COMPANIES (AMENDMENT) BILL (As reported from Select Committee)

Order for Third Reading read. 3.48 pm

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

The Select Committee on this Bill received 14 written representations and heard seven representors. A number of the representations were valuable and many of the suggestions therein have been accepted by the Select Committee. Some of the more controversial clauses in the Bill have, as a result, been substantively amended and the potential strictness of their operation considerably modified.

The Report of the Select Committee was presented to this House on 12th June 1984, as Paper Parl. 3 of 1984. The Bill as set out at Appendix I of the Report incorporates the amendments made by the Select Committee. Hon. Members will observe from the Report that numerous amendments have been made to the Bill and full explanations for all these amendments appear in Appendix V of the Report. I do not, therefore, propose to burden the House by repeating these explanations clause by clause.

Mr Speaker, Sir, I will instead refer to certain clauses in the Bill which have aroused considerable public and professional interest and debate. Certain representors considered that these proposals went too far while others felt that they had not gone far enough. In weighing the opposing views and agreeing to modify the impact of these provisions, the Select Committee believes that it has struck the right balance. I refer, in particular, to clauses 30 and 31 which adversely affect directors of companies who continue to act as directors in breach of the provisions without leave of the Court.

Clause 30 is designed to restrain directors of companies that have been liquidated from continuing to act as directors unless they can satisfy the court that the liquidations are not attributable to their unfitness to manage companies. This is to safeguard the public and, in particular, creditors of companies, against persons who by their conduct have shown themselves to be unfit to manage the affairs of a company with limited liability. The law, at present, does not prevent a person trading through the vehicle of one or more companies with limited liability and allowing such a company or companies to become insolvent and then establishing a new company to carry on trading, all the while leaving behind a trail of unpaid creditors. This is not an uncommon occurrence in Singapore. Such conduct does little to enhance Singapore's position as a leading financial and trading centre.

It is recognized and accepted by Government that liquidations of companies can be brought about by numerous vicissitudes - some of which may be caused by economic or other factors beyond the control of directors and that the operations of the section will cause inconvenience and cost to certain directors who are unfortunate enough to be connected with -two insolvent companies which failed for reasons that have nothing to do with their unfitness to manage companies.

This category of directors will have to satisfy the court that they are fit persons to continue to manage companies by showing that the liquidations were not attri- butable to their conduct as directors. It is nevertheless considered that the policy and principle in this clause is justified and should stand as part of the Bill. The clause is aimed at the unscrupulous and irresponsible director, and in the drafting of penal and restrictive provisions it is not always possible to distinguish between honest and fit persons and unfit and unscrupulous persons. Neither is it possible to distinguish in this particular case between insolvencies brought about by irresponsible trading and insolvencies attributable to normal business failures. It is considered, however, that the right balance has been struck as between the interests of management of companies and the interest of creditors. The latter are sorely in need of some form of protection under the law for they have given credit to these insolvent companies in good faith in the normal course of business and they are often confused and distressed that existing law does little to protect them unless actual fraud can be proven.

However, Members will see from the amendments accepted by the Select Committee that we have mitigated the strictness of the provision in a number of ways. These amendments go some way to meeting the objections to this clause without disturbing the basic concepts in it.

Sir, I now move on to clause 31 which deals with disqualification of persons who have been persistently in default in relation to requirements of the Companies Act involving delivery of returns, accounts or other documents to the Registry of Companies. The objections made to this clause in the representations were not so much concerned with the principles therein as with doubts about the scope of its operation, particularly as regards the effect that court orders made under sections 12 and 362 of the Act in respect of breaches of the Act would have on a person to whom the section applies and as regards the effect the clause would have on section 130 of the Act dealing with convictions for an offence in connection with the management of a company.

The Select Committee were able to accept the bulk of the suggestions as well as further suggestions emanating from the Attorney-General's Chambers. The clause as a result of these amendments, we believe, is now better framed and more readily acceptable to the business and professional communities.

As a final comment on the Bill as reported from Select Committee, I may say that the vast majority of the other amendments are either of a drafting nature or are new proposals made by representors to remove inconsistencies and defects in existing law.

Sir, I beg to move.

Question proposed. 3.54 pm

Dr Toh Chin Chye (Rochore): Mr Speaker, Sir, I have sympathies with the arguments put forward by Dr Philip Pillai from the Faculty of Law at the University of Singapore, the Singapore Chinese Chamber of Commerce and Industry and the Singapore Society of Accountants.

I wish to comment on clause 30 which introduces a new section 125A into the Companies Act. The clause as is so drafted is inexact, as the Minister himself has admitted. But the purpose of the law is to be exact, and if the Minister is incapable of drafting an accurate law which spells out to the evil-doer that only the evil-doer should be punished, then I propose that such a clause should not be passed into law. There are several circumstances which can be covered by section 125A in which directors find themselves incapable of holding a directorship of any other company for five years without appealing to the court. You may have a holding company and subsidiary companies. It is quite possible that a subsidiary company is so large that it becomes insolvent, goes into liquidation, ending with those who are holding directorships in the holding company being implicated under section 125A. So at one stroke the holding company and the subsidiary company are considered as two companies under the definition of section 125A.

Secondly, the onus is placed on honest directors, who may be sleeping directors, who may have left the companies for three years and who may be ignorant of what was going on in these companies. But nonetheless, such persons are still held liable for the operations of the company which they have already left. It is also possible that there may be persons who will be appointed as directors to rescue a company. But if the rescue operation is a failure then, of course, the company will have to be liquidated. It may be insolvent. It is a common practice for professional people to be appointed directors for such purposes, and in the course of business it is not always possible that rescue operations would always be guaranteed a success. Nobody can guarantee that companies that are in trouble can be successfully salvaged. But such persons, under section 125A, Will no longer be allowed to hold a directorship. I think this is a serious failing of this section in the Companies Act. It does not take cognizance of the permutations that are possible and which can be covered by the punishment meted out under section 125A. Directors too may not have equity, but they are also put at fault if the companies are liquidated. Now, liquidation can be due to many reasons. It is not just because of dishonesty. It can be because there is a slump. There are hundreds, if not thousands, of companies that have closed down in the United States during the last recession. I do not know whether the Minister for Law can provide the House with figures of how many companies, private companies as well as public companies, that have been liquidated? Companies encompass also private holding companies.

What I am very concerned with is that, while the intention is to punish the evil-doer, to punish the black sheep, innocent directors are also equally punished. The Minister himself has said that the onus is on all the directors, but not all directors hold executive positions in companies. So I see no reason at all why the arguments that have been put forward so eloquently by Dr Pillai, the Singapore Chinese Chamber of Commerce and Industry and the Singapore Society of Accountants have not been taken into consideration, and section 125A has been incorporated into this Bill.

Let us take another example. I may be a director in a pig farm. It is not my fault that my farm is now being closed. It is Government policy. My company has been liquidated by the Government. At the same time I may be a director of a feed-mill which supplies feed to my pig farm as well as to other pig farms. But because all the pig farms have been liquidated by Government policy, I am held responsible and, therefore, I can no longer be a director of any other company for five years. Where is the equity? In law, you need to have equity. There is no equity at all under section 125A. The Minister himself has admitted. It is not an exact law. But laws are supposed to be exact, accurate.

I cannot say with greater vehemence than now that it is absurd for Parliament to be presented with this piece of legislation which will come into law today when so little time and publicity had been given to what was going on in the Select Committee on the Companies Act. The news media have been full of news about the Central Provident Fund. Yes. But there has virtually been a silence on the Companies Act. Singapore is built by companies. It is astonishing, really astonishing that thousands of directors and thousands of little companies in Singapore have no idea that their fate and future are being decided by this piece of legislation, all simply because of the lack of publicity in the newspapers or appalling ignorance of the media of what is going on. If the media is permitted to report and cover proceedings of the House, I would advocate that the media equally be allowed to cover proceedings of Select Committees as they do in the United States where Congressional and Senate proceedings are open and faithfully reported so that the population are educated in the process of law. I think this is a very fundamental idea which may be new to Singapore but which is not new in other Parliaments, and it may well be worth thinking about.

Apart from this suggestion, I would urge the Minister for Law to withhold implementation of section 125A until further consideration has been given to the implications of this section.

Prof. Jayakumar: Mr Speaker, Sir, I wish to thank the hon. Member for Rochore for his comments. As would have been clear from the Report of the Select Committee, clause 30 was the clause which gave the Select Committee the greatest amount of consideration and, in fact, it was postponed till the end until we had given it all necessary consideration.

The problem really is one of balancing - balancing the interests of the public and balancing the interests of directors. In the drafting of this provision to meet the policy objective, we had in fact been guided by the equivalent provision in the United Kingdom. In the United Kingdom, the wording of their relevant legislation as far as section 125A(l)(a) is concerned is identical. If I may read:

Where a person -

(a) is or has been a director of a company which has at any time gone into liquidation (whether while he was a director or subsequently) and was insolvent at that time; and

(b) is or has been a director of another such company which has gone into liquidation within five years of the date on which the first mentioned company, went into liquidation,'

The opening part of section 125A(l)(a) therefore has been influenced by the wording in the United Kingdom legislation. Nevertheless, we did take into account the different representations and it was decided that we should modify the rigour of the provision in two ways. One is to make clear of the first mentioned company to add the words "or at any time within three years of his ceasing to be a director". In other words, the director's relationship to the first company's liquidation is within three years of his ceasing to be a director. That is one modification which is reducing the scope of the provision as it is worded in England.

The second important modification is in subsection (5) where it is made clear that the operation of subsection (1) shall not apply unless both companies have gone into liquidation after the date of commencement of this section. So it will not have a retrospective effect which would have been the case in the original draft Bill as moved in the Second Reading.

Nonetheless, I wish to assure the Member for Rochore that I have taken note of his comments. I can assure him that with regard to another exercise to review other parts of the Companies legislation,] will undertake to take his comments into con- sideration to see the implementation of this provision and also to take into account certain experiences in the United Kingdom legislation and certain recommendations made therein with a view to seeing whether in the implementation of this provision any further modifications will have to be made.

Dr Toh Chin Chye: Mr Speaker, Sir, I thank the Second Minister for Law for his assurance that he will re-examine section 125A. I am aware that section 125A(l)(a) has been cast from British practice. But if I were right, reading page A43 of the submission given by Dr Pillay, it is very clear that under British law it is a particular person who is debarred from becoming a director and who is disqualified because of the nature of his practice in the company. But under our section 125A(l)(a), the burden in fact is imposed on even blameless directors who are now obliged to apply to the court for leave to be a director or to participate in the management of a company. I think there is a vast difference between the two. I accept the fact that this is copied from British law. But I think there is a distinct difference between British law and our version of the British law.

Prof. Jayakumar: Mr Speaker, Sir, the operative part of section 125A(l)(a) is based on British law. The differences as to burden of proof, onus of proving and as to who should make the application to the court, whether for permission or whether to object. There are differences. But I hope that with the earlier assurance I gave, the Member for Rochore will be satisfied.

Question put, and agreed to.

Bill accordingly read a Third time and passed.

Mr Speaker: I think it would be a good idea to take the Suspension now before we come to the Problems of the Aged. I suspend the Sitting and will take the Chair again at 4.35 pm.

Sitting accordingly suspended at 4.08 pm until 4.35 pm. Sitting resumed at 4.35 pm