COMPANIES (AMENDMENT) BILL

Order for Third Reading read. 6.35 pm

Mr Deputy Speaker: Notice has been given by the Minister for Finance of amendments in respect of clauses 6 and 17 as set out in the Order Paper Supplement. The Bill accordingly stands recommitted to a Committee of the whole House in respect of those clauses.

Bill considered in Committee.

[Mr Deputy Speaker in the Chair]

Clause 6 -

The Chairman: There are corrections to be made.

(1) In page, 5 line 33, to leave out the dash.

(2) In page 5, line 33, to insert in the margin "Amendment of section 50.".

(3) In page 5, line 34, to leave out "(a)".

These corrections will be made.

Clause 6 ordered to stand part of the Bill.

Clause 17 -

The Minister for Finance (Dr Richard Hu Tsu Tau): Sir, I beg to move.

In page 22, line 19, after "deemed", to insert "to control".

Clause 17 of the Companies (Amendment) Bill 1989, was redrafted substantially in Select Committee. Because of incorporating the various amendments, the words "to control" were inadvertently omitted. The purpose of the amendment is to rectify this omission.

Amendment agreed to.

Dr Richard Hu Tsu Tau: Sir, I beg to move,

In page 22, to leave out lines 37 and 38 and insert "(4) For the purposes of subsections (2) and (3) - ".

The purpose of this amendment is to rectify clerical errors in the clause.

Amendment agreed to.

Clause 17, as amended, ordered to stand part of the Bill.

Bill reported with amendments.

Third Reading

Mr Deputy Speaker: Third Reading, what day?

Dr Richard Hu Tsu Tau: Now, Sir. I beg to move, "That the Bill be now read a Third time."

Sir, the Companies (Amendment) Bill 1989 was referred by the House to a Select Committee for consideration. The Select Committee received 12 written representations. The Committee heard oral evidence from 26 persons in respect of 10 of the written representations over a period of seven meetings. The representations were generally well-argued and useful and many of the suggestions made have been accepted by the Select Committee. I wish to record my appreciation to the various persons and organisations who gave their views on the Bill.

The Report of the Select Committee was presented to this House on the 27th October 1989, as Paper Parl. 4 of 1989. The Bill as set out at Appendix I of the Report incorporates the amendments made by the Select Committee.

Many of the amendments are of a drafting nature. They serve to improve the language, remove ambiguities or provide greater certainty in certain provisions of the Bill. These do not need elaboration. Allow me, however, to elaborate on the more substantive amendments.

As Members are aware, a major part of the Bill is devoted to liberalising the prospectus requirements of the Act so as to facilitate the development and advancement of our bond and equity markets, both on the domestic and international levels, the underlying objective being to further Singapore's growth as a financial centre. Representors offered constructive thoughts on how the proposed amendments could be improved. Accordingly, proposed section 106B(1)(f) has been amended to exempt from the prospectus requirement not only shares issued under an employee share investment scheme but also shares issued under an employee share option scheme. Proposed section 106B(2)(a) has been amended to extend the Ministerial powers of exemption to secondary as well as primary offers of shares or debentures under the specific circumstances prescribed therein.

A new subsection (4) has been added to proposed section 106D to limit to once in every 12-month period the frequency at which an offeror can make an offer of shares or debentures to "sophisticated" investors. This is to prevent offerors from making repetitive use of the exemption provisions under the proposed section 106D in order to overcome the limit of 50 persons to whom such an offer could be made.

Proposed section 106E(2) has been simplified to take into account the fact that as shares or debentures acquired under sections 106C or 106D may have been acquired in the secondary market, it is not practicable or useful to expect the original issuer of the securities to keep track of the particulars of their proposed disposal under section 106E.

Proposed sections 106F(2), (3), (4) and (5) have been deleted. The Select Committee was of the view that the disclosure requirements prescribed in the proposed Statement of Material Facts would be adequate for the purposes of investor protection, and that the additional protection accorded by a 3-day "cooling off" period was unnecessary as the shares or debentures being offered would be uniform in all respects with those already listed on the stock exchange.

Clause 6 of the Bill, which provides for additional grounds for the Registrar to refuse registration of a prospectus, has also been amended by deleting proposed subsections 50(2) (e) to (h). The general consensus was that these subsections could place the Registrar in a difficult position. Subsection (i), which has now been renumbered as subsection (e) and which imposes a duty on the Registrar to refuse registration of a prospectus on grounds of public interest, would suffice. This is because the Registrar would, in deciding to invoke subsection (e), pay due regard to matters earlier prescribed in subsections (e) to (h). Some representors also felt that the Registrar should be accorded protection against suits for actions taken in good faith under section 50. Such protection has been provided under the proposed subsection 50(2C).

I shall now touch on the amendments to clauses 20, 21 and 22, all of which are concerned with providing more effective means to prevent and detect fraud in companies.

For consistency, clause 20 has been amended to place a duty not only on public companies but also on their subsidiaries to maintain a system of internal accounting controls to ensure that assets are safeguarded and transactions are properly authorised and recorded.

Audit Committees. Old subsection (3) of the proposed section 201B, which stipulated a term of 3 years for the appointment of audit committee members, has been deleted. The broad consensus that emerged was that a statutory term of appointment for audit committee members, could conflict with their terms of appointment as company directors which are governed by the Memorandum and Articles of Association of the company in accordance with the wishes of the shareholders.

For audit committees to be an effective check against financial mismanagement and manipulation by management, audit committee members must take their responsibilities seriously. For this reason, and also to enable shareholders to receive a report on the work of the audit committee, subsection (9) originally required the audit committee to furnish a certificate to the auditor stating that the audit committee had discharged all its functions under subsection (5) conscientiously and to the best of its ability. Many representors, however, felt that the requirement to furnish a certificate was superfluous as directors appointed to audit committees could be expected to be responsible and competent persons who would discharge their duties earnestly.

The Select Committee has therefore decided to delete the requirement for the audit committee to furnish a certificate. Instead, new subsection (9) will now require directors to describe in their report to shareholders the nature and extent of the functions performed by the audit committee pursuant to subsection (5).

The Committee deliberated at some length on the potential interpretational difficulties in distinguishing executive directors from non-executive directors for the purposes of complying with the requirement that the majority of audit committee members must be non-executive directors. Arising from this, it was thought that the problem could be best resolved by amending subsection 10 to provide a definition of non-executive director, with the definition of executive director following accordingly.

Finally, clause 22. This clause amends section 207 of the Act by imposing a statutory duty on the auditor to report to the Minister cases of actual or suspected fraud uncovered in the course of his duties as auditor. There was broad agreement, however, that since the object of the amendment is to bring to light serious frauds that have been or are being perpetrated against the company, the duty on auditors to report the matter should be confined to only the more serious offences. Otherwise, auditors would be unduly burdened with the obligation to report even minor offences, such as defalcations of petty amounts. Accordingly, an amendment has now been made to confine the reporting obligation to only those offences that are punishable by imprisonment for a term not less than two years, and where the value of the property obtained or likely to be obtained is not less than $20,000.

Similarly, since the object of this amendment is primarily to protect public shareholders and debenture holders against management frauds, the mandatory repor- ting requirement has been confined to public companies and their subsidiaries.

Sir, I beg to move.

Question put, and agreed to.

Bill accordingly read a Third time and passed.