ACRA’S ‘Naughty Corner’

Breaches of the Companies Act by directors of Singapore Companies are, regrettably, commonplace.   The Accounting and Corporate Regulatory Authority (ACRA)’s response to a breach will vary, depending upon its severity, the public interest and the harm done.  In this article we look at the most common type of breaches, but specifically the failure to hold an Annual General Meeting (AGM) or to lodge the Annual Return (AR).

ACRA’S ‘Naughty Corner’

ACRA maintains a list of sections of the Companies Act which are more frequently honoured in the breach than the observance:

  • 142(1) (failure of a company to have a registered office address);

  • 143(1) (failure to notify the Registrar of Companies of any change in the situation of the registered office address and office hours);

  • 144 (failure to publish a company’s name and registration number);

  • 145(1) (requirement to have at least one director ordinarily resident in Singapore);

  • 148(1), 154(1) and 155(1) (acting as director of a company whilst disqualified)

  • 173A(1) (failure to notify the Registrar of Companies of changes in the register of directors, managers, secretaries and auditors);

  • 175 (failure to hold an Annual General Meeting (AGM) within the stipulated timeframe;

  • 197 (failure to lodge the Annual Return (AR) of the company within the stipulated timeframe;

  • 401 (providing a false and misleading statement); and

  • 405 (carrying on business without registering a corporation and for improper use of words Limited and Berhad).

AGMS and ARS

Sections 175 and 197 deserve particular mention, because of the severity of the fines which can be imposed.  In August last year, for example, a director of several Singapore companies was convicted and fined SGD 16,800 after pleading guilty to 14 breaches of sections 175 and 197.

ACRA’s responses to breaches of the Companies Act range from imposing compulsory attendance at sessions aimed at educating the offender about their statutory duties, issuing a warning, offering a penalty or fee in lieu of prosecution (currently SGD 300 per breach with respect to sections 175 and 197), striking off a company, disqualifying or banning an offender from being a director, to prosecution.

In the example given above, the director’s conduct was sufficiently serious to merit prosecution, but the fine imposed was one that might be regarded as light in the circumstances, given that directors who fail to hold an AGM and/or file the AR can be fined up to SGD 5,000 per charge. Moreover, directors who are convicted of three or more filing related offences within a period of five years can be disqualified by ACRA and banned from being a director, or banned from taking part in the management, of a local or foreign incorporated company in Singapore, for five years.  Disqualification or a ban can have serious consequences, particularly for small companies, where continuation of the business is typically reliant on the active participation of one or only a few directors. 

Note that not all companies are required to hold an AGM.  Section 175A(1) of the Companies Act lists the criteria that need to be fulfilled in order to be exempted, but care needs to be exercised because the exemptions themselves can be disapplied in certain circumstances.  The best advice, if in doubt as to whether an exemption applies, is to check with your company secretary.

Liability For Past Failures 

A question we are often asked is whether an individual who accepts an appointment as a director can be liable for breaches of the Companies Act which took place before he or she became a director.  The short answer is yes: directors have a statutory duty to ensure that their company complies with the Companies Act, regardless of when in the past those breaches took place.

The easiest way to avoid inheriting compliance problems is to carry out some simple due diligence: check the company’s Bizfile profile before accepting an appointment.  If delays are evident, their rectification should be insisted upon before an appointment is taken up.  Compliance breaches are, in any event, often symptomatic of wider and deeper governance issues within a company, and should act as a warning sign to a prospective director that all may not be well at the company he or she is intending to join.

If you have any questions or concerns, please email us at info@cslb-asia.com.

What you need to know about the new regulatory requirements regarding registrable controllers and register of nominee directors

As of 31 March 2017, the Accounting and Corporate Regulatory Authority (ACRA) announced changes to the Companies Act and Limited Liability Partnerships (LLP’s) Act. These changes were introduced to reduce compliance costs; make ownership and control of business entities more transparent; and increase efforts to position Singapore as a trusted and clean international business hub.

The most significant change introduced affects all Singapore companies and LLP’s, including foreign companies registered to do business here in Singapore. From now, all companies are required to keep a register of beneficial owners, significant controllers and nominee directors.

These new requirements apply to the following entities:

  • All companies and Limited Liability Partnerships (LLP’s) incorporated / registered in Singapore. These will be obliged to maintain registers of controllers and of nominee directors.
  • Foreign companies registered in Singapore. However, these will only need to maintain a register of controllers.

However, some entities are exempted and these include:

  • Singapore-incorporated companies listed on an approved exchange.
  • Singapore financial institutions, and their wholly owned subsidiaries.
  • Companies (Singapore as well as foreign) listed on a foreign securities exchange with regulatory disclosure requirements and adequate transparency obligations regarding beneficial owners. However, the wholly owned subsidiaries of these companies are not exempt.

So what is a register of registrable controllers?

It is a record of all individuals or corporate bodies within a company that have a significant interest in, or significant control over, it:

  • A person with “significant control” - has the right to appoint or remove a majority or directors or has the permission to use significant influence or control over specified matters.
  • A person with “significant interest” - has an interest more than 25% of the shares held and/or 25% of voting rights in the company.

If you are unsure about the rules determining whether a particular person appears on a company’s register of registrable controllers then please do contact us or visit the ACRA website.

It is also important to know that a company’s obligation extends beyond just the register itself but how the company acquires the information:

  • A company is required to take reasonable steps to find out and identify their registrable controllers. It must send out a notice to each member and each director of the company at least once annually, whether electronically or in hard copy format. Addressees have 30 days to reply to the notice and companies have two days to update their register with the information received.
  • A company must keep the particulars in the register accurate and up-to-date and must send out such a notice once it is alerted to a possible change.
  • If the company does not receive a response to an enquiry, the company may state in the register that the particulars of the relevant registrable controller have not been confirmed. The company is not required to ensure that a response is received. 

What is a register of nominee directors?

All Singapore-incorporated companies are also 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. It is the obligation of the nominee director to notify the company of his status and particulars of his nominator.

A nominee director is a person who is accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of any other person, e.g. a contract, trusts or informal arrangement. 

Additional Information

You must also be aware that ACRA has made it mandatory for the registers to be available at any time for inspection by themselves and law enforcement authorities. However, the registers are not for public review.

The new registers must also be located at either a company’s registered office in Singapore or at some other location in Singapore. ACRA must be informed where the register is kept. There is currently no exemption from this requirement.

As always, it is important that companies comply with these new regulations, Failure to do so constitutes a criminal offence and the offender can be liable to a fine of up to S$5,000.

Please contact us via email at info@cslb-asia.com if you want to find out how these changes affect your company. Alternatively, additional guidelines and information is available at www.acra.gov.sg/CA_2017