The Singapore Companies (Amendment) Act was updated on 31 March 2017 - here is a review of the changes which are now in effect.
The Singapore Companies (Amendment) Act was passed on 10 March 2017, and on 31 March 2017 a key change which came into effect was the introduction of a requirement for Singapore companies and limited liability partnerships, as well as foreign companies registered to carry on business in Singapore, to maintain registers of significant controllers and nominee directors.
The introduction of the requirement to keep the registers is intended to bring Singapore in line with international standards set by the Financial Action Task Force and the Global Forum on Transparency and Exchange of Information for Tax Purposes. As part of these changes, the Companies (Amendment) Act 2017 also required, more controversially, foreign companies registered in Singapore (including listed foreign companies) to maintain public registers of shareholders.
This article provides a brief summary of the new registers of significant controllers and nominee directors. It will focus on the requirement for companies to keep these registers. While limited liability partnerships are also required to keep a register of significant controllers, and the requirements are substantially similar, these will not be discussed in this article.
Persons Required to Keep the Registers
The requirement to keep registers of significant controllers and nominee directors applies to the following entities in the following manner:
• All companies incorporated/registered in Singapore will be required to maintain registers of controllers and nominee directors at prescribed places (e.g. the company’s registered office).
• Foreign companies registered in Singapore will also be required to maintain registers of controllers but not registers of nominee directors.
• Entities exempted from the requirements include Singapore-incorporated companies listed on an approved securities exchange, Singapore financial institutions, and their wholly-owned subsidiaries. Also included are companies (Singaporean, as well as foreign) listed on a foreign securities exchange, with regulatory disclosure requirements and requirements relating to adequate transparency in respect of its beneficial owners are also exempted. For such companies, however, their wholly-owned subsidiaries are not exempted.
The registers will not be open to inspection by any member of the public but must be available for inspection by the Accounting and Corporate Regulatory Authority (ACRA) and law enforcement authorities. Interestingly, the term ‘member of the public’ has been defined as including any member of the company acting as a member.
Registers of Registrable Controllers
Whether any particular entity should appear in the register of registrable controllers must be approached first by asking whether it is a controller, and then by asking whether it is registrable.
Who Is a Controller?
For a company, a controller is an individual or corporate body that has a significant interest in, or significant control over, it.
A person has ‘significant control’ if he has the right to appoint or remove a majority of directors or has the right to exercise (or actually exercises) significant influence or control over matters that may be prescribed. The test is not a bright line test. ACRA has, however, provided guidance on what would amount to significant control. This notes that where an individual or legal entity can direct the activities of a company, this would be indicative of ‘significant control’, and where an individual or legal entity can ensure that a company generally adopts the activities which the individual or legal entity desires, this would be indicative of ‘significant influence’.
A person has ‘significant interest’ if he has an interest more than 25 per cent of the shares held and/or 25 per cent of voting rights. In determining whether a person has an interest in shares, the tests set out in section 7 of the Companies Act apply. Under section 7, a person has an interest in shares if he has authority to dispose of, or to exercise control over the disposal of those shares. In addition, an interest may be held directly or indirectly, including through a chain of intermediate entities provided certain requirements are met.
Which Controllers Are Registrable?
A company only has to include registrable controllers in the register. However, unless a controller falls within a narrow range of controllers specified as being non-registrable, a company will need to include it in the register. The Ministry of Finance and the Accounting and Corporate Regulatory Authority had indicated in their consultation responses to feedback that the intermediate corporate controllers need not be recorded in the register.
They had also stated that the company should only record the first registrable individual controller or the first registrable corporate controller which is a locally incorporated/registered company that is required to maintain a register of controllers or is exempted from the requirement to maintain a register of controllers.
This was, however, ultimately not reflected in the finalised legislation that was passed, i.e. there is therefore a material 'gap' between the consultation feedback issued by the Singapore authorities, and the meaning of the actual legislation.
The Companies (Amendment) Act 2017 provided instead that a controller is registrable unless:
· Its significant interest in or significant control over the company is only through one or more other controllers (B) of that company;
· It is a controller of B (or each B if there is more than one); and
· B (or each B if there is more than one) is any of the following:
· a company or foreign company that is required to keep a register of controllers or that is exempted from the requirement;
· a corporation whose shares are listed for quotation on an approved exchange;
· a limited liability partnership that is required to keep a register of controllers or that is exempted from the requirement; or
· a trustee of an express trust to which Part VII of the Trustees Act applies.
Where there is a chain of controllers, therefore, each of the intermediate controllers in the chain must fall into one of the enumerated categories. If any of the intermediate controllers falls outside the categories of entities enumerated, all controllers above it in the chain will need to appear on the register. Where a Singapore incorporated or Singapore registered company is part of larger group of companies with foreign companies in the chain, that Singapore incorporated or Singapore registered company will, based on the legislation, need to disclose all of its upstream controllers in the register.
Register of Nominee Directors
As noted above, Singapore-incorporated companies were required to keep a register of nominee directors from 31 March 2017. Unlike the register of registrable controllers, a company is not required to ascertain whether it has any nominee directors. Instead, the obligation is on the nominee director to notify the company of his status and of the particulars of his nominator.
A director is a nominee director if he is accustomed or under an obligation whether formal or informal to act in accordance with the directions, instructions or wishes of any other person. The test is one of fact, and directors will therefore need to examine their own specific circumstances to see if the test is satisfied.
The test for whether a person is a nominator of a nominee director somewhat tracks, albeit not entirely the same as the test for a shadow directorship, that is, a person in accordance with whose directions or instructions the directors or the majority of the directors of a corporation are accustomed to act. Naming a particular person as a nominator therefore carries with it implications that go beyond simple disclosure, and issues such as a potential shadow directorship and tax residency need to be taken into account.
Some Take-aways and Some Assertions to Provoke Thought
The following features of the Singapore regime may be considered noteworthy:
(a) Tracing upwards through a chain of entities is often a complex exercise, given the complexity of the terms used (e.g. ‘substantial interest’, ‘substantial control’). This is accentuated where the holding structure is itself particularly complex (e.g. where a company may be owned by a consortium of investment fund entities) – achieving full compliance can pose practical challenges in some cases.
(b) The situation was not helped by the discrepancy between the legislation's wording and the responses in the consultation feedback, leading to uncertainties as to the true legal position.
(c) The registers are analogous to a black box, with information retrievable only by the company itself or by the authorities in the event of an investigation.
(d) The requirement for all companies to maintain full registers of their members in Singapore goes beyond the practice of most jurisdictions – it reflected comments made in Singapore's FATF mutual evaluations, but other FATF inspection teams may not have focused on this issue to the same extent, leaving the Singapore position somewhat out of line.
(e) The ACRA has stated that professional company directors will generally be nominees, but what stance should be taken for (e.g.) directors who are employees of subsidiaries of multinational groups – there are potential risks that registering as a nominee director in the register may create shadow directorship and tax risks. Advisers need to ensure their clients have a suitable understanding of these types of issues.
Wee Teck Lim Professional Support Lawyer, Singapore
Lian Chuan Yeoh Counsel at Allen & Overy