COMPANIES (AMENDMENT) BILL

Debate resumed.

Mr Goh Chee Wee (Boon Lay): Mr Speaker, Sir, I just wish to state my support for the Bill in respect of the amendment to section 328 of the Companies Act.

The new section 328 expressly provides that retrenchment benefits payable to an employee under any contract of service shall in a winding up rank third in priority and shall be paid in advance of other unsecured debts. We have in the past a number of cases in which workers were denied compensation in a winding up. This inflicts hardship on employees and it is extremely unfair to those who have put in years of service with the company.

In the two previous cases involving Vosper Thornycroft and President Merlin Hotel, the company liquidators disputed the union's claims for retrenchment benefits. The cases were heard in the High Court, but the court ruled that the retrenchment benefits which were provided in the collective agreement did not apply in a winding up. As a result, the workers lost their jobs without receiving any compensation.

The NTUC had made several representations to the Government to have the Act amended. I am glad that this amendment Bill has incorporated the changes sought by the unions. It has provided added protection to the workers and I therefore support this section of the Bill.

Dr Richard Hu Tsu Tau: Mr Speaker, Sir, I would like first to thank the many Members who have spoken in support of the main aspects of the Bill. However, Members have also expressed concern and sought clarifications over many areas of the Bill. There have also been requests from Members that the Bill be referred to a Select Committee.

Most of the debate has focused on two major amendments in the Bill. The first is the part which concerns with the establishment of the central depository system and the electronic book system for the transfer of securities listed on the SES. The second is clause 22 which provides more effective remedies for the rights of minority shareholders of corporations.

In the first case, Members have expressed concern over the electronic transfer system which may expose investors to many risks, eloquently described by Mr Woon, arising from errors in the electronic recordings of transactions and that there may be insufficient safeguards to protect investors' interests against fraud and negligence on the part of the central depository.

In this connection, I should point out that the proposed legislation has been under consideration for well over a year and a half. It has been discussed extensively with members of the Stock Exchange, the Merchant Bankers' Association and the Association of Banks. Furthermore, the draft legislation has been considered and approved by the Law Reform Committee of the Singapore Academy of Law and, I believe, Mr Woon had participated in some of these activities. However, if he has now further thoughts on the legal aspects of this Bill, I think his points are taken and will be considered.

Mr Woon has suggested that the structure of the operation of the central depository system should perhaps require the transferee to execute a signed transfer form. I believe this is what he would like to see. Unfortunately, the whole purpose of creating a legal framework for electronic share transfer is to do away with paper transfers. To implement a system which only partially deals with this problem will defeat the purpose of the exercise and will not enable us to reap the benefits of a completely paperless system.

The concern over lack of controls of the proposed book entry system is, I think, not entirely warranted, as the CDP is required to send a confirmation note to account holders for every transaction. In addition, they are required to send periodic statements of the balance of the securities accounts for verification. It is also provided in the regulations for external auditors to verify the records of the CDP and the report will have to be sent to the relevant authorities for review. In the regulations, the MAS would also have power to supervise the operations of the CDP.

Overall, there is a growing trend to a scripless settlement system in major world markets. Such a system enhances productivity significantly by eliminating the need for huge backroom support staff to assist in the settlement and clearance of trades. In a world where securities markets continue to globalise, efficiency and cost are important factors of ensuring whether a particular market can succeed.

Mr Woon has also suggested that the CDP section of the amendment Bill should be taken out of the Companies Act altogether and be placed perhaps in the Securities Industry Act or in a separate Act altogether. This is a possibility, of course, but the current Companies Act provides for the scrip system of ownership. So it appears logical that the scripless system should, in fact, follow from this legislation. However, it is something which we can debate later.

I would also like to point out that many other countries are in different stages of implementing the scripless settlement system in their stock exchanges in order to take advantage of their efficiencies. Taiwan, Hong Kong, Australia and Japan have, in one form or another, implemented computerised systems. Malaysia is also about to introduce the central depository system, starting with stocks listed on the KLSE second board. In the UK, the much publicised Taurus system, when implemented, will similarly provide for electronic settlement of securities transactions. In the United States, the deposit trust company operates a depository system which immobilises physical share certificates in much the same form as we are proposing in this Bill and effects transfer by way of book entries to securities accounts maintained by participating financial institutions in it. Members should also note that in countries which have long experienced the book-entry system of securities settlement, such as the United States, there is substantial evidence that the opportunities for and incidence of loss of scrips or fraud are sharply reduced, as control and detection are enhanced.

In the second case, Members are mainly concerned over the provision of clause 22, as it may open the door to a flood of frivolous or petty applications by disgruntled minority shareholders. Although I believe that adequate safeguards have been built into the legislation, the concerns will be addressed.

Notwithstanding what I have just said, the unanimity with which Members have requested that the Bill be referred to a Select Committee suggests that the concerns are widespread and may extend beyond this House. In view of this, I intend to propose to this House that the Bill should be committed to a Select Committee.

Finally, I will touch on one aspect of questions raised that has got nothing to do with the Central Depository system or clause 22, and this is the question raised for clarification on why the retrenchment compensation should be limited to $7,500. The ceiling of five months' salary or $7,500, whichever is the lesser, is based on the ceiling currently provided under the Companies Act which allows for wages and salaries not exceeding five months' salary or $6,250, whichever is the lesser, to be ranked second in priority after the costs and expenses of winding up. The rationale for the quantum of $1,250 per month was that it was in harmony with the Employment Act where $1,250 per month is the cut- off for those non-manual workers deemed to be deserving of statutory protection with regard to conditions of service, such as overtime hours and service and so on. It is also the cut-off for non-manual workers covered by the Workmen's Compensation Act.

The ceiling of $6,250 or five months' salary was to strike a balance between the rights of workers and managers on the one hand, and other unsecured creditors on the other, in a winding up. At the same time, it would preserve the interests of workers as it is unlikely that the five months' salary of workers would exceed $6,250. And equally important, it will serve to ensure that managers and executives who are generally on more generous retrenchment terms do not receive in priority disproportionate sums in retrenchment benefits relative to workers.

At the time when the provision was proposed under the Companies (Amendment) Bill of 1986, the bulk of unionised workers were either production workers or clerical workers. The average monthly salaries of these workers were $645 and $737, inclusive of overtime and allowances, respectively. These were 1985 figures obtained from the Annual Labour Force Survey. The cap of $6,250 would not, therefore, compromise their position as it was well above the ceiling of five months' salary.

Question put, and agreed to.

Resolved,

That the Companies (Amendment) Bill be committed to a Select Committee consisting of Mr Speaker as Chairman and such Members as the Committee of Selection may nominate. - [Dr Richard Hu Tsu Tau].