to ensure that the financial statements present a true and fair view. It also imposes a penalty on any person who makes or authorises the making of false or misleading statements with respect to the information required under the Act.
17 This Bill revises the penalty amounts, with the possibility of a jail sentence for fraudulent behaviour. The increased penalties will serve as more effective deterrences. It will give the Courts greater discretion to impose penalties that are more closely proportionate to the possible gains that could be reaped from such non-compliance. The changes are comparable to the existing penalties for similar offences in the Securities and Futures Act. They instil confidence among investors that companies incorporated in Singapore present true and fair financial statements, in accordance with the prescribed accounting standards.
18 Mr Speaker Sir, we will continue to review the recommendations of the CLFRC. The Government will press on with company law reform to make our corporate environment conducive for companies and entrepreneurship to thrive.
19 Mr. Speaker, Sir, I beg to move.