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

Order for Third Reading read.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Third time."

Sir, the Companies (Amendment) Bill 1993 was read a Second time on 14th September 1992 and referred to a Select Committee for consideration.

The Select Committee received 14 written representations and heard oral evidence from 17 persons in respect of eight of the written representations.

I would like to thank representors for contributing their views, many of which were helpful.

The Report of the Select Committee was presented to this House on 26th April 1993. The Bill, as set out in Appendix I of the Report, incorporates various amendments made by the Select Committee. The explanations for all the amendments are contained in Appendix V of the Report. Many of the amendments are of a drafting nature. They serve to improve the language, remove ambiguities and provide certainty in certain provisions of the Bill. These do not require further comment. Instead, I will cover the substantive amendments recommended by the Select Committee. These amendments may be classified broadly as those relating to the Central Depository System (CDS) and those which concern other aspects of the Companies Act.

As Members are aware, a major part of the Bill is devoted to the CDS, or the book-entry or scripless system for the transfer of investors' rights and entitlements of listed securities. These provisions have generated considerable public interest and discussion.

The book-entry settlement is a more efficient system than the paper-based settlement. It also reduces the attendant problems of failed deliveries, late settlement and share forgeries that can arise with physical deliveries. Besides the substantial savings in backroom support service and the shorter time required to effect transfers, the transaction cost under the book-entry system will also be lower for investors. Appendix VI of the Select Committee Report sets out in detail the benefits and mechanics of scripless trading, as well as the safeguards that have been built into the system to enhance the protection accorded to investors.

I will now proceed to deal with the main amendments to the CDS provisions.

In the scripless environment, a company may face the possibility of not having an exhaustive list of its members for the purpose of its general meeting. This is because an investor could have his name entered in the Depository Register right up to the time when a company holds its general meeting. A new subsection (3) has therefore been added to proposed section 130D to provide that a depositor shall not be regarded as a member of a company entitled to exercise rights as a member in relation to meetings, unless his name appears on the Depository Register 48 hours before the general meeting.

The present practice for the distribution of dividends is that a company will pay the dividend to the Depository, which will in turn distribute it to the shareholders so entitled. The Select Committee agreed that a company should be relieved from liability to depositors to the extent of the amount of dividends it has paid to the Depository. The Committee has therefore decided to add a new subsection (4) to the proposed section 130D to discharge a company from liability in respect of dividend payable to a depositor, when such dividend has already been paid by the company to the Depository.

Several representors commented that the Depository should certify the names of persons on the Depository Register to a company upon a written request being made by the company, and not only under the circumstances specified in the proposed section 130E. That provision has been amended accordingly.

In response to the concern expressed by several representors, section 130H has been amended to clarify that the Depository will be protected from liability only if it has acted in good faith and without negligence.

Several representors have raised the concern that damages may not always be an adequate remedy if a depositor's book-entry securities are wrongly or erroneously transferred out of his securities account. They have suggested that the provision in the proposed section 130J against rectification of the Depository Register be amended, so that remedies other than damages are allowed.

To address the representors' concern but without creating the practical problems in unwinding transactions in a scripless system, the Committee has amended the proposed section 130J to allow other remedies such as the re-transfer of shares where no third-party rights are involved. Corresponding amendments have been made to proposed section 130L. The proposed section 130M makes an amendment of a similar effect to sections 21, 76A and 106E of the Act.

The original proposed section 130N provides for legal and equitable mortgages of book-entry securities. The view has been expressed that it may not be feasible to create a legal mortgage of book-entry securities. This section has now been revised to provide for creation of security interest in book-entry securities by way of assignment, or by way of a charge.

I will now go on to the amendments relating to the non-CDS provisions.

Under clause 18, as originally introduced in Parliament, the Court has the discretion to disqualify a person from being a director, or to participate in the management of a company if he is convicted in Singapore for any offence involving fraud, or in connection with the formation or management of a company. It has been suggested that the clause should be amended to cover overseas convictions involving fraud or dishonesty. This suggestion has been accepted and appropriate amendments have been made to clause 18.

As Members would recall, the proposed new sections 216A and 216B provide for statutory derivative actions by minority shareholders on behalf of their companies. Only one representor has questioned the need for such a provision. The representor was concerned that the new statutory right might be open to abuse by minority shareholders.

The Committee recognised that the new sections would provide more effective avenue for minority shareholders to protect their interests and that of the company. Nevertheless, to meet some of the representor's concern, the statutory derivative action will only be available in respect of unlisted companies. The Committee is of the view that the proceedings and performance of public-listed companies are already monitored by the various regulatory authorities and disgruntled shareholders of such companies have an avenue in that they can sell their shares in the open market. To further deter frivolous applications, the Committee has also decided to give the Court the discretion to order the complainant to furnish security for costs.

Clause 23 of the original Bill, which amends section 328 of the Act, accords certain preferential debts priority over floating charges, in the event that the assets of a company available for general creditors are insufficient to meet these debts. Floating charges, however, crystallise upon the liquidation of a company and would become fixed charges. Hence, upon winding up, there may be no more floating charges for the preferential debts to take precedence. Clause 23 has therefore been amended such that a floating charge, even if it crystallises, would not affect the preferential debts. This clause has also been amended to provide that all costs, charges and expenses of winding up, including the remuneration of liquidators, shall have priority over floating charges. This is done so as not to disadvantage the liquidators.

Sir, I beg to move.

Question put, and agreed to.

Bill accordingly read a Third time and passed.