COMPANIES (AMENDMENT) BILL

Order for Second 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 Second time."

Under the Companies Act, a company is required to send a copy of its last audited accounts, which comprises the profit and loss account, balance sheet and notes to the accounts, as well as the Auditor's Report and directors' report on those accounts to its shareholders before the general meeting at which these accounts are to be presented. This set of documents is commonly known as the annual report.

Compliance with this requirement can be a very costly affair, especially for companies with very large numbers of shareholders. Some shareholders are not interested in studying the full accounts of the company. There is even more wastage when a few copies of the full accounts and the director's report are received by a single household because family members living within the household are all shareholders of the same company.

As the existing Companies Act requires each shareholder to be issued one copy of the annual report, the company must send a copy of the annual report to each shareholder, even when the shareholder prefers not to be sent this annual report .

The problem became more pronounced with the listing of large companies such as Singapore Telecom. With the listing of Singapore Telecom, many Singaporeans became shareholders. There arose a situation where a single household with members owning B' or C' shares could receive multiple copies of the same annual report, as each shareholder in the same household would receive a copy of the annual report. For shareholders who have bought the company's shares through different means, for instance, through their CPF account or by paying cash for the shares, the company would also recognise the shareholder as two different persons. In such a scenario, the same shareholder could receive duplicate copies of the same annual report.

To alleviate the above problems, the Bill introduces a new section to allow a listed public company to send a summary financial statement to its members instead of its annual accounts and directors' reports. The objective of the amendment is to help reduce costs of sending annual reports to shareholders, without compromising a shareholder's right to financial information on the company.

A summary financial statement is a summary of financial information derived from the annual accounts and directors' reports of the company. It would comprise certain minimum information culled from the company's annual report, such as the balance sheet, profit and loss statement and shareholding statistics. Material changes in the company and the directors' interest in the company will also have to be highlighted to the shareholder.

To ensure that the summary financial statement does not mislead the shareholders, the new section provides that the summary financial statement must contain an opinion by the company's auditor as to whether the summary financial statement is consistent with the company's annual accounts and directors' report and complies with the proposed new section and the regulations made under it.

The company is still obliged to send a copy of the full accounts to those members who request it. The new section does not derogate from the obligation of a company to present its full accounts and directors' report at its annual general meeting and thereafter to lodge these documents with the Registrar of Companies. As such, the amount of information on the company available to a shareholder will not be reduced by the proposed amendments. The new section provides that shareholders can always request the company to send them the full annual report, at no additional charge to the shareholder.

To address the problem of several copies of a summary financial statement being sent to the same household, the new section also provides that a summary financial statement need not be sent to any member who does not wish to receive it.

When drafting the Bill, the views of members of the legal, accounting, banking and stock exchange communities on the proposed amendments have been sought. Both the Law Society and the Institute of Certified Public Accountants were in general agreement with the overall objective and rationale of the proposed amendments. The Association of Banks in Singapore, the Singapore Merchant Bankers Association and the Stock Exchange of Singapore have also supported the proposed amendments.

The United Kingdom Companies Act has similar provisions to allow public listed companies to issue summary financial statements in lieu of full annual reports. The proposed amendments to the Companies Act follow closely the provisions in the UK Companies Act.

Sir, I beg to move.

Question proposed.

Assoc. Prof. Walter Woon: Sir, I support this Bill. It is often the case that annual reports are just thrown away by shareholders. So to save the trees, if for no other reason, this is a good innovation. I would just ask the Minister for clarification on two matters.

Firstly, clause 203A(1) says that regulations will specify the conditions under which a summary financial statement can be sent in lieu of the full financial statement. Could the Minister please inform the House what these conditions will be? If we leave these things to regulations, it is not transparent what the situation will be. Is it every listed company that will be allowed to dispense with the sending of the full statement? Or is it only certain mega companies?

Second, if the Minister would not mind clarifying, is the question of whether this is an opt-in or opt-out type situation. If we look at clause 203A(2), it seems to suggest that it is up to the shareholder to request for a summary financial statement. In other words, if he does not request it, then the normal rule is that the full statements will go out. Whereas listening to the Minister and looking at sub-clause (3), I get the impression that it is going to be a situation where we will get a summary statement unless we ask for the full accounts. What exactly is the position?

Apart from these two requests for clarification, I fully support the Bill.

Dr Richard Hu Tsu Tau: The first question Assoc. Prof. Walter Woon asked is whether the amendments apply to all companies. The answer is yes. All listed companies have the option to decide to send out summary statements.

The answer to the second question is that it is an opt-out scheme in which all shareholders will receive summary reports with an option letter in which they can respond to say whether they want to receive the full accounts.

To elaborate on this, I will give into some details to enlighten the House. The regulations are being drafted and expected to be gazetted in about a month's time. They specify how a shareholder could indicate to the company his wishes to change his option to request for the full annual report or to opt out and not receive any report at all. The regulations would also specify certain minimum information that will be contained in the summary financial account statement.

The main points of the regulations are as follows: In the first year of the issue of the summary financial statement, the company would have to provide all shareholders with a copy of the summary financial statement, together with a consultation letter, for them to indicate whether they would like to receive the full financial statement. Consultation letter will also allow shareholders to opt out from receiving any report in future years. Failure to respond to the consultation letter would be an indication to the company that the shareholder wishes to continue receiving summary financial statements in subsequent years. In the subsequent year, and for every year thereafter, the company must provide the shareholders the means to change his previous option to either receive the summary financial statement, the full financial report, or no report at all. The company must send an option form to shareholders, together with the summary financial statement or full financial report, to enable them to change their previous option.

For shareholders who have opted out of receiving any report, the company could either send the option letter directly to each shareholder or print a notice in the newspapers for use, whichever is the most cost-efficient means of disseminating the option form. If the shareholder does not respond to the option letter, the company could assume that the shareholder wishes to continue with his previous year's option.

In all instances, the regulations would be drafted such that the shareholder will not incur any additional charges for changing his previous option or for opting to receive the full annual report, instead of the summary financial statement. The regulations will also enable a shareholder to communicate his wishes to change options in his own writing without resorting to the option form provided by the company.

The regulations will also specify that the summary financial statement must provide certain minimum information. This would include essential information on the company's performance, like company's balance sheet, profit and loss accounts, chairman's statement highlighting any material changes to the company's financial position, a summarised directors' report highlighting certain pertinent information on the directors, shareholders' statistics and a copy of the auditors' report. The detailed contents of the summary financial statement would be listed in the regulations.

The company's auditors will also have to give their opinion whether the summary financial statement is consistent with the full accounts and the directors' report and complies with the regulations. This will ensure that the summary financial statement does not present misleading information and is inconsistent with the company's full accounts and directors' report.

Mr Chng Hee Kok (Tampines GRC): Mr Speaker, Sir, like Assoc. Prof. Woon, I support this Bill. It minimises a lot of wastage. I would like the Minister to clarify on the question of the full financial statement that is requested by shareholders. Currently, under the present regulations, the report is received a certain number of days or period before the calling of the Annual General Meeting. But this regulation is not very clear. Because when a shareholder opts in to receive a report, will there be time for him to receive the report and analyze the report before attending the Annual General Meeting? The provision is not very clear as it says that the company is obliged to do that before the Annual General Meeting. There is no point in getting a report after the Annual General Meeting.

Dr Richard Hu Tsu Tau: I assure the Member that adequate time will be allowed for a shareholder to decide whether to respond to the option as to whether or not he wants to have the full accounts. Adequate time will be provided.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Dr Richard Hu Tsu Tau].

Bill considered in Committee; reported without amendment; read a Third time and passed.

Mr Speaker: Order. I suspend the Sitting and will take the Chair again at 3.10 pm.

Sitting accordingly suspended at 2.45 pm until 3.10 pm. Sitting resumed at 3.10 pm