COMPANIES (AMENDMENT) BILL

Order for Second Reading read. 4.08 pm

The Acting Minister for Labour (Prof. S. Jayakumar): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Companies Act came into force on 29th December, 1967. It was amended in 1970, 1973, and 1974. The present Bill represents a major review of our Company Law with the intention that it will keep pace with the many developments that have taken place in areas such as the securities industry and the capital market. It also seeks to rectify various anomalies and inadequacies which have been experienced in the administration of the Act.

In view of its comprehensive and rather complex nature, I wish to say that it is proposed to refer this Bill to a Select Committee to enable the views of all interested parties to be obtained before the Bill is finalized. To enable every Member of this House to have a better understanding of the objects of the Bill, it may be classified into five main groups -

(a) amendments that would improve the administration of the Act;

(b) amendments that would ensure that the Act is more responsive to developments in the capital market;

(c) amendments that would afford greater protection to creditors, investors or shareholders in such areas as rights issues, insider trading in shares and takeover and winding up situations;

(d) amendments that directly affect directors of companies;

(e) amendments that would give effect to certain recommendations made by the Jenkins Committee in the United Kingdom on the reform of company law.

Before dealing separately with each of these groups, permit me to refer to one of the amendments that does not fall into any of these groups.

Clauses 9, 50 and 51 enable the Registrar to refuse the registration of a company where he is satisfied that the proposed company is likely to be used for an unlawful purpose or for purposes prejudicial to public peace, welfare or good order or the national interest.

As regards the first group of amendments, they are amendments designed to remove anomalies in the Act and to improve the administration of the legislation and vary from enabling microfilming of documents to enabling the Minister by regulation to prescribe the size, durability and legibility of documents delivered to the Registrar.

The second group of amendments relates to the enhancement of Singapore as a financial centre and are of wider importance and significance. Some of the more important amendments here would be referred to.

Clause 18 will enable the Registrar to exempt corporations of an international character from certain prospectus requirements relating to the signing of the prospectus by all the directors. Experience has shown that the existing requirements in this regard are sometimes impracticable in the case of international corporations where none of the directors are resident in Singapore.

Clause 23 is designed to extend the ambit of the exemption that is granted by the Minister to a prescribed corporation from complying with the provisions of Division 4 of PART IV of the Act relating to the issue of debentures. At present the section only exempts a prescribed corporation from complying with section 74. However, there are many other provisions in Division 4 that still apply to a prescribed corporation. Corporations concerned in loan syndication find that strict adherence to all the requirements in this section are necessarily burdensome and put obstacles in the way of the development of the bond market in Singapore.

Again, the Fifth Schedule requires in paragraph 3 of PART I that the names, description and addresses of directors must be included in the prospectus. The amendment in clause 69 will permit directors of a prescribed corporation to give only their city or locality. This is considered necessary to safeguard the security of these directors.

The third group of amendments is designed to give better protection to investors. In the past, subscribers to rights issues by companies have lost substantial sums of money by taking up their rights and finding that the company's financial affairs or trading prospects are in a poor state.

The purpose of clause 2(b) read with clause 17 is to oblige quoted companies making a renounceable rights issue to bring out a full prospectus or an abridged prospectus. Issuing companies may apply to the Registrar to publish an abridged prospectus. If granted permission, they will be exempt from the requirements of the Fifth Schedule but will instead have to comply with the requirements of the new PART V of the Fifth Schedule.

Another area in which investors can be placed at a disadvantage is where officers or employees of a company indulge in the unlawful practice of dealing in shares at a time when they are in possession of price-sensitive information. To remedy inadequacies in this area, clause 32 proposes to amend the law in two major respects. First, it brings substantial shareholders of com- panies into the class of insider traders. Secondly, it contains definitions of "special confidential information" and the phrase "if generally known" in relation to such information. The purpose of these amendments is to facilitate proof of insider trading.

The next important amendment concerns take-overs. Clause 45 proposes very substantial amendments to the take-over provisions in the Act. Although the Securities Industry Council (SIC) in administering the Code on Take-overs and Mergers is generally regarded as an effective body, it does depend for its effectiveness upon the active cooperation of those engaged in take-overs to play according to the rules and to ensure self-regulation under the supervision of the SIC. However, the Code is a voluntary one, even though it is recognized by statute, and cases have arisen where the powers of sanction under the Code are inadequate to deal with certain devices in take-over situations that have been resorted to by a few members of the financial community engaged in take-over bids. It is felt therefore that statutory intervention is needed to deal with serious cases of default whereby the investing public may suffer loss as a result of the activities of unscrupulous companies or individuals. Accordingly, sections 179, 179A and the Tenth Schedule have been extended to apply to natural persons as well as corporations (whether incorporated or carrying on business in Singapore or not) making a take-over bid but these provisions will not apply to private companies, companies limited by guarantee or by shares and guarantee. Bluffing offers will be prohibited. Every would-be bidder with a firm intention to make a take-over bid will be bound to make a public announcement in the newspapers of that intention and give certain information to the investing public. The amendment also seeks to harmonize the provisions of section 179 and the Tenth Schedule with those in the Code on Take-overs and Mergers to facilitate the administration of take-overs, both under the law and under the Code.

Additionally, further powers are given to the SIC by the law to conduct enquiries into misconduct in a take-over and to summon witnesses and produce documents. Since the SIC has from time to time to bring out rulings in take-overs that criticize parties to a take-over or their financial advisers, it is essential that the SIC should not be exposed to actions for defamation of character if it is to do its job properly and fairly. It is accordingly proposed that it should have statutory immunity in this regard.

As regards the fourth group of amendments that directly affect companies' directors, I should refer to clause 27 which fills a gap in section 122 by providing that a director shall not resign or vacate his office unless there are at least two directors remaining, one of whom must ordinarily reside in Singapore. Numerous exceptions are, however, provided for the operation of this provision so far as they affect directors who are disqualified under the Act or under the legislation relating to insurance, banking or finance companies.

Clause 30 provides for the disqualification of directors of companies that have gone into liquidation from acting as a director of another company within five years after the second company of which they were directors has gone into liquidation. Further, clause 31 provides that where a person has been persistently in default in relation to the requirements of the Act concerning delivery of documents to the Registrar and has been convicted of three or more offences in relation to such defaults or has had an order made against him under section 12 or 362 of the Act, such person can be disqualified from acting as a director within five years of the last conviction without leave of the court. Other amendments in this group relate to the giving of loans to directors or members of their family or to a company connected with directors or members of their family of the lending company where the first mentioned company is incorporated outside Singapore.

In relation to the final group of amendments that would give effect to the Jenkins Committee recommendations on company law made in the United Kingdom in 1962, I wish in particular to refer to the amendments in clause 2(a) and clause 7(b) and elsewhere in the Bill that would have the effect of preventing companies limited by guarantee having a share capital from being incorporated in future in Singapore. It is quite inappropriate that a company formed with the intention of making pro rata distribution of profits to its members should be registrable as a company by guarantee. A company should either be limited by shares or by guarantee but not both. This hybrid company structure is rarely resorted to these days and there are very few such companies that have been incorporated in Singapore. Such companies that are so incorporated will have a transitional period of two years to convert either to a company limited by shares or a company limited by guarantee.

The other amendment in this group which I would like to mention appears in clause 13 where a company which is an unlimited company may be converted to a limited company, and a limited company is permitted to be converted to an unlimited company.

Finally, Sir, I wish to refer to clause 73 which increases the fines imposed in many of the provisions of the Act so as to more accurately reflect present day values.

Sir, I beg to move.

Question proposed. 4.20 pm

Mr Eric Cheong Yuen Chee (Toa Payoh): Mr Speaker, Sir, the Companies (Amendment) Bill gives me an opportunity to draw the attention of the Government to a matter which I think is in need of redress. The Bill of course is being moved before this House to redress matters which are equally, if not more, cogent and valid.

The Bill is concerned with the proper functioning of a company registered and operating in Singapore. Thus the matters to be redressed are the provisions relating to the promoters and the directors of companies with a view to ensuring the protection of shareholders under the Bill. It is not my intention, nor my inclination, to touch on these provisions of the Bill as there are other Members in this House far more competent and qualified to give a critical opinion of them.

I am a trade unionist and my concern is with the few provisions in the Bill affecting the interests of workers. Nonetheless, I must place on record my gratitude to the Minister for including among the provisions of the Bill a timely amendment to protect the interests of workers who have as their employer a limited company. It is a small but significant token of recognition by the Government that a company does not operate in a milieu peopled only with promoters, directors, shareholders and registrars. Workers also have their rights and interests very much bounded up with the proper functioning of a company.

Mr Speaker, Sir, I refer particularly to clause 53 of the Bill which seeks to amend section 292 of the Companies Act to the effect that (1) the amount of wages of workers which are recoverable upon the winding up of a company is to be increased from $1,500 to an amount that is equivalent to five months' salary and (2) an "employee" is deemed to include a sub-contractor of labourers and "salary" is deemed to include notice pay or payment in lieu of notice. These amendments are undoubtedly based on the experience of the Ministry of Labour in the course of administering the Employment Act. Section 46 of the Employment Act makes a cross reference to section 292 of the Companies Act regarding the recoverability of any gratuity or retrenchment benefit payable to workers under a collective agreement upon the liquidation of a company.

The effect of clause 53 is clear to the Members of the House and I do not think anyone in the House would object in principle to this clause. Workers in Singapore would substantially benefit from the implementation of clause 53 of the Bill. For one thing, the sum of $1,500 has been rendered grossly inadequate by wage-levels in Singapore rising very far above that when the Companies Act was enacted in 1967. The sum is rendered more grossly inadequate when it refers to the total amount of salary owing to a sub-contractor who may have any number of workers under him and looking to him for the payment of their wages. If there is any objection to the proposed amendment, it is that it may not be practical to restrict the recoverable arrears of salary to within four months before the commencement of winding-up. I do not think it is necessary for me to dwell on this point any longer.

I now ask Members of this House to try to imagine a situation where, despite the eventual adoption of the Bill, including clause 53, the workers of a company which is being wound up may not receive a single cent for whatever arrears of wages owing by the company, as in the recent case of the enforced winding-up of Overseas Union Finance. This situation is highly probable when the company owes its secured creditors more than what it has in assets or it has no assets worth speaking of.

Even if such a company is not being wound up but continues to operate in Singapore, the workers of the company may still not be able to recover whatever money is owing to them by the company. My Union, the Singapore Manual and Mercantile Workers' Union, had a most unforgettable and unpleasant experience with such a company. Because the company persistently refused to discuss with my Union the payment of a retrenchment benefit to our three retrenched members under a valid collective agreement, we took the matter up in the Industrial Arbitration Court. Our claim was upheld by the Court but the company refused to comply with the award of the IAC. Then we went back to the Industrial Arbitration Court again to obtain an order requiring the company to comply with the award of the Court. Still the company refused to pay and we applied for and obtained a further order of the Court directing the secretary/ director of the company, the only director who was resident in Singapore, to comply with the award of the Court under pain of contempt. Subsequently, the director sought and obtained from the High Court an order of certiorari to quash the order of the Industrial Arbitration Court on the ground that it was wrongly made in that a director of a company is not liable for the debt of the company under the company law except if there is fraud, breach of warranty of authority or any other exceptional circumstances.

Sir, on the basis of what I have said, I hope the Minister would seriously consider my suggestion to further amend clause 53 of the Bill. In paragraph (b) of sub-section (1) of section 292 of the Act, the words "within a period of four months" appearing in the ninth and tenth lines thereof should be amended to read "within a period of one year". My ground for so suggesting, Sir, is that workers may agree to their company deferring the payment of a portion of their salary over a considerable period of time in the hope of helping the company and saving their own jobs. It would be most unfortunate if the arrears of salary have accrued outside the period of four months before the winding-up, as presently stated in the Act. My suggested period of one year would be more equitable and less restrictive. Besides, the overriding limitation of the quantum of five months' salary still applies.

Secondly, Sir, I suggest that the term "salary" should also be deemed to include any payment by way of gratuity or retrenchment benefit or provident fund contributions, subject to the overriding limitation of a maximum quantum of five months' salary. The balance of gratuity or retrenchment benefit or provident fund contributions that cannot be paid under the priority ranking of arrears of salary will have to make-do with the respective lower priority ranking as set out in section 292 of the Act. My ground for so suggesting is that, more often than not, workers are owed by their employer who is a company, their gratuity or retrenchment benefit or provident fund contributions rather than arrears of salary. My suggested amendment would allow workers in such circumstances to recover at least a portion of their gratuity or retrenchment benefit or provident fund. If my suggestion appears to be tantamount to enabling workers to jump the queue, so to speak, at the expense of possibly the Income Tax Department, please remember that the recovery of such payment or benefit may be a matter of life or death to the workers and their families.

Lastly, Sir, I have to admit I am at a loss as to how to suggest a reasonable way of redressing the situation where a company has no assets and its directors are not liable for the company's debts, including debts owing to its workers. It is not practical to expect workers to know the financial position of a company before accepting employment by it. Nor do the workers have any reason to suspect that the company may not be able to honour its obligation to pay gratuity or retrenchment benefit under a collective agreement when the company regularly pays wages and allowances without fail. It is only upon termination of service by the company that the workers find their employer to be a two-dimensional legal fiction without any substance. In the absence of any better redress, I would suggest that the Companies Act be amended to require, as a condition for the registration of a company without a minimum amount of capital that is reasonably substantial, the company be required to show proof of its ability to meet its obligations to its employees in the normal course of its operations, such as a banker's guarantee to cover any eventuality. As the trend is definitely towards more and more employers in Singapore being impersonal companies rather than human persons, the Companies Act should make adequate provisions to safeguard the interests of the employees of companies.

Prof. Jayakumar: Mr Speaker, Sir, I wish to thank the hon. Member for Toa Payoh for his comments on the Bill, in particular, clause 53. I have noted his points with regard to this clause. May I inform Members of the House that this clause 53, in seeking to amend section 292, actually takes into account proposals which were made by the NTUC about 1 1/2 years ago. I take it that the hon. Member for Toa Payoh is not in disagreement with the amendments, but he seeks to make further improvements and to bring in additional safeguards which he considers necessary.

According to my notes, he has really proposed three safeguards, or three additional amendments. First, he has proposed to amend section 292, subsection (1), paragraph (b), to extend the period of four months to one year. The second amendment, I take it, is to extend the meaning of "salary" in that section to include any payment by way of gratuity or retrenchment benefit or provident fund contributions, subject to an over-riding limitation of five months' salary. His third amendment, I understand, is to require, as a condition for the registration of a company without a minimum amount of capital that is reasonably substantial, to show proof of its ability to meet its obligations to its employees, such as, as he has suggested, a banker's guarantee.

Mr Speaker, Sir, in view of the fact that I have mentioned that it is proposed to refer this Bill to a Select Committee, perhaps it is best that we take cognizance of the three points made by the Member for Toa Payoh and to assure him that each of these three points will be examined very carefully by the Select Committee.

Question put, and agreed to.

Bill accordingly read a Second time.

Resolved,

"That the Companies (Amendment) Bill be committed to a Select Committee consisting of the Speaker as Chairman and seven Members to be nominated by the Committee of Selection." - [Prof. S. Jayakumar].

Mr Speaker: By popular request, I am taking the suspension now. I suspend the Sitting and will take the Chair again at 5.05 p.m.

Sitting accordingly suspended at 4.35 p.m. until 5.05 p.m. Sitting resumed at 5.05 pm