Second Reading Speech By The Deputy Prime Minister And Minister For Finance Lee Hsien Loong On The Companies (Amendment) Bill 2002 at The Parliament, 8 Jul 200209 Jul 2002
Mr Speaker, Sir, I beg to move, "That the Bill be now read a second time".
2 Sir, the Companies Act was last amended in January 2001. Since then, three private-sector-led committees set up by my Ministry, the Monetary Authority of Singapore and the Attorney-General's Chambers have been active in reviewing Singapore's corporate governance and regulatory framework.
3 One of the committees was the Disclosure and Accounting Standards Committee ("DASC"). The DASC submitted its final report to the government in September 2001 with a set of recommendations to improve Singapore's accounting standard setting process, disclosure requirements and rules on auditor independence. The government has accepted all the DASC recommendations. This Bill seeks to implement the DASC recommendations that require amendments to the Companies Act.
4 At the same time, the Registry of Companies and Businesses ("RCB") has also embarked on several key initiatives to further its mission of making Singapore "best for business". This includes the introduction of an electronic filing system called Bizfile, which would allow round-the-clock filing and information retrieval services over the Internet for RCB's customers. This Bill seeks to introduce legislative changes that would facilitate the implementation of an electronic filing system for companies in Singapore. It also seeks to simplify the incorporation process and reduce the time required to incorporate a company in Singapore.
5 This Bill also contains other amendments which are intended to update and streamline certain procedures and provisions in the Companies Act.
6 Sir, I shall now highlight the main amendments proposed in the Bill, starting with those to effect the DASC's recommendations.
Compliance with Accounting Standards
7 To position Singapore as a key business and financial centre, we need to give investors the confidence that companies registered in Singapore present true and fair financial statements that are in accordance with internationally accepted accounting standards. Incidents such as Enron and WorldCom have shown the dangers of misrepresenting financial statements. While the government cannot ensure the integrity of financial reporting, we can put in place a regulatory framework that facilitates proper disclosure.
8 There is currently no statutory requirement for companies in Singapore to comply with prescribed accounting standards. Clause 37 amends Section 201 to require all companies to comply with prescribed accounting standards. This is similar to the practice in the UK and Australia.
9 Similar to the approach in UK, we would allow companies to deviate from the prescribed accounting standards if, and only if, such deviations are necessary for them to present a "true and fair" set of financial statements. Clause 37 also requires companies to make full and detailed disclosure in their financial statements regarding the nature, financial effect and justifications for such deviations. As an additional safeguard, the directors' decision to deviate from prescribed accounting standards would require the concurrence of the company's external auditor.
10 Clause 61 repeals the Ninth Schedule. The Ninth Schedule contains a listing of items to be disclosed in the company accounts, and was included in the Companies Act during a time when accounting standards were not well developed. Today, the situation is different as accounting standards have become much better developed over the years. With the move towards a disclosure-based regime and the legislation of compliance with prescribed accounting standards, it is no longer necessary for the Companies Act to contain additional provisions relating to financial reporting and disclosure requirements. Instead, companies would comply with the reporting and disclosure requirements that are prescribed in the accounting standards or by market intermediaries such as the stock exchange. These requirements are more up-to-date and they can better reflect the changing needs of the market place.
Council on Corporate Disclosure and Governance
11 Currently, accounting standards in Singapore are set by the Institute of Certified Public Accountants of Singapore ("ICPAS"), which is a professional organisation for accountants. ICPAS has done a good job over the years to improve the efficiency and rigour of its accounting standards setting process. It has also aligned many of our accounting standards with those issued by the International Accounting Standards Board. However, as compliance with accounting standards would be made a legal requirement, it would not be appropriate for the accounting standards setting authority to reside with a professional organisation. In leading jurisdictions such as the UK and Australia, accounting standards are set by independent bodies comprising representatives from businesses, professional organisations, academic institutions and government. This allows the key stakeholders to have a more direct say on how accounting standards should be set.
12 Clause 36 introduces a new Section 200A which provides for the establishment of an independent panel to prescribe accounting standards for Singapore companies. The proposed panel would be known as the Council on Corporate Disclosure and Governance ("CCDG"). Under the new arrangement, ICPAS would continue to play a pivotal role to support the CCDG in the accounting standards setting process. In addition to setting accounting standards, the CCDG would also make recommendations to the government on the review and enhancement of Singapore's corporate governance and disclosure practices. The CCDG would comprise members from businesses, professional organisations, academic institutions and government. The council members would be appointed by the Minister for Finance. Moving forward, the CCDG would provide a collaborative mechanism for the private and public sectors to continuously review and improve Singapore corporate governance and regulatory framework. We expect to set up the CCDG in August this year, after the legislative amendments have been approved.
13 Section 201 of the Act currently requires all companies to include a report by the directors in their annual reports. The DASC had felt that some of the disclosure requirements in the directors' report, such as those pertaining to the company's financial position, do not add much value as they essentially repeat information that is already provided in the company's financial statements. As a result, the directors' report becomes overly cluttered. Clause 37 removes the requirements in Section 201 for directors to disclose such details in their report. The Statement by Directors, as required under Section 201(15) of the Companies Act, would be retained as it requires the directors to confirm that the company is solvent and that financial statements presented to shareholders are true and fair.
Introduction of Bizfile
14 While we strive to improve Singapore's regulatory framework, we also need to ensure that our processes are efficient and business-friendly. RCB has been actively working with the private sector on ways to streamline its processes, so as to bring about greater convenience and lower costs to its customers. One of RCB's key initiatives is the introduction of a web-based, electronic filing system called Bizfile. Bizfile enables businessmen and professionals to perform filing and information retrieval online, at any time of the day. Bizfile also enables RCB to reduce business costs and expedite the turnaround time for incorporation and filing. The introduction of Bizfile would raise RCB's service standards and align its practices with its counterparts in the US, UK and Australia. RCB has launched the first phase of B izfile, which deals with incorporation of companies, in January this year. It plans to launch the second phase of Bizfile by the end of the year.
15 Let me now highlight the amendments in the Bill that would facilitate the implementation of Bizfile.
16 With the move to an electronic filing system, RCB would consolidate its existing hardcopy forms into electronic forms. Currently, a person who wants to file information with RCB has to fill in several hardcopy forms that capture some duplicate data items. Bizfile also removes the need for manual data entry by the RCB officers, thereby reducing the time and costs required for processing the applications.
17 Bizfile further simplifies the filing and incorporation process by doing away with hardcopy certificates, statutory declarations and affidavits. There are several clauses in the Bill such as clauses 8, 16, 19 and 24 that amend the Act to remove the need for statutory declarations or affidavits. RCB would verify the user's identity online using his unique National PIN, which is also the CPF-PAL PIN, before allowing the user to submit his declarations electronically. Singaporeans who do not have CPF-PAL PIN would be assigned an ID and password by RCB for their Bizfile transactions.
18 Clause 7 amends Section 17 to replace the issue of a hardcopy certificate of incorporation by an electronic notification. Any member of public who wishes to check the registration status of a company can do so online, at no charge. Clause 7 also provides for the issue of a hardcopy certificate of incorporation upon the payment of a fee. This is to cater to companies that still require hardcopy incorporation certificates for other purposes, such as for submission to overseas regulators.
Removal of Pre-Incorporation Checks for Similar Names
19 For the purposes of registering company names, jurisdictions such as the US, UK, Australia and Hong Kong do not conduct any pre-incorporation checks for similar names. These jurisdictions have found that the checking for similar names only delays the incorporation process and increases business costs. They only conduct pre-incorporation checks for identical, undesirable and gazetted names. This enables same-day incorporation, which has become the service standard that businessmen would expect. To benchmark our service standards for incorporation to that in the US, UK, Australia and Hong Kong, we propose to align RCB's practice with these jurisdictions. Clause 12 of the Bill removes the requirement under Section 27 for the Registrar to do pre-incorporation checks for similar names.
20 Under the new arrangement, an applicant who wishes to register a company name can first perform some preliminary checks on Bizfile to see if the name he is applying for is similar to that of an existing company or business. Bizfile would alert the applicant if there is an existing company or business with a similar name. The applicant can then decide whether he wants to proceed with the application or select another name.
21 The law would continue to provide protection and avenues for redress for incumbent companies and businesses. An aggrieved party can lodge a complaint with the Registrar against a company or business with a similar name within 12 months from the date of registration of that company or business. After 12 months, an aggrieved party can still bring the matter to the Courts. This is similar to the practice in the UK.
22 The proposed amendments in this Bill are part of a comprehensive exercise to review our company legislation and to enhance Singapore's competitiveness as a global business centre. Another private sector-led committee, called the Companies Legislation and Regulatory Framework Committee ("CLRFC"), is in the process of reviewing our company law and regulatory framework. The CLRFC has posted its draft report on the Internet for public consultation, and is expected to submit its recommendations to the government later this year. If its recommendations are accepted, we would be making further amendments to the Companies Act.
23 Mr. Speaker, Sir, I beg to move.
8 Jul 2002