Second Reading Speech by The Deputy Prime Minister and Minister for Finance, Mr Lee Hsien Loong, The Companies (Amendment) Bill 2003 at The Parliament, 24 Apr 200306 May 2003
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 July 2002. At that time, I informed the House that a private sector-led committee, called the Company Legislation and Regulatory Framework Committee, was doing a comprehensive review of our company law. The Committee was chaired by Dr Philip Pillai, Senior Partner of Shook Lin & Bok, and comprised lawyers, businessmen, academics and government officials.
3 After extensive deliberations, including two rounds of public consultation, the Committee submitted its final report to the government in October 2002 with a set of 77 recommendations. All the recommendations have been accepted for implementation. These recommendations will help to simplify business regulations, create a more conducive business environment, and lower the costs of capital raising and maintenance in Singapore. They also improve Singapore's corporate governance and regulatory framework, and align our practices with the leading jurisdictions.
4 The implementation of the Committee's recommendations will require amendments to the Companies Act, the Securities and Futures Act, and the SGX listing rules. It will also require the enactment of new legislation, such as the Limited Partnerships Act and the Limited Liability Partnerships Act. The amendments to the Companies Act will be done in two phases. This Bill, which seeks to implement 20 of the Committee's recommendations, is the first phase. The other recommendations require more complex amendments to the Companies Act, and will be implemented later.
5 Sir, I shall now highlight the main amendments proposed in the Bill.
Reducing Business Costs
6 To promote entrepreneurship, our company law must not impose unnecessary regulatory burden on start-ups and small private companies. Unlike public companies where there are greater public interests to protect, for private companies we need to strike a different balance, in order to maintain acceptable standards while keeping business costs low. I shall now highlight some of the Committee's recommendations that will help to reduce business costs for small and private companies in Singapore.
Removing the Statutory Audit Requirement
7 Currently, all companies in Singapore are required by law to have their accounts audited by an external auditor. Clause 35 amends Section 205 to remove the statutory audit requirement for dormant companies, as statutory audit serves no public purpose and imposes unnecessary costs for such companies. A dormant company is defined in the Companies Act as a company with no significant accounting transactions during the financial year. The removal of statutory audit for dormant companies is in line with the practices in UK and Hong Kong.
8 Clause 35 further amends Section 205 to remove the statutory audit requirement for small exempt private companies. An exempt private company is a private company with not more than 20 shareholders who are all natural persons. More than 75% of companies in Singapore are exempt private companies. Most of them are owner-managed. This means that all the shareholders are also directors of the company. For such companies, audit will be left as a business decision, instead of being imposed as a legal requirement.
9 The Committee had initially considered removing the statutory audit requirement for all exempt private companies. However, after receiving feedback from businesses and auditors, the Committee decided to adopt the approach in UK and Australia, where statutory audit is removed only for small private companies. The threshold for defining small companies will be based on the company's turnover, which could be raised over time. After much deliberation, the Committee recommended removing the statutory audit requirement for exempt private companies with annual turnover below $5 million. The government has accepted the Committee's recommendation, but decided to implement it in two steps, to give the business community and the audit firms some time to adjust to the new arrangement. The prescribed revenue threshold will first be set at $2.5 million when this Bill becomes law, and raised to $5 million one year later.
10 During the public consultation, there were some concerns that the removal of statutory audit would lead to a deterioration in corporate governance standards. This should not happen. For public companies and large private companies, audit would remain a statutory requirement. For small exempt private companies, it makes sense to leave audit as a business decision. There is no public interest at stake. In addition, adequate safeguards will be put in place. For example, shareholders representing at least 5% of the company's shares can compel the company to prepare audited accounts. All companies must also maintain proper accounting records and prepare ''true and fair'' financial statements that comply with prescribed accounting standards.
Professionally Qualified Company Secretaries
11 Another move to reduce business cost is to remove the statutory requirement for private companies to appoint professionally qualified company secretaries. The private company must still appoint a company secretary, but this person need not be a lawyer, accountant or professional company secretary.
12 Currently, all companies in Singapore are required to appoint a professionally qualified company secretary. In contrast, in Australia, Hong Kong and UK, there is no such requirement for private companies. The requirement in Singapore was instituted in 1987 as a means to improve the quality of corporate records of Singapore companies. While the requirement is a useful safeguard for public companies, it is not necessary to impose this on private companies. Such companies can choose to have an employee or director to perform the company secretarial functions. Alternatively, they can outsource to firms which provide company secretarial services.
13 Some company secretaries and accountants have expressed concerns that the Committee's recommendations would lead to job losses for company secretarial firms and audit firms. The government is mindful of these concerns. However, we do not think that the demand for services provided by audit firms and company secretaries would disappear as a result of these changes. According to a survey conducted by the Association of Small and Medium Enterprises, more than 50% of the companies surveyed indicated that they would continue to engage professionally qualified company secretaries, even if the law does not require them to do so. In addition, 78% of the companies said they would continue to have their accounts audited, as their shareholders or external parties such as banks and finance companies would require audited accounts.
Simpler Business Regulations
14 Let me now highlight some of the amendments that will help to simplify the regulations faced by companies.
15 Currently, the shareholders of a private company can pass a resolution without having to meet face-to-face. However, the passing of the resolution requires the approval of all shareholders. This is not consistent with the approval thresholds for resolutions passed at face-to-face meetings, where ordinary resolutions and special resolutions would require 50% and 75% approval respectively.
16 Clause 29 amends Section 184 to allow private companies to pass ordinary and special resolutions with 50% and 75% approval, regardless of whether the resolutions are passed at a face-to-face meeting or via written means. The amendment will also allow written resolutions to be passed through the use of electronic communication channels such as email. This will enable private companies to make decisions more expeditio usly and conveniently.
17 As a safeguard, a shareholder or a group of shareholders representing at least 5% of the total voting rights can require the company to hold a face-to-face meeting to discuss and vote on the resolution. This is to ensure that the company does not use written resolutions as a means to deprive dissenting shareholders of the opportunity to be heard at a face-to-face meeting.
Annual General Meetings
18 Currently, private companies are required to hold annual general meetings every year. Clause 26 amends Section 175 to allow a private company to dispense with its annual general meeting if all its shareholders agree. This change is consistent with the practice in the UK. It will benefit private companies, especially those where all the shareholders are also directors.
19 Mr Speaker Sir, company law reform is an on-going process. The review by the Company Legislation and Regulatory Framework Committee marks a significant step forward, but it is not the end. We need to regularly review our laws and regulations to ensure they remain business-friendly and keep up with the practices in the leading jurisdictions. Such reviews will require the collaboration of the private sector and the government, and the active interest of all stakeholders.
20 Mr. Speaker, Sir, I beg to move.