COMPANIES (AMENDMENT) BILL

Order for Second Reading read.

5.40 p.m.

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

The reasons for introducing this Bill are the same as those I mentioned in introducing the amending Acts of 1971 and 1973, namely, to give effect to recommendations by the U.K. Jenkins Committee Report on Company Law Reform, particularly insofar as these recommendations affect the principle of greater disclosure of information by companies as a safeguard against malpractices and the powers and duties of directors.

Disclosure of information is an essential part of the working of a free and fair economic system, subject to certain limitations to allow for competitive situations. Under existing legislation, substantial powers already exist to require disclosure by directors in their accounts or in relation to contracts in which they have an interest, or in any dealings they may have in their company shares (including insider dealings) and so on.

This Bill extends the disclosure principle by requiring that the interests of members of a director's family in contracts with the company shall be treated as an interest of a director and will need to be disclosed to fellow directors (clause 14), and by requiring a director who acquires or disposes of shares in his company which are listed on a Stock Exchange to notify a Stock Exchange which may publish the information (clause 17), and by providing that there should be clear and specific disclosure in general meeting of any alteration in directors' emoluments (clause 18).

On a previous occasion in this House, I have made the point that there is nothing inherently wrong in the practice of holding shares through nominees and there are many circumstances in which the practice is both normal and convenient on commercial and personal grounds. However, there are circumstances in which concealment of a beneficial interest in a shareholding can be undesirable. I refer particularly to the situation known as "warehousing", in which a number of parties act in undisclosed concert in such a way as not to bring their interest within the existing provisions dealing with substantial shareholders. These provisions require that those with an interest in the equity of a company of 10 per cent or more have to disclose their interest. Persons can evade the provisions by acting in concert and acquiring shareholdings amounting to, for example, 9.5 per cent. This enables such persons to acquire by stealth a dominant position in a company, particularly in a take-over situation. Government considers that the risk of abuse of the nominee system in this regard will be minimised if the notification percentage is reduced from 10 per cent to 5 per cent, and if the notification, in which changes or cessation of a substantial shareholding are to be given to the company, is reduced from 14 days to seven days (clause 9). A further provision is inserted which will enable a company to know if a warehouse situation is developing or if it is a target for a take-over bid. This provision confers the right upon a company to ascertain the real identity of the owners of its shares (clause 12).

Other major amendments proposed in the Bill are concerned with the powers and duties of directors. Clause 15 lays down in a new section 132B that the matter in which directors of a company are entitled to have regard are the interest of its employees as well as its members. This provision serves to emphasise the duty that a company has to its employees and may be compared with clause 4 which includes amongst the powers of a company to make provision for the benefit of employees and former employees upon the cessation of the business of a company or any subsidiary.

This clause introduces two new provisions which are important. In section 132D it is provided that approval of a company in general meeting is required before directors of a company issue shares. The unfettered discretion of directors to issue shares (once authorised) has sometimes worked to the detriment of shareholders, for example, by diluting shareholders' capital in certain circumstances. The imposition of the proposed form of control will apply to the issue of shares for cash or for other consideration. Its effect will be to give more control to shareholders without interfering unduly with the directors' business of managing the company.

The provisions in section l32C is a restatement of the law as at present appears in section 35 (3) of the Act. Power is given to the court on the application of a member of the company to prevent directors from carrying into effect proposals for disposing of the whole or substantially the whole of the company's undertaking or property; but if directors contravene this requirement that such a disposal should be approved by the company in general meeting the transaction will not affect a purchaser for consideration who acquires the property without actual notice of the contravention.

Clause 16 introduces a new section 133A which prohibits in subsection (1) thereof a company from making a loan to another company or to provide any security for a loan to another company if directors have an interest in the shares of the other company equal to one-fifth or more of the nominal value of its equity share capital; and also prohibits loans to persons who are members of the family of any of its directors. There are, however, certain specific exclusions in subsection (3) of this section which should be noted. The interest of a member of a director's family is treated as an interest of the director for the purposes of subsection (1). The purpose of this amendment is to close a loophole which at present exists under section 133 of the Act which prohibits a company from making loans to its directors. This section can be circumvented by making loans to a company in which a director of the lending company has effective control.

The remaining major amendment to which I would wish to comment upon appears in clause 19 which amends section 179 dealing with take-overs. The purpose of this amendment is to clarify the status of the Singapore Code on Take-overs and Mergers. The Code is not a statutory code but it is intended that it should have statutory backing and should have a locus standi in relation to the Government. For this reason it is expressly recognised by statute as is the Securities Industry Council which administers it. Although the Code is modelled on the City Code on Take-overs and Mergers, that Code has not been recognised in any legislation in the United Kingdom - it is regarded purely as a measure for voluntary self-regulation. The Government takes the view that for the Code to be really effective something more than this is needed although we still adhere to our conviction that, in the highly technical field of take-overs and mergers, a non-statutory code is a better way of dealing with this subject than by Act of Parliament. The new subsection makes it clear that breach of the Code is not a criminal offence. The Code may be revised from time to time and the public will be advised of such revision by notification in the Gazette. The Securities Industry Council may from time to time issue rulings on the interpretation of the Code and lay down rules of practice. It is not intended that these rulings should be challenged in the courts or that the Code will be subject to judicial interpretation for the Code is concerned with standards of conduct to be followed in take-overs and mergers. Members will also note that in clause 15 a provision is inserted in relation to the rulings of the Securities Industry Council and lays down that directors in the exercise of their powers are entitled to have regard to these rulings.

The Explanatory Statement refers to the remaining amendments proposed in the Bill and I need not elaborate upon them.

Sir, I beg to move.

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; reported without amendment; read a Third time and passed.