作者：杨凯章 Yong Kaizhang 金杜律师事务所
On 20 July 2020, the Accounting and Corporate Regulatory Authority (ACRA) of Singapore published the report of the Companies Act Working Group (CAWG) (Report), wherein the CAWG proposed certain amendments to Singapore’s existing Companies Act (Cap. 50) (CA) following a review of several areas of the CA (Proposed Amendments).
Such review is undertaken on a periodic basis, as part of ACRA’s efforts to ensure that Singapore’s corporate laws and regulatory framework stay competitive. In this recent round, the CAWG reviewed a total of 56 issues and recommended 36 legislative reforms. These were prompted by considerations of updating the law to keep pace with the increasing use of technology by companies, and to reduce the compliance burden on companies.
ACRA has invited the public to provide feedback on the Proposed Amendments. The public consultation exercise will run until 17 August 2020, whereupon ACRA will usually summarise the feedback received and give its responses to such feedback.
How and when will the Proposed Amendments take effect?
If the Proposed Amendments are adopted, a bill on these Proposed Amendments will be drafted (Bill). The Bill then needs to be introduced in Parliament, published in the Singapore Government Gazette, and will be read on three separate occasions with a mandated clear period in between each reading. Usually, general debate on the merits of the proposed Bill will take place on the Second Reading, and any amendments to the Bill will be proposed at the Third Reading, whereupon the Bill will be put to vote. A Bill passed by Parliament becomes law only when it has been assented to by the President, and comes into force on a date appointed by the Minister by notification in the Gazette. From past experience, the entire process from when ACRA kickstarts the public consultation to when the amended CA is passed typically takes about three months.
As the process is still at the public consultation stage, the Proposed Amendments are subject to change and fine-tuning in the next stage of the legislative process. As such, this article aims to give readers a broad understanding of the preliminary and general direction of corporate regulatory change in Singapore, briefly examining in particular certain Proposed Amendments that may be more pertinent to Chinese investors seeking to invest (or already investing) in Singapore. In the interests of retaining the above focus, other Proposed Amendments that are more technical in nature or which may be of less interest to a typical Chinese investor will not be discussed in this article.
02 KEY PROPOSED CHANGES AFFECTING FOREIGN INVESTORS
In the Report, the CAWG’s recommendations were broadly split into six different categories, namely: (1) Facilitating digitalisation; (2) Types of companies and financial reporting; (3) Matters relating to directors and company secretaries; (4) Safeguarding shareholders’ interests; (5) Share capital and financial assistance; and (6) Updating outdated provisions.
2.1.1 Dematerialisation of physical share certificates
Currently, companies in Singapore are required to issue physical share certificates to shareholders within 30 days for transfer of shares, and within 60 days for new allotment of shares. A certificate under the common seal or official seal of a company shall be prima facie evidence of title to shares. Other prima facie evidence of ownership includes the electronic register of members maintained by ACRA in respect of private companies.
The CAWG has in its Report recommended that the CA should be amended to introduce an enabling provision which states that companies are not required to have physical share certificates.
To a Chinese investor, the idea behind this recommendation may not be entirely unfamiliar, as the rapid digitalisation within China has seen an unprecedented degree of “cashless” and “paperless” transactions. Within the Chinese corporate legal framework, there is no direct equivalent of a physical share certificate with a clearly identifiable number of shares – a loosely related concept is a capital contribution certificate（出资证明书）, which contains information on a shareholder’s contribution to the company’s registered capital.
Nevertheless, the proposed dematerialisation may bring certain practical problems regarding the process, storage, and handling of non-physical share certificates. For example, such dematerialisation presumes the existence of the necessary operating infrastructure that can maintain accurate and up-to-date information and which is relatively safe from hacking or other forms of tampering. This may pose as an issue especially to smaller companies with a need for cost-control, and Chinese investors who are seeking to set up only investment holding vehicles in Singapore should consider whether the implementation of such infrastructure is economically feasible.
From the Report, it appears that in the absence of physical share certificates, the electronic register of members (for private companies) maintained by ACRA will further be the default place to consult for share ownership issues. In line with this, the CAWG also proposed that ACRA should consider extending its current functions by keeping the register of members for non-listed public companies that wish to dematerialise their share certificates.
Another problem that may arise from such proposed dematerialisation is in relation to the grant of securities over one’s shares (e.g. when obtaining bank financing) – it is unclear, for example, how a share pledge which requires the pledgor to deliver his original share certificates will work.
Nevertheless, it should be borne in mind that the recommendation to dematerialise physical share certificates is only enabling, and not mandatory or prescriptive. Even if such recommendation is adopted, the existing physical share certificates currently held by shareholders would not be automatically revoked. Singapore companies have the option of deciding when, and if, they wish to avail themselves of this provision.
2.1.2 Digital meetings
Currently, the CA provides for general meetings to be held but does not directly address the manner in which general meetings are to be held. There are some provisions, however, which appear to incline towards the holding of general meetings physically. These include for example rules on presence, voting, as well as rights of attendance, discussion, and speech.
In terms of board meetings, in recognition that the conduct of board meetings should not be hampered by over-regulation, the CA does not regulate the conduct of such meetings, nor does it address the manner that board meetings are to be held.
As it stands presently, the practice of most companies in Singapore is to expressly set out in its constitution the manner in which a general meeting/board meeting can be conducted, and many have already adopted provisions which cater for the holding of meetings digitally.
In line with the above, the CAWG has recommended that the CA be amended to clarify that, unless the constitution provides otherwise, a company may hold general meetings digitally and in more than one location. Similarly, the CAWG also recommended that clarification be made that nothing in the CA prohibits board meetings from being held digitally. 
The proposed codification of existing market practice removes the current ambiguities under the CA and gives investors and companies clear assurance that digital meetings can be equally valid if conducted according to the provisions of the constitution. To a Chinese investor with a Singapore investment holding vehicle, who may typically reside outside of Singapore and travel to Singapore only on a periodic basis, these amendments would be beneficial in terms of saving time and costs. Similarly, PRC Company Law also does not regulate the manner in which shareholders’ meetings or board meetings are to be held.
Of course, as the Proposed Amendments regarding the holding of digital meetings is enabling, rather than mandatory or prescriptive, companies that prefer to hold meetings only in a traditional, in-person manner may still elect to do so.
2.2 FINANCIAL REPORTING OBLIGATIONS
2.2.1 Financial reporting obligations for Singapore companies
For ease of comparison, we set out below the current position and the proposed new position with regard to the preparation, audit and lodgment of financial statements by Singapore companies:
Preparation of Financial Statements Requirements
To reduce business costs for very small companies and to streamline the financial reporting requirements under the CA, the CAWG proposed the introduction of two new concepts: (1) a “micro” company and (2) a “publicly accountable company”.
A “micro” company is proposed to be defined as a company which fulfils the requirements of total annual revenue and total assets each being not more than S$500,000 for the previous two consecutive financial years. It is proposed that a micro company should be allowed to prepare reduced/simplified financial statements (comprising only: (a) the statement of comprehensive income; (b) the statement of financial position; and (c) specific key disclosures), where such micro company is also “non-publicly accountable”.
A “publicly accountable company” is proposed to be defined as:
- a company that is listed or is in the process of issuing its debt or equity instruments for trading on a securities exchange in Singapore;
- a company the securities of which are listed on a securities exchange outside Singapore;
- a financial institution; and
- a company limited by guarantee registered under the Charities Act (Cap. 37).
In practice, and from an investment angle, a company that falls within the definition of a micro company would in all likelihood also be considered a non-publicly accountable company. As such, investors need not be overly concerned with the use of multiple terms with varying scope of reach.
The quantitative threshold of not more than S$500,000 for total annual revenue and total assets may be particularly useful for Chinese investors who set up companies in Singapore as investment holding vehicles, which may not have extensive local operations and may hence fulfil such criteria. Moreover, from the Report, the additional “small group” requirement (for small companies that are part of a group) does not seem applicable in the case of a micro company. This means that a company that meets the qualifying quantitative criteria of S$500,000 on an individual-company basis can make use of the micro company exemption, even if the total revenue or assets of the group greatly exceeds this value.
The CAWG, however, did not address the question of whether a company that has not reached the third year of its incorporation can qualify for the micro company exemption from preparing full financial statements. For now, it would appear that such a company cannot avail itself of such exemption.
Audit of Financial Statements Requirements
In terms of audit requirements, the CAWG has also recommended to narrow the scope of the current small company audit exemption so that it applies only to small companies that are also non-publicly accountable.
As observed above, from a practical perspective the amended scope above is likely to have little significance to a typical Chinese investor, as an investment vehicle that previously qualifies for the “small company” audit exemption is unlikely to fall within any of the definitional limbs of a “publicly accountable company” in any event.
Filing of Financial Statements Requirements
In terms of filing requirements, the CAWG has proposed that the current exemption for solvent EPCs be extended to a new set of prescribed companies that meet the criteria in the regulations (of which solvent EPCs will continue to be part of). In terms of making filed financial statements publicly available, the CAWG has proposed that the current status quo be maintained (i.e. all filed financial statements should be made available to the public).
2.2.2 Financial reporting obligations for foreign companies and Singapore branches
Based on current requirements, the form and extent of the financial statements required to be lodged by foreign companies depend on whether the foreign company’s jurisdiction of incorporation requires the company to prepare financial statements in accordance with any applicable accounting standards which are similar to the Singapore Accounting Standards (or which are otherwise acceptable to ACRA). If so, the foreign company will only have to lodge those financial statements. Otherwise, the foreign company will have to prepare financial statements as if it were a public company incorporated under the CA (i.e., applying Singapore’s Accounting Standards).
The CAWG has now proposed that foreign companies which prepare financial statements in accordance with accounting standards that are “substantially similar” to the Singapore Accounting Standards can continue to lodge with ACRA those financial statements. For other foreign companies whose countries of incorporation prescribe accounting standards that are not substantially similar to the Singapore Accounting Standards, such companies can lodge with ACRA their financial statements in existing form, provided that these financial statements are prepared in accordance with the applicable accounting standards in the jurisdiction of incorporation. If adopted, this recommendation will benefit, amongst others, Chinese companies registered in Singapore – the Chinese Accounting Standards applicable to companies incorporated in the People’s Republic of China are not currently considered to be “similar” to Singapore’s Accounting Standards.
For foreign companies that do not fall under any of the above, these companies will need to lodge with ACRA unaudited summary financial statements as prescribed by ACRA.
In addition to the financial statements required to be lodged, a foreign company is required to lodge with ACRA certain duly audited accounts in respect of its operations in Singapore. In the Report, CAWG has proposed that foreign companies with “insignificant operations in Singapore” be allowed to lodge unaudited branch accounts, instead of the currently prescribed audited accounts.
While the above Proposed Amendments in respect of foreign companies and Singapore branches may be useful to investors in terms of reducing general administrative burdens, this may ultimately be of limited application, as most Chinese investors appear to favour the setting up of a Singapore subsidiary as opposed to a local branch. This is due to the relative ease of operating a local subsidiary and the separate legal personality that a company is accorded.
2.3 DIRECTORS’ DISCLOSURE OBLIGATIONS
Presently, a director of a Singapore company is required to disclose to the company, amongst other information, particulars of shares in a related corporation which he is a registered holder of or which he has an interest in, as well as the nature and extent of that interest. As a company’s holding company is considered a “related corporation”, a director of a Singapore subsidiary will need to disclose his shareholdings and interests in the holding company as well.
The CAWG has now proposed that directors of a company that is a wholly-owned subsidiary of a foreign holding company should be exempted from disclosing his interests in the foreign holding company. This is in recognition of the fact that such disclosure obligations are often difficult to satisfy in practice, and may not be commercially viable (for example, the relevant director may be a participant in retirement savings plans administered in a foreign country by the foreign ultimate holding company, and disclosing his shareholdings may compromise the confidentiality of his remuneration package).
The above recommendation, if taken into effect, would be of interest to foreign investors seeking to set up wholly-owned subsidiaries in Singapore as well as foreign investors in a post-transactional M&A deal, whereby the foreign investor has acquired all of the shares in a Singapore company. However, as the exemption only applies to wholly-owned Singapore subsidiaries, investors who are part of a joint venture arrangement will not be able to avail themselves of this exemption, and directors of such joint venture entities will still need to continue to disclose their relevant interests in the foreign parent company.
2.4 REQUIREMENT OF “ORDINARILY RESIDENT” DIRECTOR
The CA currently requires every company to have at least one director who is “ordinarily resident in Singapore”. In its Report, considering the challenges that may be faced in enforcing certain statutory requirements in the CA against companies, the CAWG recommended that this requirement be retained. 
In terms of who may qualify as an “ordinarily resident director”, this may include a Singapore citizen, Singapore permanent resident, EntrePass holder or Employment Pass holder who has an ordinary place of residence in Singapore. An S Pass or Work Permit holder cannot be registered as a director of a Singapore company.
Typically, a Chinese investor with an investment holding vehicle in Singapore would rely on a local Singapore contact, an employee based in Singapore, or a “nominee director” provided by a corporate secretarial services agency to temporarily satisfy the “ordinarily resident director” requirement. This practice looks set to continue with the retention of such requirement.
While the Proposed Amendments are only at the preliminary public consultation stage and are subject to change, the increasing emphasis on keeping pace with technology and reduction of compliance costs is indicative of a more pro-business stance from a corporate regulatory perspective. Foreign investors, particularly Chinese investors, seeking to invest in Singapore as a springboard into South East Asia or otherwise, will likely benefit from the trend of deregulation, which will lead to greater time savings and cost efficiency.
END NOTE: The discussion in this article is in broad and general terms in order to assist readers to acquire a basic understanding of the subject matter in question, and should not be construed as legal advice. As King & Wood Mallesons is registered in Singapore as a foreign law practice, we will work with our correspondent law firms in Singapore where advice on Singapore law is required. If you have any specific or further questions, please feel free to contact the author to discuss.
 See Section 130AE CA.
 See Section 123(1) CA.
 See Section 196A CA.
 See Recommendation 1.1 of the Report.
 See Recommendation 1.2 of the Report.
 See Section 179(1)(a)-(b) CA.
 See Sections 175A(2), 179(1)(c)(i), and 184(1) CA.
 See Sections 152(2)-(3), 174(7), 180(1), 181(1), 181(1C), 181(1D), 205(6), and 207(7)-(8) CA.
 See Recommendation 1.3 of the Report.
 See Recommendation 1.5 of the Report.
 See Section 201(1) CA. Note that for parent companies, the consolidated financial statements of the group and the balance-sheet of the parent company are required to be prepared (see Section 201(5) CA).
 See Section 201(8) CA.
 See Regulation 36 of the Companies (Filing of Documents) Regulations read with Section 197(2) CA.
 See Section 201A CA. A company is dormant during a period in which no accounting transaction occurs. A company is exempt from audit requirements if it has been dormant: (a) from the time of its formation; or (b) since the end of the previous financial year. A “relevant company” means a company: (a) which is not a listed company or a subsidiary of a listed company; and (b) whose total assets (or if a parent company, whose total group assets) does not exceed S$500,000 in value.
 See Section 205B CA.
 See Section 205C CA read with the Thirteenth Schedule of the CA. A company is a “small company” if it is a private company throughout the relevant financial year(s), and satisfies any 2 of the following criteria for the relevant financial year(s): (a) its revenue does not exceed S$10 million; (b) the value of its total assets does not exceed S$10 million; (c) it has not more than 50 employees. For companies that are part of a group, the audit exemption does not apply unless the group is a “small group”. This is defined by similar thresholds as with the “small company” exemption, but on a consolidated basis.
 See Regulation 36(c) of the Companies (Filing of Documents) Regulations.
 For the purpose of investors, an “exempt private company” means a private company in the shares of which no beneficial interest is held directly or indirectly by any corporation and which has not more than 20 members. A solvent exempt private company is only required to file a confirmation of its solvent status (see Regulation 36(c) of the Companies (Filing of Documents) Regulations).
 See Recommendation 2.8 of the Report.
 See Recommendation 2.9 of the Report.
 On this point, it should be noted that the CAWG has also recommended that the “small group” concept in the current small company audit exemption should be removed, and that the criteria for the small company audit exemption should continue to apply on a consolidated basis to parent companies (see Recommendation 2.11 of the Report). This means that for small companies that are subsidiaries within a group, such companies can avail themselves of the audit exemption notwithstanding that the total group revenue or assets exceeds S$10 million. Also, the criterion of number of employees (i.e. not more than 50) is also proposed to be removed from the current “small company” definition (see Recommendation 2.10 of the Report).
 Except for filed documents related to gazetted EPCs which are wholly-owned by the Singapore government under Section 12(2A) CA (See Recommendation 2.14 of the Report).
 See Section 373(2) CA.
 This will be defined in the Practice Direction.
 It is proposed that “insignificant operations in Singapore” shall mean that none of the Singapore branch’s: (i) total revenue; (ii) total expenses; (iii) total assets; or (iv) total liabilities exceeds S$5 million on an unaudited basis.
 See Section 373(7) CA.
 See Section 164(1)(a) CA read with Section 165(1) CA.
 See definition of “related corporation” under Section 4 CA, read with Section 6 CA.
 See Section 145(1) CA.
 See Recommendation 3.1 of the Report.