By Mak Yuen Teen
On July 20, the Accounting and Corporate Regulatory Authority (ACRA) launched its public consultation on the Report of the Companies Act Working Group (CAWG). The public consultation will close on August 17 and I hope stakeholders, including investors, will provide feedback.
I have submitted my response to the consultation and it is attached at the end of this post. The review is wide-ranging. I have focused my attention on those areas that I believe are most relevant to transparency and corporate governance of both private and public companies (including listed companies). These include the issue of virtual shareholder meetings, exempt private companies and their reporting obligations (including criteria for exempting exempt private companies from filing financial statements), criteria for audit exemptions for subsidiaries, and the proposed concept of publicly accountable companies and their criteria. Interested readers can look at my response, which reflects my personal views.
However, I would also like to comment on the approach to the review and its timeliness, which I hope is viewed as constructive criticism.
First, I am surprised that the report is dated 15 May 2019 but the public consultation has been launched more than a year later. As a result, the report feels dated to me. During the intervening period, much has happened, including several large private companies in the oil and commodities trading and offshore and marine sectors going into restructuring or judicial management, such as Hin Leong Trading, Ocean Tankers, Xihe Holdings, Hontop Energy, Agritrade International, Zenrock Trading, and Pacific International Lines. A number of these are exempt private companies. In some of these cases, there have been allegations of fraud. On May 18, I posted an article on this website calling for a review of the regulatory framework of private companies (https://governanceforstakeholders.com/2020/05/18/hin-leong-trading-time-to-reconsider-regulatory-framework-for-private-companies/). I have also been quoted in the media about the lack of transparency and governance of large private companies, including exempt private companies.
Yet the CAWG report on page 32 states: “There were concerns that abolishing the EPC type would constitute a significant change in practice, and may make the use of the Singapore company vehicle restrictive and unattractive. There has also been no feedback that the EPC type has resulted in governance challenges.” (emphasis mine). Perhaps that was the case from the establishment of the CWAG in January 2018 to the date of its report in May 2019 – but the environment has changed. While the consultation left open the opportunity to provide feedback on possible shifts in the regulation of exempt private companies, my feeling reading the report is that it had not fully considered the recent corporate debacles involving private companies here.
I would add that reviewing the transparency and governance of private companies, including exempt private companies, is not a knee-jerk reaction. We are not talking about just one or two private companies that have got themselves into serious trouble – but several big ones with wide-ranging impact on stakeholders and our reputation.
Second, I am disappointed with the composition of the CAWG. While it is understandable that a review of the Companies Act would require members with legal backgrounds – and these are well represented – business interests are represented among the members but there are no representatives from the accounting profession, or representatives who clearly represent investors or other stakeholders (such as creditors), or from the corporate secretarial sector. This may explain what in my view is an overall thrust towards the interests of business owners, although I acknowledge there are recommendations to improve the protection of shareholders’ interests. The review covers areas of the Companies Act dealing with issues relating to accounting, audit, company secretary roles, and shareholder protection, but there was no place for them on the CWAG – but there were places for those representing directors and business interests. In certain places in the report, the lack of representatives from those stakeholder groups shows up through an apparent lack of knowledge.
If our regulators are serious about reforms that balance the interests of different stakeholders – something that much of the first world is moving towards – then they have to start with being more inclusive for committees which review proposed regulatory changes.
Third, and this is just a gripe about an administrative matter. I found it rather tedious to respond to the consultation. I had to read several pdf documents and when responding to each question, had to refer to the recommendations and remarks/consultation questions in Annex C. I decided to create a word document and cutting and pasting the consultation questions for easy reference when responding. It would be much easier if a properly set up editable document is provided that allows easy cross-referencing to the original recommendations and consultation questions. Better still, given that one of the topics reviewed by the CWAG is “Digitalisation”, an option to complete and submit the consultation online would make the submission process a more pleasant experience.
