A Q&A guide to corporate governance law in Singapore.
The main corporate entities used in Singapore are public and private companies (companies), both of which can be either limited by shares or guarantee, or unlimited. Some public companies are listed on the Singapore Exchange (SGX) (listed companies).
Other corporate vehicles used in Singapore are the:
Limited liability partnership.
These vehicles are not discussed here, and this chapter deals with the regime applicable to companies, and focuses on public listed companies. Unless otherwise specified, all references to companies mean public listed companies.
Corporate governance and directors’ duties are primarily regulated by:
the Companies Act (CA) (Chapter 50, 2006 Revised Edition). This applies to all companies;
Securities and Futures Act (Chapter 289, 2006 Revised Edition) (SFA). This applies to listed companies.
Rules, codes and guidebooks, including:
Singapore Code on Takeovers and Mergers. These are non-statutory rules for takeovers and mergers administered by the Singapore Securities Industry Council (SIC);
SGX Listing Manuals (LM). These are SGX rule books governing SGX Mainboard and Catalist listings;
2005 Code of Corporate Governance (2005 Code). It is not mandatory to comply with the 2005 Code. However, public listed companies are required by the SGX listing rules to disclose their corporate governance practices. The LM stipulates that any deviations from the 2005 Code must be explained in the company’s annual report;
Guidebook for Audit Committees in Singapore (ACGC Guidebook);
SGX press releases and guidance; and
SIC guidelines, practice notes and circulars.
The company’s constitution and terms of reference, including:
memorandum and articles of association (MAA); and
terms of reference of the audit committee, the nominating committee and the remuneration committee.
The regulatory bodies are the:
Monetary Authority of Singapore (MAS).
Singapore Exchange Securities Trading Limited (SGX).
Accounting and Corporate Regulatory Authority (ACRA).
Securities Industry Council (SIC).
What is the name of the code? What areas are covered by it (for example, board composition and committees, remuneration, audit and risk)?
How is the code structured (for example, a set of rules or principles and provisions)? What type of companies must comply with the code?
Is the code based on the comply or explain principle? How are companies required to report their application and compliance with the code (for example, in their annual report)?
What are the consequences of non-compliance with the code?
What has been the general response of companies, regulators and shareholder groups to the comply or explain approach? Has it been popular or controversial? Are there plans to reform it?
The Code of Corporate Governance was first issued by the Corporate Governance Committee in 2001. A review was conducted in 2004 and a revised Code was issued in 2005 (2005 Code). The 2005 Code is concurrently under review by the Corporate Governance Council (CGC), which was appointed in February 2010.
Areas covered are:
Board matters: the board’s conduct of affairs, board composition and guidance, chairman and chief executive officer, board membership, board performance, and access to information.
Remuneration matters: procedures for developing remuneration policies, level and mix of remuneration and disclosure on remuneration.
Accountability and audit: accountability, audit committee, internal controls, and internal audit.
Communication with shareholders.
Disclosure of corporate governance arrangements.
The 2005 Code is structured as a set of principles for listed companies in Singapore to follow.
The 2005 Code is based on a comply or explain principle, that is, it is not mandatory for listed companies to comply fully with the 2005 Code, but they are required under the SGX Listing Rules to disclose their corporate governance practices and give explanations for deviations from the 2005 Code in their annual reports for annual general meetings (AGMs).
Compliance with the 2005 Code is not mandatory. It is only required that listed companies explain any deviation from any of the principles in the 2005 Code (see above, Basis and reporting). This principle of self-governance means that companies take upon themselves the responsibility for adopting governance practices best suited for their circumstances.
The general response has been popular to a general extent. There are plans to reform the 2005 Code. MAS established the CGC in February 2010 to review the standards of corporate governance as well as the 2005 Code in Singapore. The CGC will also identify opportunities for continuing professional development of directors and the development of practical guidance for board committees of listed companies.
Is there a unitary or two-tiered board structure?
Who manages a company and what name is given to these managers?
Who sits on the board(s)?
Do employees have a right to board representation?
Is there a minimum or maximum number of directors or members of the managerial and supervisory bodies?
Structure. Companies must have a unitary board structure.
Management. Management powers are vested in the board. Directors can exercise all the powers of a listed company except any power that the CA or the MAA reserve to the general meeting. Usually, the board appoints a managing director or chief executive officer, who is responsible for day-to-day management.
Board members. The shareholders of a company normally determine who sits on the board. The board members usually consist of non-executive and/ or independent directors and executive directors. The 2005 Code recommends that at least a third of the board should be independent directors. Executive directors work for the company on a full-time basis, usually under a contract of service.
Employees’ representation. In general, employees are not entitled to board representation.
Number of directors or members. Under the 2005 Code, companies must have at least four directors. There is no statutory maximum number of directors but a company’s MAA normally provides both the minimum and maximum numbers of directors (see Question 5).
The minimum age to be a director is 18 years old. No person aged 70 years old or over can be appointed as director, unless an ordinary resolution is passed by the company’s annual general meeting for appointment or re-appointment until the next annual general meeting.
There is no restriction on a director’s nationality other than:
Companies incorporated in Singapore must have at least one director who is resident in Singapore.
Companies incorporated in foreign jurisdictions (other than Singapore) must have at least two independent directors who are resident in Singapore.
Are they recognised?
Does a part of the board have to consist of them? If so, what proportion?
Do non-executive or supervisory directors have to be independent of the company? If so, what is the test for independence or what makes a director not independent?
What is the scope of their duties and potential liability to the company, shareholders and third parties?
Recognition. Non-executive and independent directors are recognised under the CA and the 2005 Code.
Board composition. The 2005 Code recommends that at least a third of the board in a company should be independent directors. The 2005 Code also recommends the formation of audit, nominating and remuneration committees, each generally consisting of a majority of non-executive and independent directors (see Question 14).
Independence. An independent director is a non-executive director who is not a member of management and is able to exercise objective judgment on corporate affairs independently from management. An independent director cannot have a relationship with the listed company, its related companies or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director’s independent business judgment in relation to the company.
The 2005 Code sets out a non-exhaustive list of criteria for independence, which include that:
the director has not been employed by the listed company or any of its related companies for the current or any of the past three financial years;
the director does not have an immediate family member who is, or has been in any of the past three financial years, employed by the listed company or any of its related companies as a senior executive officer whose remuneration is determined by the remuneration committee;
the director, or an immediate family member, has not accepted any compensation from the listed company or any of its subsidiaries other than compensation for board service for the current or most recent financial year; and
the director, or an immediate family member, is not, in any for-profit business organisation to or from which the listed company or any of its subsidiaries made or received significant payments in the current or most recent financial year:
a substantial shareholder;
a partner (with a 5% or more stake);
an executive officer;
As a guide, aggregate payments over any financial year over SG$200,000 (as at 1 April 2011, US$1 was about SG$1.3) are considered significant.
If a listed company wishes to consider a director to be independent in spite of one or more of these relationships, it must disclose the nature of the director’s relationship and explain why he should be considered independent.
Duties and liabilities. Non-executive and independent directors are subject to the same duties and liabilities as other directors (see Question 15).
The 2005 Code recommends a clear division of executive responsibilities in listed companies to ensure a balance of power and authority, such that no one individual represents a concentration of power. The 2005 Code recommends that the chairman and chief executive officer be separate persons. If the chairman and the chief executive officer are the same, related or members of the same executive management team, companies may appoint an independent director to be a lead independent director. The lead independent director should be available to deal with shareholders’ concerns that contact through the normal channels of the chairman, chief executive or finance director has failed to resolve or for which such contact is inappropriate.
The manner in which directors are appointed is set out in the company’s MAA. Typically, appointment is by shareholders’ resolution at a general meeting. Directors who are appointed by the board of directors hold office until the next general meeting, where they must stand for re-election by shareholders.
The removal of directors before the expiration of their term is normally provided for in a company’s MAA. The power of removal is usually vested in the general meeting, where shareholder approval is required. The CA allows a public company to remove a director by ordinary resolution, despite anything contained in the company’s MAA or in any agreement that may exist with the director. Special notice of at least 28 days must be given of the resolution. Reference should also be made to the particular director’s service contract with the company.
Restrictions on directors’ terms of appointment are usually found in the company’s MAA. Directors must retire by rotation and stand for re-election at the company’s annual general meeting. In general, each director must retire once every three years.
Directors need not be employees of the company.
Shareholders do not have a right to inspect directors’ service contracts, unless this right is given by the company’s MAA.
Directors are not required but are allowed to own shares in the company.
The 2005 Code sets out principles and guidelines for developing a remuneration committee consisting of non-executive directors, the majority of whom should be independent (see Question 5). The remuneration committee’s recommendations for each director’s remuneration should be submitted for endorsement by the entire board of directors. No director, executive or non-executive should be involved in deciding his own remuneration.
The 2005 Code suggests that listed companies report to the shareholders each year on directors’ remuneration. Companies are encouraged to fully disclose their remuneration policy and the procedure for setting remuneration in the company’s annual report.
Payment for directors’ fees must be approved by the shareholders at the company’s general meeting.
The internal management of a company is governed by provisions of the CA and the company’s MAA. In general, companies typically adopt an MAA that regulates the conduct of board meetings, such as the giving of notice periods, voting and quorum requirements. The quorum of directors at a board meeting is usually two. Boards generally retain the flexibility to regulate affairs of internal management. Subject to specific provisions in the company’s MAA, directors’ resolutions are usually passed by a simple majority vote.
In general, the business of a company is managed by the directors. Therefore, the board has all powers of the company, with the exception of matters that are reserved to the general meeting, as stipulated under the CA, under the company’s MAA, or the LM (see below).
Generally, whether a transaction can be avoided in relation to a third party depends on whether the party knew or ought to have known of the directors’ breach of duty. There are two main grounds on which the transaction can be set aside:
Lack of authority.
The equitable doctrine of undue influence.
Matters that typically require the approval of the shareholders at a general meeting under the CA and/or the company’s MAA include:
Disposing of the whole of the company’s undertaking or property.
In general, the board can delegate responsibility for specific issues to individual directors or a committee of directors. However, each director’s statutory duties remain (see Question 15).
The 2005 Code recommends that companies establish and delegate certain powers to the audit, nominating and remuneration committees.
Theft and fraud.
Health and safety.
A director must act honestly and use reasonable diligence in the discharge of his duties. A director owes a fiduciary duty to the company, which requires him to:
Act in good faith.
Act for the proper purposes and in the best interests of the company.
Not put himself in a situation where his duty and personal interests conflict.
In general, if a director breaches his duties, he is potentially exposed to civil and criminal liabilities. The director is liable to the company for any profit made by him or any damage suffered by the company as a result of the breach. If convicted under an offence under the CA, the director is also liable to a fine and/or imprisonment.
A director can be criminally liable under the general laws and statutes dealing with theft and fraud. Theft and fraud are also breaches of a director’s general duties.
A director is liable for omissions and misleading or deceptive statements in disclosure documents such as a prospectus, offer information statements and takeover documents. Other securities offences also apply to directors. A breach of securities law can attract both civil and criminal liabilities. However, if a court has made an order against the offending director for payment of a civil penalty under the SFA, criminal proceedings will not also be brought against him.
A director can be personally liable and attract both civil and criminal liabilities if the company incurs a debt while insolvent or if it becomes insolvent by incurring the debt.
A director of a company that is found guilty of breach of health and safety duties to its employees can be liable to a fine and/or imprisonment term.
Directors can be personally liable for the company’s breach of environment laws.
A director can be personally liable for not ensuring that the anti-trust laws are complied with.
There are no other significant sources of directors’ liability.
In general, it is not possible to restrict or limit a director’s liability.
Any provision, whether in the company’s MAA or in any contract with a company, that purports to exempt a director from, or indemnify him against, any liability that would otherwise attach to him in respect of any negligence, default, breach of duty or breach of trust in relation to the company is void.
The CA gives the court a power to relieve directors from the consequences of their negligence, default, breach of duty or breach of trust, if the director shows that he acted honestly and reasonably, and it is fair to excuse him having regard to all the circumstances of the case. Directors can use the common law defence of business judgement if they exercised their powers and discharged their duties in good faith, in the best interests of the company and for a proper purpose.
A company cannot indemnify a director against any liability for negligence, default, breach of duty or breach of trust, unless a judgment is given in his favour or in which he is acquitted or in which relief is granted to the director by the court (CA).
A company can obtain and pay for insurance for its directors against personal liability for any negligence, default, breach of duty or breach of trust. Such insurance would normally cover damages awarded by the court, any settlement with the claimant and legal costs and expenses. However, in general, this insurance does not cover fraudulent and dishonest acts, wilful breach of duty or criminal behaviour.
A third party can be liable as a de facto director, as long as the third party is an individual person and not a corporate entity, as the CA defines a director as any person occupying the position of director of a corporation by whatever name called. Consequently, a de facto director is subject to the duties and liabilities of a director even if not appointed as a director.
Directors have common law fiduciary duties to the company (see Question 15).
In general, directors who have a material personal interest in a matter connected with the company must disclose their interest to the other directors and the shareholders.
In certain circumstances where the value of the transaction is significant, the directors must seek shareholders’ approval for transactions in which they have an interest (LM).
Directors can transact with the company if the interest is disclosed to the board of directors. Failure to do so is an offence punishable by a fine and/or imprisonment. The disclosure must be made as soon as practicable at a directors’ meeting.
The following must be disclosed (CA):
The nature of the director’s interest (whether direct or indirect, including a member of the director’s family’s interest) in any contract or proposed contract with the company.
The nature, character and extent of any conflict that might arise by virtue of a director holding any office.
The nature, character and extent of any conflict that might arise by virtue of a director owning any property.
A company must not:
Make a loan to a director of the company or a related company.
Enter into any guarantee or provide security in connection with a loan made to a director of the company by other parties.
Exceptions to the prohibition on loans to directors include loans made:
To meet the director’s expenditure for the purposes of the company, or to enable him to perform his duties as company officer, provided either:
there is prior approval of the company at a general meeting;
the loan is discharged within six months from the date of the meeting.
To a director who is employed full-time by the company, or by a related company, for the purpose of purchasing a home occupied or to be occupied by the director, provided there is either:
prior approval of the company at a general meeting; or
the loan is discharged with six months from the date of the meeting.
To a director who is employed full-time by the company, or by a related company, where the company has at a general meeting approved of a loan scheme for employees of the company and the loan is in accordance with that scheme.
To a director in the company’s ordinary course of business when its ordinary business includes the lending of money or the giving of guarantees in connection with loans made by other persons, and the company is regulated by banking, finance or insurance statutes, or is supervised by MAS.
These loan prohibitions and exceptions extend to the director’s immediate family.
Directors who authorised a contravention of the provisions on loans to directors by making a loan, entering into guarantee or providing security are subject to fines or imprisonment.
Generally, there are no restrictions on the purchase or sale of company’s shares and other securities by a director of a company. Directors must disclose particulars, and changes to the particulars, of shares and other securities that they hold in the company. The prohibitions against securities offences and insider trading are also applicable to directors (see Question 15, Securities law).
Directors should also take note of best practice in dealings in securities under the LM, which restricts the trading in the company’s securities during specified trading window periods, including:
A two-week prohibition from dealing in the company’s securities before the announcement of the company’s financial statements for each of the first three quarters of a financial year.
A one-month prohibition from dealing in the company’s securities before the announcement of the company’s full year financial statements.
Companies have periodic and continuous disclosure obligations under the LM that require prompt and timely public disclosure of information to be made to the public. Separate disclosure of information about the company is not generally required.
Shareholders have access to certain records and registers of the company under the CA.
In general, public and regulatory bodies have wide powers to access information about the company and where necessary, public and regulatory bodies may require directors to disclose information.
In general, a company must convene an annual general meeting once every calendar year, within four months of its financial year end.
The following matters are generally addressed at an annual general meeting:
The company’s accounts are laid before the shareholders.
Appointment of company auditors.
General approval for the issue of shares.
The retirement and election of directors.
Declaration of dividends.
The determination of auditor’s remuneration.
Any other special business.
Shareholders can call a meeting or propose a specific resolution for a meeting.
If a shareholder gains over 10% of the company’s paid-up capital (excluding treasury shares), the directors of a company (despite anything in the company’s MAA) must convene an extraordinary general meeting as soon as practicable and not later than two months of being notified (CA).
Shareholders holding 10% or more of the total number of issued shares of the company (excluding treasury shares) can call for a meeting of the company.
Minority shareholders can sue in their own name to enforce the company’s rights under common law heads of action. A shareholder can apply to the court for an order on the grounds of oppression, disregard of interest, unfair discrimination or prejudice (CA). There is no minimum level of shareholding required.
An audit committee reviews, with the auditor, the system of internal accounting controls (CA). lf the audit committee of a company becomes aware of any suspected fraud, irregularity, or suspected infringement of any Singapore laws or regulations or rules of the SGX or any other regulatory authority in Singapore, which has or is likely to have a material impact on the company's operating results or financial position, the audit committee must discuss this with the external auditor and, at the appropriate time, report the matter to the board (LM).
Guidelines on internal control of business risks are included in the following:
ACGC Guidebook, section I on internal controls.
Audit committee's terms of reference.
Directors must take all reasonable steps to ensure that the company's accounts are prepared and/or audited to give a true and fair view of the company's financial affairs. Contravention of this obligation renders the directors liable to fines and/or imprisonment.
A company's accounts must be audited.
The company's auditor is appointed by the shareholders in an annual general meeting and the auditor holds office until the conclusion of the company's next annual general meeting. An auditor's term of office is usually renewed or terminated at the company's next annual general meeting. Removal of an auditor before his term expires must be approved by a resolution at a general meeting and special notice must be given. Under the LM, the audit partner must not be in charge of more than five consecutive audits for a full financial year. However, the audit partner can return after two years.
The company's auditor must be a Singapore-certified public accountant.
A company's auditor is not an officer of the company. Individuals cannot be appointed as auditors if they are:
Indebted to the company or a related company in an amount exceeding SG$2,500.
An officer of the company.
A partner, employer or employee of an officer of the company.
A partner or employee of an employee of an officer of the company.
Responsible for, or the partner, employer or employee of a person responsible for, the keeping of the register of members or the register of holders of debentures of the company.
Any accounting firm with partners who fall into any of the categories above cannot be appointed as auditors.
See Question 31.
In general, there are no statutory restrictions under the CA on non-audit work that auditors can do for a company.
The Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities under the fourth schedule of the Accountants (Public Accountants) Rules (Cap 2, R 1, 2006 Rev Ed) sets out the criteria for auditor independence.
The 2005 Code recommends that the audit committee keeps the nature and extent of any non-audit services under review and balances the maintenance of objectivity and value for money. All non-audit work services should be disclosed in the annual reports. In general, auditors should be free from any business or other relationships with the company that would materially interfere with their ability to act with integrity and objectivity. The audit committee should give careful consideration to the actual and perceived independence of the external auditors and establish a formal and transparent framework to ensure that the auditors' ability to conduct the audit is not impaired, or perceived to be impaired.
The ACGC Guidebook sets out the types and examples of services that should not be performed by auditors, which include services that would result in the auditors:
Functioning in the role of management.
Auditing their own work.
Serving in advocacy roles for the company.
The statutory role of an auditor is broadly set out in the CA, while the relevant industry auditing standards in Singapore are encapsulated in standards and pronouncements issued by the Institute of Certified Public Accountants of Singapore.
Where audited accounts are inaccurate, an auditor’s liability to the company is generally regulated by the audit engagement entered into between the auditor and the company. In general, auditors have a potential common law liability to the company’s shareholders and third parties and the auditors’ liability cannot be limited or excluded.
A court can relieve an auditor either wholly or partly from liability if he has acted honestly and reasonably and that, having regard to all the circumstances of the case (including those connected with his appointment) he ought fairly to be excused (CA).
It is common and there is an increasing trend for companies to highlight their corporate social responsibility efforts in their annual reports.
There is no current specific law or regulation governing corporate social responsibility.
The specific duties of a company secretary are normally set out in the company's MAA or his contract of employment. The company secretary plays a key role in the administration of a company and is generally expected to follow the instructions of the board of directors. The company secretary must ensure relevant regulations and procedural matters are complied with, including:
Maintaining the company registers.
Sending out notices.
Attending and recording minutes of meetings.
Filing documents and/or forms with ACRA.
Institutional investors substantially influence good corporate governance due to the size of their shareholding in the companies. For instance, by virtue of their voting powers, institutional investors may block or facilitate the approval of resolutions at general meetings.
The Securities Investors Association (Singapore) (SIAS) is a non-profit organisation consisting of retail investors that:
Acts as a watchdog for investor rights.
Monitors corporate governance practices in Singapore.
Provides education, information and conducts research on all aspects of investments and presents the views of members at company meetings, to stock exchanges and other appropriate bodies.
In general there is no statutory protection for whistleblowers in companies.
The 2005 Code recommends that the audit committee ensures that the appropriate measures are put in place for employees to raise any concerns in strict confidence with respect to any act of misfeasance by the company's management, together with appropriate follow-up independent investigation of the concerns raised.
The ACGC Guidebook also contains some guidelines and references to best practices, scope, review and implementation of a whistleblowing policy. Some of the guidelines suggested are:
Ensuring that staff are aware of and trust the whistleblowing procedures.
Making provision for realistic advice about what the whistleblowing process means for openness, confidentiality and anonymity.
Continually reviewing how the procedures work in practice.
Regularly communicating to staff about avenues open to them.
Whistleblowing protections can be found in other laws and regulations relating to money laundering and competition issues.
On 4 February 2010, the MAS announced the composition of the newly established CGC. The 2005 Code is currently being reviewed by the CGC.
Qualified. England, 1988; Singapore, 1994
Areas of practice. Corporate and commercial; funds, asset management and private equity; mergers, acquisitions and divestments; private client and wealth management; sports law.
Qualified. Singapore, 1993
Areas of practice. Capital markets; general corporate; mergers, acquisitions and divestments; regulatory compliance and corporate governance; corporate secretarial law.
Recent transactions. A registered professional with Catalist, Singapore Exchange. As a registered professional, guiding listed companies in their compliance matters.