Singapore Corporate Finance and Securities Regulation

17.1.1 Until 1973, there was no statutory regulation of the Stock Exchange of Singapore (‘SES’) (now Singapore Exchange or ‘SGX’). In that year the Securities Industry Act was enacted. For the most part, however, the SES was self-regulating. This changed dramatically in 1985. In December 1985, the SES and the Kuala Lumpur Stock Exchange were closed for three days after the collapse of Pan-Electric Industries. The Pan-El crisis precipitated a thorough overhaul of the regulatory framework. The Securities Industry Act 1973 was repealed and replaced by the Securities Industry Act 1986. From that point, there was a general tightening up of securities regulation up to the Asian financial crisis in 1997. Since then, there have been changes to the regulatory balance of the market, culminating in the enactment in 2001 of the Securities and Futures Act (Chapter 289, 2002 Revised Edition), which came into force in various stages in 2002.

17.1.2 Under the present regulatory scheme, the Monetary Authority of Singapore (‘MAS’) continues to supervise the securities industry, although with the passing of the Securities and Futures (Amendment) Act 2005, it has less oversight of an exchange’s disciplinary procedures and rule changes. The day to day supervision of the market is still left with the SGX. The internal management of the SGX is regulated by its Memorandum and Articles of Association. Trading in securities is regulated by the SGX Rules. The criteria for listing and the obligations of listed companies are found in the SGX Listing Manual.

17.1.3 In addition to the Securities and Futures Act, the other major piece of legislation impinging on securities regulation is the Companies Act (Chapter 50, 2006 Revised Edition). This makes provision for matters such as the formation of audit committees for publicly listed companies. Provisions governing the offer of securities were found in the Companies Act but these were moved to the Securities and Futures Act, when that came into force in 2002.

17.1.4 Besides the two major Acts, the securities industry is also regulated by subsidiary legislation. The Companies Regulations and Securities and Futures Regulations are promulgated under the respective Acts. In practice, other non-statutory rules also apply. Foremost among these is the Singapore Code on Take-overs and Mergers (‘Take-over Code’, see Section 8 below), a non-statutory code enforced by the Securities Industry Council (‘SIC’, see Section 17.2.6 below), as well as the Code on Collective Investment Schemes.

17.1.5 SGX maintains three boards, the SGX Main Board, Catalist (formerly 'SGX SESDAQ') and SGX Xtranet. SGX SESDAQ was established in 1987 to enable companies that did not meet the criteria for the SGX Main Board listings to raise money from the public. In 2008, this was replaced by Catalist, which is the first sponsor-supervised listing platform in Asia. SGX Xtranet was established in 2001 to quote exchange traded funds or SPDRs, which are listed funds, usually in the form of trusts, based on stock market indices.

17.1.6 The SGX also runs a market for trading in shares of foreign companies, called CLOB International. Companies whose shares are traded on CLOB International are merely quoted and not listed on the SGX. As such, they are not subject to SGX’s listing rules. Singapore brokers make a market in such shares.

17.1.7 As of June 2008, there were 622 domestic and foreign companies listed on the main board and a further 259 on Catalist. Total market capitalization was S$661 billion. Total turnover in June 2008 for the mainboard and the Catalist was about S$30 billion.

17.2.1 The Monetary Authority of Singapore (‘MAS’) is Singapore’s de facto central bank. It is established under the Monetary Authority of Singapore Act. In addition to supervising the securities and futures market, MAS also oversees the banking and insurance industries.

17.2.2 MAS is the licensing authority for holders of a capital markets services licence, who are permitted to carry on a business in the regulated activities of dealing in securities, trading in futures contracts, leveraged foreign exchange trading, fund management, advising on corporate finance, securities financing and/or providing custodial services for securities. MAS also licensed the individual representatives of such persons, although this will change to a notification regime with the coming into force of the Securities and Futures (Amendment) Act 2009.

17.2.3 MAS has the power to require production of books and information by an approved securities exchange, a holder of a capital markets services licence or its representatives, and indeed any person if it relates to a matter under investigation. MAS may require a holder of a capital markets services licence or an exempt person to disclose the names of persons behind any acquisition or disposal of securities or futures contracts. MAS may also require the person to disclose the nature of the instructions given regarding the acquisition or disposal of securities.

17.2.4 In addition to its powers to obtain information from the securities exchange and licensed persons, MAS may also require a person who has acquired, held or disposed of securities to disclose whether he did so as a trustee or agent of another person, and if so, who that person was and what instructions were given. It has power to order disclosure of information by officers of listed companies where it is necessary to prohibit trading in securities. If necessary, MAS can order investigations to determine if there has been a contravention of the law, perform its duties under the Act or to ensure regulatory compliance.

17.2.5 MAS may issue directions to a securities exchange for ensuring fair and orderly markets, ensuring the integrity and proper management of systemic risks in the markets, and where it is in the public interest to do so. It has powers to prohibit trading in particular securities in order to protect persons buying or selling the securities or in the public interest. It may also make regulations specifying what devices are considered to be deceptive or manipulative under s 201 of the Securities and Futures Act. Initially with insider trading under Securities Industry (Amendment) Act 2000, which was later expanded to cover all forms of market misconduct by the Securities and Futures Act, MAS has been empowered to carry out civil enforcement actions where it can obtain treble damages from contravening persons (see Section 17.7.3 below).

17.2.6 The Securities Industry Council (‘SIC’) was established under section 3 of the Securities Industry Act 1973 and continues to exist as if constituted under section 138 of the present Securities and Futures Act. Its function is to advise the Minister for Finance on matters pertaining to the securities industry. Its main purpose is to oversee the administration of the Singapore Code on Take-overs and Mergers (‘Take-over Code’, see Section 8 below). The SIC consists of such representatives of business, government and the MAS as the Minister may appoint. The SIC enforces the Code where a take-over or merger occurs. It issues rulings on the interpretation of the Code and lays down the practice to be followed by the parties concerned in a take-over or merger.

17.3.1 Any public company that desires to have its shares listed on the SGX may apply for a listing either on the SGX Main Board or on Catalist (formerly SGX SESDAQ). The criteria for listing are found in the SGX Listing Manual.

17.3.2 Once a company is listed on the SGX, it is obliged to comply with the terms of the listing manual. The SGX supervises the activities of listed companies by virtue of its continuing listing requirements and corporate disclosure policy. This obligation arises by virtue of the listing undertaking signed by all listed companies when the SGX agrees to quote their securities. SGX may also apply to court to enforce those rules, under section 25 of the Securities and Futures Act.

17.3.3 The listing rules are not statutory in nature. They are made by the SGX itself, subject to any requirements that are prescribed by the MAS under the Securities and Futures Act. A contravention of the SGX’s rules does not lead to a fine. SGX may punish in various other ways such as through reprimanding a person or de-listing a company.

17.3.5 The definition specifically excludes futures contracts which are traded on a futures market, bills of exchange, promissory notes and certificates of deposit issued by banks of finance companies. Changes introduced by the Securities and Futures (Amendment) Act 2009 will enable MAS to include instruments in the definition of securities as well as to exclude them.

17.3.6 Under the Act, for the purposes of prospectus registration (where "securities" has a narrower meaning and covers debentures, shares and units of debentures and shares), a debenture is “any debenture stock, bond, note and any other debt securities issued by a corporation or any other entity, whether constituting a charge or not, on the assets of the issuer”, with some specified exceptions. Cases have established that a debenture means a document which either creates a debt or acknowledges it. For the purposes of regulation, a debenture is a medium to long-term debt security created by a company. Bonds and notes are examples of debentures.

17.3.7 Shares are basically divided into two types: equity shares and preference shares. Preference shares usually carry a fixed preferential rate of dividend. They are usually non-voting shares. Anything that is not a preference share is an equity share. ‘Covered’ or ‘structured’ warrants are options over issued shares giving the holder the right to buy a specified number of shares in a particular company at a pre-determined price from the writer of the warrant.

(A) to participate in or receive profits, income, or other payments or returns arising from the acquisition, holding, management or disposal of the property or any part of the property, or to exercise any right in, the redemption of, or the expiry of, any right, interest, title or benefit in the property or any part of the property; or

17.4.1 The issue of a prospectus is necessary when there is an offer of securities that is not an excluded or exempted offer. In addition, a company that issues units in a collective investment scheme or business trust must also issue a prospectus. In Singapore, the Securities and Futures (Amendment) Act 2005 has made redundant the concept of a public offer of securities - all offers of securities are prima facie subject to the prospectus requirements of the Act unless the offer is an excluded or exempted one.

17.4.2 A prospectus is a document designed to inform the investing public of the business, assets and nature of the company, in order to enable an investor to make an informed decision whether to subscribe for or purchase the securities. All prospectuses issued by a company must be registered with the Monetary Authority of Singapore before they are circulated. The MAS may, after giving the person who lodged the prospectus an opportunity to be heard, decline to register the prospectus if:

17.4.4 A prospectus must be signed by all the directors and proposed directors (or by their authorised agents). A prospectus must be dated; no shares or debentures may be issued on the basis of a prospectus after 6 months from its date. No one can contract out of the requirements prescribed in the Act. The MAS may, however, exempt a person from any requirements of the Act pertaining to the form or content of a prospectus if compliance with the requirements is unduly burdensome.

17.4.5 A prospectus, in the case of an initial public offering of shares, must contain the documents and information prescribed in the 5th Schedule of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005, which are largely consistent with the International Organisation of Securities Commission (IOSCO) International Disclosure Standards for Cross Border Offerings and Initial Listings by Foreign Issuers. Section 243 of the Securities and Futures Act also provides that issuers and their advisers must disclose all information that investors and their professional advisers would reasonably require to make an informed assessment of the relevant securities. If the company seeks a listing on the stock exchange, the prospectus must also comply with the Listing Rules.

17.4.6 Advertisements calling attention to an offer of shares or debentures are prohibited unless they contain only very restricted information or unless permitted by the relevant provisions. These provide the conditions under which there can be publicity concerning the offer before and after the prospectus has been registered, and also specific exceptions for book-building, road shows and research reports.

17.4.7 If there is any untrue statement or non-disclosure of a material fact in a prospectus, those persons (see Section 17.4.8 below) that were involved in the preparation of the prospectus will be liable to prosecution. A person may escape criminal liability only if:

17.4.8 In addition to criminal liability, section 254 of the Securities and Futures Act provides for civil liability in respect of mis-statements and non-disclosures of material facts. If there is a statement or a non-disclosure of a material fact in any prospectus, then the following persons are liable to pay compensation to all persons who subscribe for or purchase shares in the corporation on the faith of that prospectus in respect of any loss or damage sustained by reason of the mis-statement or non-disclosure:

(g) A person named in the prospectus with his consent as having made a statement that is included in the prospectus or on which a statement in the prospectus is based, but only in respect of the inclusion of that statement (for criminal liability this is only if the misstatement was made intentionally or recklessly);

(h) Any other person who made the false or misleading statement or omission but only in respect of the inclusion of the statement of the omission to state the information or circumstance (for criminal liability this is only if the misstatement was made intentionally or recklessly).

17.4.9 As an alternative to the statutory remedy, an investor who has been injured by a deliberately misleading prospectus may recover damages for deceit. If the misrepresentation is made negligently, there may be recovery of damages in negligence if the investor can establish that a duty of care was owed to him. The persons liable will usually be the directors of the company who authorised the issue of the prospectus or the company itself. Experts who made inaccurate statements in the prospectus may also be liable.

17.4.10 The MAS may exempt a person from any requirements of the Act pertaining to the form or content of a prospectus if compliance with the requirement is unduly burdensome. The MAS also has power to dispense with the issue of a prospectus altogether in the case of an offer or invitation or a class of offers or invitations to which that offer or invitation belongs.

17.4.11 With the coming into force of the Securities and Futures (Amendment) Act 2005, all offers of securities must, prima facie, be accompanied by a prospectus unless the offer is excluded or exempted. It is no longer open to an issuer to offer securities privately without a prospectus rather than to claim an exclusion or exemption under the relevant sections. A prospectus may be dispensed with in the following situations:

(j) An offer of securities by a company whose securities are already listed for quotation, whether by means of a rights issue or otherwise. An offer information statement in the form prescribed in the Sixteenth Schedule of the Securities and Futures (Offers of Investment) (Shares and Debentures) Regulations 2005 has to be lodged with the MAS. This statement is treated as a prospectus for the purposes of liability under ss 253 and 254 of the Securities and Futures Act;

(k) An offer of international debentures. The debentures must be issued by a corporation incorporated outside Singapore whose shares are listed on a recognized stock exchange. The debentures must be denominated in foreign currency with a face value equivalent to US$5,000 or its equivalent in another currency;

17.5.1 Once a company is listed, it becomes subject to the jurisdiction of the SGX. Timely disclosure of price-sensitive information is the cornerstone of SGX’s regulatory policy. To ensure that such information is released to the market on a timely basis, listed companies are obliged to comply with the SGX’s Corporate Disclosure Policy in Chapter 7 and Appendix 7.1 of the of the SGX Listing Manual.

17.5.2 Clause 703 requires a listed company to keep its shareholders and the SGX informed of any material information relating to the group’s activities in order to avoid the establishment of a false market in its securities or that might be price-sensitive. Paragraph 8 of Appendix 7.1 provides a non-exclusive list of matters which are considered to require public announcement:

17.5.3 The continuous disclosure requirements in the listing rules have since 2002 been given statutory backing by the Securities and Futures Act section 203. Non-disclosure attracts both civil and criminal liability, depending on the state of mind of the disclosing entity.

17.5.4 A listed company must maintain a register of substantial shareholders. The register of substantial shareholders will contain the names of the company’s substantial shareholders together with details of these shareholders’ interest in the shares of the company. A substantial shareholder is a person who has an interest in 5% or more of the voting shares of a company. This includes both natural persons (whether citizens or non-citizens) and artificial persons, even if they are not resident or carrying on business in Singapore.

17.5.5 The concept of an ‘interest’ in shares or securities goes beyond being registered as the holder. It includes beneficial ownership through nominees or a trust. Control over voting or disposition of a share will also confer a notifiable interest.

17.5.6 Failure to give notice to the company of a person's acquisition of, or changes in, substantial shareholdings is an offence. In addition, a Court may, on the application of the MAS, make orders restraining the defaulting shareholder from dealing in the shares in which he has an interest, restricting his voting rights or entitlement to dividends, or selling the shares in question.

17.5.7 In addition, under section 137G of the Securities and Futures Act, there is a duty on the listed company which has been notified of substantial shareholdings or changes thereof to inform the SGX of this infomation no later than the end of the business day following the day on which it received the notice. Section 203 (see Section 17.5.3 above) backs this requirement with civil and criminal liability.

17.5.8 The Companies Act requires directors of all companies (but to be read with relevant provisions in the Securities and Futures Act applicable to directors and chief executive officers of listed companies) to notify the company of their interests in its shares and debentures. All companies must maintain a register of directors’ shareholdings. The register is open to inspection by the public and must be produced at each AGM. Changes in a director’s interests have to be notified within 2 days.

17.5.9 Section 137G of the Securities and Futures Act also requires that the listed company which has been notified by a director or chief executive officer to in turn inform the SGX no later than the end of the business day following the day on which it received the notice.

17.6.1 The most important of the provisions regulating insider trading is section 219 of the Securities and Futures Act, which adopts an ‘information-connected’ approach towards insider trading. Previously, a ‘person-connected’ approach was used, in that a series of connections between a body corporate and an insider, and in the case of a person not connected with the company, ie a tippee, an arrangement or association between an insider and that tippee for the communication of information, had to be established.

(b) Subscribing, purchasing or selling those securities or procuring another person to subscribe, purchase or sell those securities or communicating the information where the securities are listed on an exchange and the insider knows, or ought reasonably to know, that the tippee would be likely to subscribe, purchase or sell the securities or procure another person to do so.

17.6.3 The Securities and Futures Act section 219 also provides that it must be shown that the insider knew the nature of the information that was possessed although section 220 specifically states that there is no need to prove an intention to use that information. Connected persons like directors control the mechanisms for disclosure in the company, and may choose to self-deal based on undisclosed information. Section 218 reverses the burden of proof in such cases, so that all that need be shown is that they were in possession of inside information. In such an instance, a presumption arises that they knew the nature of that information when they traded.

17.6.4 It is a defence to any prosecution under section 218 and 219 of the Securities and Futures Act to show that the other party to the transaction knew or ought reasonably to have known of the information before entering into the transaction.

17.6.5 Other formal defences are provided in the Securities and Futures Act, as well as its Regulations. The most important of these is the ‘Chinese Wall’ defence. The Act provides an exception for corporations and partnerships where despite the attribution of knowledge to a corporation or partnership of the knowledge of its officer or partner respectively, the corporation or partnership will not be found to have breached the insider trading prohibition. The following requirements must be satisfied:

(b) the corporation or partnership had arrangements that could reasonably be expected to ensure that the information was not communicated to the person who made the decision and that no advice with respect to the transaction or agreement was given to that person by a person in possession of the information; and

17.6.6 The Securities and Futures (Amendment) Act 2009 has introduced a further requirement that corporate entities take reasonable steps to prevent market misconduct (which includes insider trading) by their employees. Rule 1207 of the SGX-ST Listing Manual also provides that a listed company should state in its annual report whether and how the company has adopted an internal compliance code to provide guidance to its officers with regard to dealings by the company and its officers in its securities. The annual report should also state whether the listed company and its officers dealt in the company's securities during the no-dealing period which commences two weeks before the announcement of the issuer's results for the first three quarters of its financial year or one month before the announcement of the half year or financial year results, as the case may be, and ending on the date of announcement of the relevant results. However, adherence to the guidelines and to any additional internal codes adopted by the company does not provide a defence to an action for insider trading under s 218 and 219 of SFA.

17.6.8 The object of the prohibition is to ensure that the market reflects the forces of genuine supply and demand. For the purposes of section 197 of the Securities Industry Act, there has been no change in the beneficial ownership of securities if the person who was buying or selling the securities or a person associated with him has an interest in those securities after the completion of the transaction.

17.6.9 Section 198(1) of the Securities and Futures Act provides that a person shall not carry out two or more transactions in securities of a corporation which will have the effect of affecting or maintaining the price of the securities, with intent to induce other persons to subscribe for, purchase or sell securities of the corporation or of a related corporation. Section 198(2) provides that a ‘transaction’ includes the making of offers to buy or sell securities, and invitations to treat.

17.6.10 Section 199 of the Securities and Futures Act prohibits a person from making or disseminating false or misleading information and statements that are likely to induce subscription of or the sale or purchase of securities or which are likely to affect the market price of securities.

17.6.11 Section 200 of the Securities and Futures Act deals with the situation where a person fraudulently induces other persons to deal in securities. The accused must have made or published a statement, promise or forecast that was misleading either recklessly or with knowledge that it was misleading.

17.6.12 Section 202 of the Securities and Futures Act prohibits circulation or dissemination of any statement or information to the effect that the price of any securities of a corporation will rise, fall or be maintained by reason of transactions entered into in contravention of any of the provisions of Sections 197 to 201 of the Securities and Futures Act.

17.6.13 Section 201 of the Securities and Futures Act is a catch-all provision that is designed to prohibit any other form of securities fraud that has not been specifically dealt with in any other section. It prohibits three things:

17.7.1 Criminal penalties in respect of a breach of the insider trading provisions of the Securities and Futures Act are provided for in s 221 of the Securities and Futures Act. Section 333 of the Securities and Futures Act differentiates between natural persons and corporations in prescribing penalties. A natural person may be fined up to S$250,000 or sent to jail for up to seven years. A corporation may be fined up to S$500,000. In addition, where a corporation or unincorporated association is guilty of an offence under the Securities and Futures Act, any director, executive officer, secretary or similar officer of the corporation or unincorporated association who was knowingly concerned in or party to the commission of the offence shall also be guilty of that offence.

17.7.2 Similar penalties for all the offences in Division 1 of Part XII of the Securities and Futures Act, including market rigging and manipulation, are prescribed by section 204. Both provisions expressly provide that criminal proceedings shall not be brought against a contravening person where a court has made an order against him for the payment of a civil penalty under section 232 in respect of that contravention.

17.7.3 Under section 232, the MAS may obtain up to three times the amount of profit made or loss avoided by the contravening person. Although the Act does not provide how the measure of damages is to be assessed, it is likely that it is quantified differently from the way the loss suffered by a contemporaneous investor is calculated (see Section 17.7.4 below). It is likely that a more flexible approach will be adopted, as it is also provided under s 232(3) that if a profit or loss avoided cannot be quantified or if there is none, a civil penalty of between $50,000 and $2 million can still be imposed. The Securities and Futures (Amendment) Act 2009 has also empowered the court to disgorge the whole or part of the benefit received by a third party on the application of the MAS or person who has suffered loss.

17.7.4 Section 234, on the other hand, allows persons who have suffered loss when trading contemporaneously with the contravening person (which is calculated by measuring the difference between the price of the securities at which the securities were dealt with in that transaction and their likely price if the contravention had not been committed) to seek an order against the contravening person for compensation.

17.7.5 Persons who traded contemporaneously with the contravening person have an independent cause of action that lasts for 6 years. Under this head of liability, the amount that the contravening person is liable for is limited to the profit made or loss avoided by him. In determining whether a person traded contemporaneously with the contravening person, the court takes into account the following factors:

17.8.1 A take-over occurs when a company or person (‘the Offeror’ or ‘bidder’) acquires voting control of another company (‘the Offeree company’ or ‘target company’). In Singapore, take-overs are regulated by sections 139 and 140 of the Securities and Futures Act and by a non-statutory code known as the Singapore Code on Take-Overs and Mergers (‘Take-over Code’) promulgated under section 139(2) of the Securities and Futures Act.

17.8.2 The Code is based on the United Kingdom’s City Code on Take-Overs and Mergers and is administered by the Securities Industry Council (‘SIC’). In addition, where the target company’s shares are quoted on the SGX Main Board or on the Catalist (formerly SGX SESDAQ), the provisions of the SGX Listing Manual Chapter 11 regarding take-overs must be complied with.

17.8.3 The Code was drafted primarily with listed companies in mind, but its letter and spirit should be observed in take-overs of unlisted public companies that have more than 50 shareholders and net tangible assets of more than $5 million. Foreign companies that have a primary listing in Singapore are also subject to the Code, as are business trusts and REITs. Take-overs of private companies are not covered by the Code.

17.8.4 All Offerors, whether natural or artificial and including foreign corporations, are obliged to comply with both the Act and the Code. A breach of the Code does not of itself attract criminal liability, but the SIC has a wide range of non-statutory sanctions that it can impose upon transgressors, e.g., public censure, director disqualification or suspension from the facilities of the market.

17.8.5 The aim of the statutory provisions and the Code is to ensure that sufficient information is provided to shareholders and that the take-over is conducted fairly and in accordance with the proper standard of conduct to be expected in such situations.

17.8.6 A person or corporation making a take-over bid for a public company must make a public announcement in the newspapers stating the terms of the offer and the identity of the Offeror if information concerning the offer has entered the marketplace or if the Offeror acquires effective control over the Offeree company. Effective control is deemed to be acquired when a person or corporation (together with its related corporations) or persons that it is acting in concert with acquires 30% or more of the voting shares in the Offeree company. Alternatively, the board of the Offeree company must make the announcement if the Offeror has approached it with a firm intention to take-over the Offeree company.

17.8.7 In determining whether the 30% trigger-point is reached, the shares held by any parties acting in concert are taken into account. Persons acting in concert comprise individuals or companies who cooperate to obtain or consolidate control of a company pursuant to an agreement or understanding, whether formal or informal. Certain parties are presumed to be acting in concert until the contrary is established, e.g., a company and its related companies, a company and its directors and their relatives, a financial adviser and its clients. Where persons acting in concert hold between 30% and 50% of the voting shares of a public company, a mandatory take-over bid may be required if those persons acquire shares carrying 1% of the voting rights in the company within any particular 6-month period.

17.8.8 The Offeror must post an offer document not earlier than 14 days and not later than 21 days from the date of the offer announcement. Within 14 days of the posting of the offer document by the Offeror, the Offeree company should give a statement containing the matters set out in rule 24 of the Takeover Code to the holders of the shares to which the take-over scheme relates. This offeree board circular must indicate whether or not the board of directors and the independent financial adviser recommends that the shareholders accept the offer and will also set out the directors’ interest in the Offeree company. An offer must be kept open for at least 28 days after the date on which the offer document was posted. This gives shareholders at least 14 days from receipt of the offeree board circular to decide whether to accept the offer.

17.8.9 The Offeror may vary the offer by increasing the offer price for the shares or by extending the period in which the offer remains open. Where a variation in the consideration is made, shareholders who agreed to sell before the variation are also entitled to receive the increased consideration.

17.8.10 An Offeror or bidder has no power to force minority shareholders to sell out their holdings to him. Indeed, the provisions of the Act and the Code are designed to ensure that shareholders are not coerced into accepting an offer. However, under some circumstances minority shareholders’ shares may be compulsorily acquired under section 215 of the Companies Act.

17.8.11 This power of compulsory acquisition is only available to a company, not to an individual. If a company acquires 90% of the shares of another company, it may by notice require that the dissenting shareholders sell out to it. The notice must be sent within two months of obtaining the approval of the holders of 90% of the shares in the target company. The shareholder whose shares are thus to be acquired may apply to Court to have the acquisition stopped.

17.8.12 The Court may then consider whether the proposed acquisition is fair. If it can be shown that the proposed acquisition is not made bona fide, the Court may decline to allow it to proceed. The onus of establishing unfairness is upon the applicant.

17.8.13 Pursuant to the recommendations of the Company Legislation and Regulatory Framework Committee, which the Ministry of Finance accepted in October 2002, section 215 was amended by the Companies (Amendment) Act 2003 so that what is now discounted in calculating the 90% threshold, aside from the Offeror company’s shares in the Offeree, are also the shares of its nominees, and those of a related corporation or nominees of its related corporation. Under section 6 of the Companies Act, a related corporation is a holding company of another corporation; a subsidiary of another corporation; or a subsidiary of the holding company of another corporation.

17.8.14 Where an Offeror company could acquire the holdings of minority shareholders but does not, a minority shareholder may serve a notice requiring the Offeror company to do so. The Offeror company is then obliged to acquire the shareholder’s shares on the same terms as the other shares were acquired or on terms as agreed between the parties or as ordered by the Court.

Rachel Eng

Partner

Banking, Finance and Corporate Practice, Wong Partnership

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