COMPANIES (AMENDMENT) BILL

Order for Second Reading read.

8.57 p.m.

The Minister for Finance (Mr Hon Sui Sen): Sir, I beg to move, "That the Bill be now read a Second time."

The Companies (Amendment) Bill, which is a necessary adjunct to the Securities Industry Bill, deals with four main topics in the field of Company law, namely,

(i) disclosure of substantial share-holdings in companies listed on the Stock Exchange;

(ii) disclosure, by the directors of a company, of information to be included in the directors' report;

(iii) company investigations; and

(iv) offences for spreading false or misleading statements by the officers of a company.

The provisions of the Bill would considerably strengthen the Companies Act which already contains extensive provisions on investor protection.

With reference to the first topic, clause 6 of the Bill introduces a new Division 3A to the Companies Act. The provisions of the new Division require that the acquisition or existence of substantial shareholdings - which is defined for this purpose as 10 per cent or more of the voting shares in a company - should be disclosed to the management and other shareholders. A substantial shareholder is required to give notice in writing to the company of full particulars of his holding, and the company in turn is required to keep a register of substantial shareholders which will be open to inspection by shareholders and members of the public. These provisions apply to all persons, whether resident in Singapore or elsewhere, and to all holdings, whether direct or indirect. So that foreign investors will know of their obligations, nominee companies and trustees are required to inform persons for whom they hold shares of the requirements of the legislation.

If a company or a substantial shareholder fails to comply with these requirements, the company or the substantial shareholder, as the case may be, shall be guilty of an offence and liable to a penalty of $3,000 and, in the case of a continuing offence, to a further penalty of $500 for every day the offence continues. It is further provided that if a substantial shareholder fails to comply with these requirements, the Court may, on the application of the Minister, make an order restraining dealing in the shares or direct the sale of the shares or direct the company not to register a transfer of the shares.

Clause 4, which introduces a new section 6A in the Companies Act, defines an "interest in shares" for this purpose. The degree of detail in the definition gives an indication of the scope of clause 6 of the Bill.

Sir, the reasons for requiring disclosure of substantial shareholdings in the case of listed companies are that shareholders are entitled to know -

(a) whether there are in existence substantial holdings of shares which might enable a single individual or corporation, or a small group, to control the destinies of the company; and

(b) if there are such substantial holdings, who the persons are on whose exercise of

voting power the future of the company may depend.

Disclosure of substantial shareholdings is now required in the United States of America, the United Kingdom and in certain states in Australia.

Clause 7, which introduces a new section 132A, makes an officer of a company, who takes advantage of special confidential information to enter into a transaction with another person, liable to any person who can show that he suffered loss by reason of a fall in value of the subject matter of the transaction. The new section will cover cases where an officer of a company buys or sells in anticipation of a favourable or unfavourable announcement or in cases where the confidential information is not intended to be released or is to be released at a later date. Clause 8, which amends section 132 of the Act, makes it clear that the section deals with misuse of information by an officer and not, for example, with cases where an authorised disclosure of information has resulted in detriment to the company.

The next main topic of the Bill is the disclosure by directors of information to be included in the directors' report. Clause 11, which amends section 169 of the Companies Act, requires that the directors' report shall, in future, include:

(a) details and purposes of any share issue during the financial years;

(b) interests acquired by directors in any shares or debentures during the financial year;

(c) the number and amount of shares acquired by directors, whether in the company or in a subsidiary or a holding company, details of which appear in the Register of Directors' Shareholdings;

(d) details of the financial affairs of the company and of the accounts of the Company as well as any contracts made by the company with a

director or any firm in which a director is a member or with a company in which a director has substantial financial interest.

Under clause 10, which amends section 134 of the Act, criteria that have been applied to the registration of substantial shareholders are, with modifications, applied to the Register of Directors' Shareholdings. Also, the obligation imposed upon directors to inform the company of shareholdings in the company is extended to cases in which directors have a contingent or reversionary interest in shares or any other interest in the company.

I would like to draw the attention of Members to the provisions of clause 12 of the Bill which gives the Registrar of Companies the power to relieve the directors of a particular company from any requirements of the Act relating to the form and content of accounts or to the form and content of directors' reports. This clause, in recognition of the fact that it may not be appropriate in every case for the information to be disclosed or to be disclosed in the required manner, allows the Registrar of Companies to substitute different requirements where such a course appears appropriate.

Clause 13 increases the penalty where a director, with fraudulent intention, fails to comply with the provisions of the Act dealing with disclosure by directors and the keeping of accounts.

The third main topic of the Bill is concerned with amendments to Part IX of the Act dealing with company investigations. Clause 17, which repeals and re-enacts section 208 of the Act with modifications, enables the Minister to require information as to persons interested in shares or debentures of a corporation, including a banking or insurance corporation, without the necessity of appointing an inspector. The new section 208 confers wide powers to investigate holdings where the Minister thinks fit so to do. Clause 15, which amends section 194 of the Act, defines the "affairs" of a company for the purposes of an investigation under Part IX of the Act. Clause 16 permits an inspector, with the consent of the Minister, to extend his investigation to a related company.

Clauses 18 and 19 deal with the fourth main topic of the Bill, namely, offences for false or misleading statements and false reports by officers of a company. The existing provision under section 364 of the Act is extended, under clause 18 of the Bill, to the authorising of the making of false or misleading statements or wilfully omitting any thing without which the document is misleading. Clause 19 introduces an important amendment in that it provides for the first time for a specific offence for an officer of a corporation to make any false or misleading statement or report to a director, auditor, member, debenture-holder or trustee for debenture-holders or to the auditor of a holding company or to a stock exchange in Singapore or elsewhere. In the past, the obligations under the Companies Act have been mainly confined to obligations in relation to documents filed with the Registrar or to be laid before the company in general meeting. This provision acknowledges that certain office-holders and stock exchanges also have a real interest in not being deceived as to the position of the company.

Sir, our Companies Act is modelled on the Australian and United Kingdom Companies Acts and, therefore, reports by expert committees on the provisions and the working of these Acts in Australia and the United Kingdom are of direct relevance to our own Company law. The inspiration for the amendments proposed in this Bill has come, in the main, from the recommendations made by the Jenkins Committee in the United Kingdom and the Eggleston Committee in Australia.

Sir, I beg to move.

Question proposed.

9.07 p.m.

Mr J. F. Conceicao: Sir, firstly, I am sure you will bear with me, and this House also, over a point I wish to raise regarding a mistake in English in a small portion of one of the clauses of this Bill. I refer to page 15, from line 4 onwards:

`An officer of a company who, in any transaction to which this section applies, makes use for his own benefit or behalf,'.

There is an obvious grammatical error here. It should be "makes use for his own benefit or on his own behalf,". I think this House should see that the standards of legal draftsmanship are adequately high and that there should be a linguistic impeccability where the drafting of our laws is concerned.

An hon. Member: Hear, hear!

Mr Conceicao: Sir, I would urge the Minister to make an appropriate amendment to this portion of the Bill.

Secondly, Sir, although I hasten to deny any expertness where matters related to this Bill and the Securities industry Bill are concerned, yet, as a layman, I would imagine that the provisions of these two Bills would require an adequate enforcement machinery. If this is so, can the Minister say whether there is this machinery and, if not, whether steps will be taken to provide it?

Mr Hon Sui Sen: Sir, I am much obliged to the Member for pointing out the deficiency in the drafting of the Bill in page 15, line 6. At the appropriate time, I will, with the general assent of the House, move the amendment which he has suggested.

With regard to the Member's second point on enforcement machinery, the position is that as the new provisions have not yet been passed I have not set up any machinery as yet. But on the passing of the Bill, I will certainly set up the appropriate machinery to see that administration of the Bill will be adequate.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. -[Mr Hon Sui Sen].

Bill considered in Committee.

[Mr N. Govindasamy in the Chair]

9.11 p.m.

Clauses 1 to 3 inclusive ordered to stand part of the Bill.

Clause 4 -

Mr Hon Sui Sen: Sir, I beg to move,

In page 3, lines 31 and 32, to leave out "has an interest under the trust" and insert "knows or has reasonable grounds for believing that he has an interest under the trust and the property subject to the trust consists of or includes those shares".

Sir, this amendment is of a drafting nature and is designed to remove doubts in or improve the wording of the proposed new section 6A of the Companies Act. The words "has an interest under the trust" have been most specifically drafted to convey the idea that a person must know or must have reasonable grounds for believing that he has an interest under the trust before it can be said that that person has an interest in shares, the subject of the trust.

Amendment agreed to.

Mr Hon Sui Sen: Sir, I beg to move,

In page 3, lines 34 to 41, to leave out subclause (3) and insert -

"(3) Where a right (being a right or an interest described in the definition of "interest" in section 84 of this Act) -

(a) was issued or offered to the public for subscription or purchase, or where the public was invited to subscribe for or purchase such a right, and the right was so subscribed for or purchased; or

(b) was issued for the purpose of an offer to the public by and is held by the management company within the meaning of that section,

that right does not constitute an interest in a share.".

Sir, this amendment is proposed to remove a doubt as to whether a right, being an interest in shares as defined in section 84 of the Companies Act, which was issued for the purpose of an offer to the public and which is held by a management company as defined in that section, is an interest in shares under this section. This would cover a right to units under a unit trust scheme and is relevant as regards the application of the new section 69A dealing with substantial shareholdings. As at present drafted, it is not clear that such a right does not constitute an interest in a share.

Amendment agreed to.

9.15 p.m.

Mr Hon Sui Sen: Sir, I beg to move,

In page 4, line 4, to leave out "likely" and insert "is under an obligation whether formal or informal".

Sir, the use of the words "likely to act" in relation to control of a corporation by directors where the corporation has an interest in the shares would lead to difficulties in interpretation. It is considered that the substitution of the words is under an obligation whether formal or informal" is more specific and will remove the difficulties in interpretation.

Amendment agreed to.

Further amendments made:

In page 4, line 26, to leave out "likely" and insert "is under an obligation whether formal or informal".-[Mr Hon Sui Sen].

In page 4, line 29, to leave out "likely" and insert "is under an obligation whether formal or informal".-[Mr Hon Sui Sen].

In page 4, line 34, to leave out "likely" and insert "under an obligation whether formal or informal".-[Mr Hon Sui Sen].

In page 4, lines 41 and 42, to leave out "accustomed or likely" and insert "under an obligation whether formal or informal".- [Mr Hon Sui Sen].

Clause 4, as amended, ordered to stand part of the Bill.

Clause 5 ordered to stand part of the Bill.

Clause 6 -

Mr Hon Sui Sen: Sir, I beg to move,

In page 6, lines 34 and 35, to leave out "the Stock Exchange of Malaysia and Singapore" and insert - " a stock exchange as defined Act of 1970 in the Securities Industry Act, 1970;".

Sir, this again is a drafting amendment designed to relate the provisions in this section to those of the Securities Industry Bill. The definition of a "stock exchange" in the Securities Industry Bill includes but is not confined to the Stock Exchange of Malaysia and Singapore. The effect of this amendment would be to extend the meaning of the word "company" to a company whose shares are listed in any approved stock exchange.

Amendment agreed to.

Mr Hon Sui Sen: Sir, I beg to move,

In page 7, line 34, after "one-tenth of", to insert "the aggregate of".

This is a drafting amendment which seeks to correct a typographical error.

Amendment agreed to.

Mr Hon Sui Sen: Sir, I beg to move,

In page 8, line 7, after "including", to insert "unless the interest or interests cannot be related to a particular share or shares".

Sir, the proposed new section 69o deals with the obligation of a substantial shareholder to notify the company of his interests and the name and address and full particulars of his interests, including the name of the person who is registered as the holder. The amendment to this subsection proposes that he must give the latter the piece of information only where the interest can be related to a particular share or shares.

Amendment agreed to.

Mr Hon Sui Sen: Sir, I beg to move,

In page 8, after line 36, to insert -

"(3) For the purposes of subsection (1) of this section where a substantial shareholder in a company acquires or disposes of voting shares in the company there shall be deemed to be a change in the interest or interests of the substantial shareholder in the voting shares in that company.".

Sir, the purpose of this amendment is to add a new subsection (3) to the proposed section 69E to make it clear that the change in the interests of a substantial shareholder in the voting shares in a company takes place where the substantial shareholder acquires or disposes of voting shares in the company, and thus ensures that the substantial shareholder is under an obligation to notify the particulars of this change in his interests.

Amendment agreed to.

Mr Hon Sui Sen: Sir, I beg to move,

In page 9, after line 32, to insert -

"(4) Nothing in this section affects the operation of section 69a of this Act.".

Sir, section 69H deals with a person holding voting shares in which a person who is not resident in Singapore has an interest and places an obligation on the first mentioned person to serve a notice in the prescribed form as to the requirements of the Division of the Act. The amendment introduces a new subsection (4) which confirms that nothing in section 69H affects the obligation of the person to comply with this Division, even though he is not resident in Singapore.

Amendment agreed to.

Clause 6, as amended, ordered to stand part of the Bill.

Clause 7 ordered to stand part of the Bill.

Clause 8 -

Mr Hon Sui Sen: Sir, I beg to move,

In page 14, line 39, to leave out "second" and insert "first".

Sir, this is a formal drafting amendment designed to correct an obvious error.

Amendment agreed to.

Mr Hon Sui Sen: Sir, I beg to move,

In page 14, line 43, to leave out the full-stop and insert -" "; and (d) by renumbering the existing subsections (5) and (6) thereof as subsections (4) and (5), respectively.".

These are formal drafting amendments designed to correct typographical errors.

Amendment agreed to.

The Chairman: There is a consequential amendment in page 14, line 42, to leave out "and". This will be done.

Clause 8, as amended, ordered to stand part of the Bill.

Clause 9 -

Mr Hon Sui Sen: Sir, it will be appropriate at this stage to refer to the amendment which the Member for Katong has suggested. With your consent and the general assent of the House, I would like to move that in page 15, line 6, after "or", to insert "on his own".

The Chairman: I give my consent. Does the Minister have the general assent of Members to move the amendment?

Hon. Members indicated assent.

Mr Hon Sui Sen: Sir, I beg to move,

In page 15, line 6, after "or" to insert "on his own".

Amendment agreed to.

Mr Hon Sui Sen: Sir, I beg to move,

In page 15, line 20, after "officer" where it secondly occurs, to insert "or".

This again is a formal drafting amendment to correct a typographical error.

Amendment agreed to.

Clause 9, as amended, ordered to stand part of the Bill.

9.30 p.m.

Clauses 10 and 11 ordered to stand part of the Bill.

Clause 12 -

Mr Hon Sui Sen: Sir, I beg to move,

In page 23, after line 46, to insert a new sub-clause* as set out in the Order Paper Supplement.

*The sub-clause, appearing in the Order Paper Supplement, reads as follows:

"(2) The Registrar may where he considers it appropriate make an order in respect of a specified class of companies relieving the directors of a company in that class from compliance with any specified requirements of this Act relating to content of the report required by subsection (6) of section 169 of this Act and the order may be made either conditionally or on condition that the directors of the company comply with such other requirements relating to the form and content of accounts or consolidated accounts or report as the Registrar thinks fit to impose.".

Sir, clause 12, which inserts a new section 1 69A, deals with the power of the Registrar to grant relief to directors of a corporation from the requirements as to the form and content of accounts or consolidated accounts, etc. An amendment is proposed which will have the effect of enabling the Registrar to exempt directors of a specified class of companies, for example, private companies, from compliance with specified requirements of this Act relating to the form and content of the accounts.

Amendment agreed to.

The Chairman: There are consequential amendments to be made:

(i) In page 24, line 1, to leave out "(2) " and insert "(3) ".

(ii) In page 24, line 10, to leave out "(3) " and insert "(4) ".

They will be done.

Clause 12, as amended, ordered to stand part of the Bill.

Clauses 13 to 17 inclusive ordered to stand part of the Bill.

Clause 18 -

Mr Hon Sui Sen: Sir, I beg to move,

In page 26, line 29, to leave out from "18." to the end of line 37 and insert a new provision* as set out in the Order Paper Supplement.

• The provision, appearing in the Order Paper Supplement, reads as follows:

"Section 364 of the principal Act is hereby amended -

(a) by deleting the words " a statement false in any material particular knowing it to be false" appearing in the third and fourth lines of subsection (2) thereof and substituting therefor the words " or authorises the making of a statement false or misleading in any material particular knowing it to be false or misleading or wilfully omits or authorises the accession of any matter or thing without which the document is misleading in a material respect"; and

(b) by inserting immediately after subsection (2) thereof the following new subsection:-

"(3) For the purpose of subsection (2) of this section where a person at a meeting votes in favour of the making of a statement referred to in that subsection he shall be deemed to have authorised the making of that statement.".".

Sir, clause 18 amends section 364 of the Companies Act, which deals with false and misleading statements. Subsection (2) of section 364 provides that if a person in any return, report or balance sheet, makes a false statement, he is guilty of an offence. It is now proposed by this amendment that a new subsection (3) be inserted to make it clear that if a person at a meeting votes in favour of making a statement referred to in subsection (2) , he shall be deemed to have authorised the making of that statement, and shall be guilty of an offence.

Amendment agreed to.

Clause 18, as amended, ordered to stand part of the Bill.

Clause 19 ordered to stand part of the Bill.

Bill reported with amendments; read a Third time and passed.