The Companies Act is known to prohibit a company from providing financial assistance to an acquirer of its own shares. More fundamentally, it also prohibits a company from directly or indirectly acquiring its own shares. In The Enterprise Fund III Ltd v OUE Lippo Healthcare Ltd [2019] SGCA 48, the Singapore Court of Appeal had the opportunity to issue its first judgment on the prohibition against a company acquiring its own shares. In particular, the Court examined the statutory scope of an indirect acquisition of a company's own shares, as well as the operation of the relevant saving provisions.
The case involved a multi-part transaction by which the Appellants made funds available to the Respondent for the acquisition of the Respondent's own shares. Here, the Court of Appeal found the transaction to be void, save for one part of the transaction that fell within the saving provisions. As a result, the Respondent was held to bear no contractual obligation or liability to the Appellants with respect to the transaction.
Notably, the Court held that:
- Where a series of steps have been taken to effect a company’s acquisition of its own shares, even the parts of a transaction that are not the final or most proximate step might nonetheless be caught by the prohibition if they were sufficiently proximate to the intended outcome of self-acquisition; and
- A transaction in breach of this prohibition is void, unless it is in respect of the disposition of book-entry securities, which entails a change in the legal title to the shares or securities concerned.
The Respondent was successfully represented before the High Court and the Court of Appeal by Lee Eng Beng, SC and Jansen Chow from the Commercial Litigation Practice.
On 3 September 2019, the Variable Capital Companies (Miscellaneous Amendments) Bill ("Bill") was passed in Parliament. The Bill was introduced in Parliament on 5 August 2019. The Bill has yet to come into force.
The Bill sets out, among other things, provisions relating to the tax treatment for and the receivership and insolvency regime applicable to variable capital companies ("VCCs").
VCCs
The Variable Capital Companies Act 2018 ("VCC Act") was passed in Parliament on 1 October 2018. The VCC Act has yet to come into force. The VCC Act sets out a new legal framework for a VCC, which has features tailored for investment funds. These features include the ability to pay dividends using profit or capital. The shareholders of a VCC are the fund investors. A VCC must be managed by a fund manager that is regulated by the Monetary Authority of Singapore (MAS). In addition to being set up as a single standalone fund, a VCC may also take the form of an umbrella VCC structure. This enables a VCC to combine the advantage of a single legal entity at the umbrella VCC fund level, with segregation of assets and liabilities at the sub-fund level. We understand that the VCC framework is expected to be in effect at the end of 2019.
Tax treatment for VCCs
The Bill will amend the Income Tax Act, the Goods and Services Tax Act and the Stamp Duties Act to provide for the tax treatment for VCCs. Key features of the tax treatment are as follows:
- Corporate Income Tax treatment – A VCC will be treated as a company for Corporate Income Tax purposes. An umbrella VCC will only be required to file a single Corporate Income Tax return with the Inland Revenue Authority of Singapore, regardless of the number of sub-funds it has. Deductions and allowances for expenses incurred by an umbrella VCC will be applied at the sub-fund level to determine the sub-fund's chargeable income. An umbrella VCC will also be eligible for fund management tax incentives under sections 13R (Singapore Resident Fund Scheme) and 13X (Enhanced Tier Fund Scheme) of the Income Tax Act. Further, where applicable, an umbrella VCC may enjoy the start-up or partial tax exemption regardless of the number of sub-funds it has.
- Goods and services tax ("GST") treatment – GST will be applicable at the sub-fund level. GST accounting and registration have to be done separately by each sub-fund that is liable for GST registration because each sub-fund makes independent sale and purchase decisions based on its respective investment mandate.
- Stamp duty treatment – Stamp duty is levied at the sub-fund level because each sub-fund may enter into contracts relating to the transfer of immovable property and shares. For example, stamp duty will be levied on an instrument that transfers the interest in property and shares between sub-funds.
Receivership and Insolvency provisions for VCCs
The VCC Act contains provisions on the receivership and winding up of VCCs and their sub-funds. These provisions are adapted from the Companies Act ("CA"). The Insolvency, Restructuring and Dissolution Act 2018 ("IRDA"), which has been passed by Parliament but has yet to come into force, will consolidate all personal and corporate insolvency and debt structuring laws under one statute. When the IRDA comes into force, the insolvency provisions of the CA will be repealed. The Bill will amend the VCC Act so that the insolvency framework for VCCs and their sub-funds will make reference to the relevant provisions of the IRDA instead of the CA.
On 5 August 2019, Parliament introduced two Bills relating to the reciprocal enforcement of judgments between Singapore and foreign countries. On 2 September 2019, the Bills were passed in Parliament, becoming the Reciprocal Enforcement of Foreign Judgments (Amendment) Act ("REFJA Amendment Act") and the Reciprocal Enforcement of Commonwealth Judgments (Repeal) Act ("RECJA Repeal Act"). The REFJCA Amendment Act has since come into operation on 3 October 2019. The main development brought about by the REFJA Amendment Act is that the scope of judgments that may be covered by reciprocal arrangements between Singapore and foreign countries will be expanded. Previously, the reciprocal enforcement regime only covered final money judgments given by superior courts in civil proceedings, as well as final judgments given by superior courts in criminal proceedings for the payment of damages or compensation to an injured party.
Under the new framework, four other types of judgments will be added to the list of judgments enforceable by reciprocal arrangement:
- Non-money judgments such as freezing orders, injunctions and orders for specific performance;
- Lower court judgments;
- Interlocutory judgments; and
- Judicial settlements, consent judgments and consent orders.
To consolidate the reciprocal enforcement regime, the REFJA and the RECJA will be combined under one statute. The reciprocating Commonwealth countries under the RECJA will be transferred to the REFJA, and the RECJA Repeal Act will then repeal the RECJA when it comes into force.
For more information, click here to read our Legal Update.
The Advisory Guidelines on the Personal Data Protection Act for NRIC and other National Identification Numbers ("Advisory Guidelines") issued by the Personal Data Protection Commission (PDPC) came into effect on 1 September 2019 and are now in full force and effect. Under the Advisory Guidelines, organisations are generally not allowed to collect, use or disclose National Registration Identity Card ("NRIC") numbers (or copies of NRIC), unless the collection, use or disclosure of such NRIC numbers (or copies of NRIC) is required under the law or necessary to accurately establish or verify the identities of the individuals to a high degree of fidelity.
The Advisory Guidelines do not apply to the collection, use and disclosure of NRIC numbers (or copies of NRIC), including the retention of physical NRICs by a public agency or an organisation that is acting on behalf of a public agency.
The Advisory Guidelines also set out alternative identifiers that organisations may consider adopting to establish or verify the identities of Individuals.
For more information, click here to read our Legal Update.
On 7 August 2019, 46 States signed a new international arbitration treaty on mediation that will enable cross-border enforcement of mediated settlement agreements amongst the signatory countries. It provides businesses an option to resolve cross-border disputes, in addition to litigation and arbitration.
The United Nations Convention on International Settlement Agreements Resulting from Mediation, also known as the Singapore Convention on Mediation ("Convention"), was adopted by consensus at the UN General Assembly on 20 December 2018 which also authorised the signing of the Convention in Singapore on 7 August 2019. Singapore was the first signatory of the Convention.
The Convention, the first UN treaty to be named after Singapore, applies to international commercial settlement agreements resulting from mediation. It will not apply to international settlement agreements that are concluded in the course of judicial or arbitral proceedings and which are enforceable as a court judgment or arbitral award. In addition, it will not also apply to settlement agreements concluded for personal, family or household purposes by one of the parties (a consumer), as well as settlement agreements relating to family, inheritance or employment law.
