Jurisdiction - Singapore
Reports and Analysis
Singapore – Proposed Changes To The Companies Act: Impact On Mergers and Acquisitions.

23 July, 2013

 

Legal News & Analysis – Asia Pacific – Singapore – Corporate/M&A

 

 

A number of changes are proposed to provisions in the Companies Act, Chapter 50 of Singapore (the "Companies Act"), in particular in connection with financial assistance, schemes of arrangement and compulsory acquisitions.

 

Financial Assistance

 

A key amendment proposed is the abolition of the restriction on financial assistance by private companies in connection with acquisitions of their own shares. The restriction will be retained for public companies and their subsidiary companies but a new exception will be introduced to permit financial assistance by a public company if there is no material prejudice and the giving of the assistance is approved by the board.

It is common for a Singapore-incorporated target company to charge its assets to secure any borrowings the bidder company may obtain to facilitate the acquisition of the target company. This would constitute unlawful financial assistance under Singapore law which would require the bidder to expend costs and resources to "whitewash" the unlawful financial assistance. The proposed abolition would result in significant savings in costs for takeovers of private companies incorporated in Singapore (unless the private company is a subsidiary of a public company, in which case, the restriction on financial assistance will still apply).

 

The suggested new exception for public companies is worded broadly and does not require the directors of the relevant public company to make solvency statements in relation to the giving of the financial assistance.

 

Schemes of Arrangement

 

One of the proposed amendments to the Companies Act provisions relating to schemes of arrangement deals with the issue of "share-splitting". The shareholder resolution needed to approve a scheme of arrangement must be passed by a majority in number representing three-fourths in value of the creditors or class of creditors or members or class of members present and voting either in person or by proxy at the scheme meeting. This means that the result of a resolution proposed to approve a scheme of arrangement can be affected if individual shareholders seek to influence the result by "share-splitting". "Share-splitting" involves one or more members transferring small parcels of shares to a large number of other persons who are willing to vote in accordance with the transferors' instructions. The proposed amendment would allow the court latitude to decide who the members are in a particular case.

 

Another proposed amendment relating to the number of proxies seeks to address a lacuna in the law. Currently, the Companies Act does not specify how the votes of a member who is represented by more than one proxy are counted in relation to a resolution proposing a scheme of arrangement. It has been proposed to only allow each member to appoint one proxy for the purposes of voting for a scheme of arrangement, unless the Court orders otherwise.

 

The proposed changes, particularly in relation to "share-splitting", clarify the law in relation to schemes of arrangement but may negatively impact on acquisitions in Singapore. A number of companies incorporated in Singapore and listed on the Singapore Stock Exchange are family-run companies, with a single majority shareholder with a good spread of mom-and-pop investors. It may no longer be sufficient for a bidder to acquire control of such companies via a scheme of arrangement by obtaining the support of the majority shareholder who can ensure a favourable outcome on the vote by "share-splitting" since dissatisfied minorities will more easily be able to outvote a scheme of arrangement based on numbers.

 

Compulsory Acquisition

 

A number of changes have been proposed in respect of the compulsory acquisition provisions in the Companies Act, which facilitate a potential bidder obtaining 100% of the target:

 

  • extension of the compulsory acquisition process to units of a company's shares (for example, options in shares);
  • an individual offeror (as opposed to companies) can avail himself of the compulsory acquisition provisions;
  • where a takeover offer is made jointly by more than one person, all the joint offerors would have the same legal obligations in respect of compulsory acquisition;
  • where the terms of the offer give the shareholders a choice of consideration, the shareholder should be given time to elect his choice of consideration and the offeror shall state which of those terms is to apply where a dissenting shareholder fails to make an election; and
  • the fact that overseas shareholders are not served with a takeover offer does not render the compulsory acquisition process inapplicable as long as service would have been unduly onerous or would contravene foreign law.

 

It is anticipated that the consultation conclusions are to be published in the last quarter of 2013 with the amendments introduced in early 2014. After the business community and practitioners have had time to adapt to the changes, it is understood that the Companies Act will be rewritten to rationalise the provisions and improve the clarity of the legislation.

 

 

For further information, please contact:

 
Michael Walter, Partner, Herbert Smith Freehills
michael.walter@hsf.com 

 

David Dawborn, Partner, Herbert Smith Freehills

david.dawborn@hsf.com
 

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