Company Legislation And Regulatory Framework Committee Oct 2001 Public Consultation

Scope of Review

1. The Company Legislation and Regulatory Framework Committee (CLRFC) was appointed by the Ministry of Finance, the Attorney-General's Chambers and the Monetary Authority of Singapore in December 1999. The Committee was established to undertake a comprehensive and coherent review of our company law and regulatory framework and recommend a modern company law and regulatory framework for Singapore which accords with global standards and which will promote a competitive economy. Please see Appendix 1 for a list of the CLRFC members. The Chairman of the Committee is Dr Philip Pillai, Senior Partner of Shook Lin & Bok.

2. Dr Pillai said that in conducting the review, the CLRFC has considered the following factors:

(a) Global impact of US corporations and market instruments: To enhance Singapore's competitiveness as a global business centre, Singapore's company law should be flexible enough to accommodate financial instruments common in the US and international markets.

(b) Continuation of UK Companies Act model: Investors, regulators and the relevant law, accountancy and corporate services have, for four decades, worked with the structure and concepts that underpin the UK model. Thus, the CLRFC has elected to retain but modernise this model rather than to adopt a brand new model.

(c) Adapting and modernising UK Companies Act model: The CLRFC has adopted the UK Final Report on ''Modern Company Law for a Competitive Economy'', that was prepared by the UK Company Law Review Steering Group, as a baseline for its review on Singapore's company law. The CLRFC has also considered the extensive company law changes in Australia, New Zealand, Hong Kong and Canada.

3. The CLRFC has deliberated on a wide range of issues of a technical nature as well as how our corporate legislation and regulatory regime could be improved to benefit the business community. The CLRFC has not finalised its recommendations. The Committee has come up with some preliminary views and would like to solicit public comments on these views. In particular, the public consultation document seeks feedback from the business community on some of the major issues that would have a more direct impact on them. The issues in the CLRFC consultation paper have been classified into the following categories:

i) Introducing New Business Vehicles and Small Business
ii) Capital Raising and Maintenance
iii) Corporate Governance
iv) Insolvency Regime
v) Boundaries and Regulatory Framework

Preliminary Views

4. Some of the key issues in the consultation paper are:

Introducing New Business Vehicles and Small Business

(a) Additional business structures: The CLRFC is of the view that Limited Partnerships and Limited Liability Partnerships could be introduced in Singapore. The Limited Partnership is one where the liability of certain partners - known as the ''limited partners'' - can be limited, provided that there remains at least one general partner with unlimited liability. Limited partnerships are increasingly used as private equity investment vehicles. The Limited Liability Partnership will allow the benefits of corporate status and limited liability, and yet be internally organised as partnerships.These two additional business structures would broaden the menu of legal structures available in Singapore for domestic and international business.

(b) Costs of corporate maintenance: The CLRFC has reviewed how corporate incorporation and maintenance requirements in Singapore could be streamlined and simplified. Apart from consolidating existing procedures and facilitating same day incorporations, the CLRFC is also considering whether there should be a statutory requirement for exempt private companies to prepare and present audited accounts on an annual basis, or should this be left to market forces to decide. The UK, US and Australia do not statutorily require small companies to prepare and present audited financial statements. The CLRFC is also reviewing if we should statutorily require exempt private companies to appoint professionally qualified company secretaries. Removal of this statutory requirement would enable the appointment of directors or employees who are able to discharge these responsibilities and there lower business costs for small business. New Zealand and the UK have removed the statutory requirement for professionally qualified company secretaries.

Capital Raising and Maintenance

(c) Capital raising: The CLRFC has studied the existing regulatory framework for private and public capital. The Committee is considering the removal the concepts of ''public offer'' and ''private offer'' and replacing this with a comprehensive list of exempted or ''safe harbours'' which will comprehensively cover exemptions and private capital raising. These include private placement exclusions and small offering exclusions. This is to ensure that we have a clearly delineated regulatory regime, which continues to facilitate private capital raising, exempted capital raising and full public capital raising.

(d) Par value and authorised capital: The CLRFC is of the view that the par value concept could have outlived its usefulness as a measurement of value, as shares reflect a proportionate interest in the net worth of a company. The CLRFC is exploring the abolition of par value. The Committee is also considering removing the authorised capital concept. This will give companies greater flexibility in determining their capital structure in the context of accounting treatment in accordance with prevailing accounting standards and appropriate disclosure. Australia and New Zealand are examples of countries that have abolished par value and authorised capital.

(e) Share repurchases: The CLRFC is evaluating the possibility of allowing repurchased shares to be held in treasury but with their voting rights suspended. The Committee is considering whether these shares can only be used for meeting the obligations of employee share option schemes, so as to prevent share trading by the company, or should the scope be widened to include other areas. This would bring greater convenience to companies, as they need not cancel the repurchased shares before reissuing them as new shares to the employees. In addition, the Committee is considering expanding the share buyback regime to permit share repurchases by way of contingent contracts. The company would issue put warrants to its shareholders. The holder of such warrants can then require the company to purchase its own shares in accordance with the terms of the warrants.This additional instrument, which is available in the UK and Australia, would give companies more choice when they raise capital.

Corporate Governance

(f) One-director companies: Currently, the Companies Act requires a minimum of two directors

MINISTRY OF FINANCE