Jurisdiction - Singapore
Reports and Analysis
Singapore – Latest Development in Corporate Governance Regime.


February, 2012
2011, to some extent, can be considered a watershed year in terms of developments in the corporate governance regime in Singapore. The Corporate Governance Council (the “Council”) issued a consultation paper in June on the proposed revisions to the Code of Governance Governance (the “Code”) while the Singapore Exchange Securities Trading Limited (“SGX”) announced in September the amendments to its listing rules (the “Rules”). This article seeks to discuss some of the pertinent changes in the Code and the Rules.
(A) Enhanced SGX Rules 
SGX announced on 14 September 2011 various amendments to its listing rules (the “Amendments”) to strengthen corporate governance practices and foster greater corporate disclosure. The Amendments were to be effective as of 29 September 2011. 
These new Rules are prompted by the fallout from some S-chips (Chinese companies listed on SGX) during the 2008 financial crisis, which saw some controlling shareholders lose their controlling stake to creditors after defaulting on their loans. 
Rule 704(31) requires a listed company (the “Issuer”) to disclose any loan agreement or issuance of debt securities by it or its subsidiaries that contains a change in control provision or a condition which refers to the shareholding interest of its controlling shareholders (each, “Restrictive Covenant”), the breach of which will cause a default of the agreement or debt securities, significantly affecting the Issuer’s operations. In making such disclosure, an Issuer is required to disclose (a) the details of the Restrictive Covenant and (b) the aggregate level of the facilities that may be affected by a breach of the Restrictive Covenant.
The significance of Rule 704(31) in promoting corporate governance should not be underestimated. The aim of Rule 704(31) is to facilitate greater corporate disclosure so as to better protect the interests of the minority shareholders. It is important for shareholders to have knowledge of the Restrictive Covenants in an Issuer’s and its subsidiaries’ loan agreements, which when breached, will significantly affect the financial condition of the Issuer so that they are in a position to make informed investment decisions. The requirement for an Issuer to disclose the aggregate level of facilities affected by a breach of a Restrictive Covenant also allows its shareholders to take stock of the full extent of the liabilities that the Issuer is exposed to due to the typical cross default provisions found in most, if not all, loan agreements. 
Undertakings by controlling shareholders for share pledge arrangements
Rule 728, which is to be read together with Rule 704(31), obliges an Issuer which has entered into such agreements or issued such debt securities pursuant to Rule 704(31), to obtain an undertaking from its controlling shareholder(s) to notify it, as soon as such controlling shareholder(s) enter into any share pledging arrangements relating to their shares or know of any event which may potentially breach a Restrictive Covenant. An Issuer must immediately announce specific information such as (a) the name of the controlling shareholder, (b) the class and number of shares and the percentage of its issued share capital that is the subject of the security interest and (c) the parties in whose favour the security interest is created, upon such notification by its controlling shareholder(s).
Rule 728 will see shareholders being kept informed about share pledge arrangements, which was not the case for the Sino-Environment Technology saga in 2009. The then Chief Executive Officer defaulted on his personal loan after having used his shares in Sino-Environment Technology as security. This resulted in his shares being sold and such sale triggered an early redemption of Sino-Environment Technology’s outstanding convertible bonds. 
Application of Rules 704(31) and 728
Rule 704(31) applies to both existing loan agreements and debt securities and to facilities entered into on or after 29 September 2011. Therefore, Issuers would need to check if they and/or their subsidiaries have any existing loan agreements and debt securities documentation which require immediate announcement under the new Rule 704(31). As the spirit and intent of Rule 704(31) is to facilitate disclosure of the possibility of any breach of a Restrictive Covenant which affects an Issuer’s financial health, it is likely that Rule 704(31) is also applicable where a breach of a Restrictive Covenant would trigger a prepayment event, notwithstanding that a prepayment event is technically not an event of default under the agreement. 
Similarly, Rule 728 applies to both new and existing facilities of Issuers and their subsidiaries. Therefore, Issuers should proceed immediately to obtain the requisite undertaking from their controlling shareholders even if such controlling shareholders have not entered into any share pledge arrangements. 
Notwithstanding the above, we understand that a number of Issuers have consulted SGX and have been granted a grace period of up to 29 October 2011 to comply with the new Rules. 
Further new Rules have been introduced to oblige Issuers to make appropriate announcements and/or disclosures when they make specific key appointments or when there are changes to key appointments within the Issuer group. These are highlighted as follows:
Obligation to inform SGX of irregularities upon cessation of service- Rule 704(7)(b)
The purpose of this Rule is to implement a mandatory whistle blowing policy for key executives of an Issuer to inform SGX of any financial irregularities upon the cessation of their service. This Rule is applicable to any director, chief executive officer (“CEO”), chief financial officer (“CFO”), chief operating officer, general manager or other executive officer of equivalent authority. Such key executives are to inform SGX in writing as soon as possible if they are aware of any irregularities in the Issuer which would have a material impact on the group, including financial reporting. 
Legal representatives- Rules 610(7) & 704(11)
There is a requirement in some civil law jurisdictions such as the People’s