Corporate Governance Part 3 PDF

CORPORATE & COMMERICAL PRACTICE CORPORATE GOVERNANCE PART III ADRIAN CHAN Content Interested Person Transactions Code of Corporate Governance The “Comply or Explain” Regime 2 Interested Person Transactions (...

CORPORATE & COMMERICAL PRACTICE CORPORATE GOVERNANCE PART III ADRIAN CHAN Content Interested Person Transactions Code of Corporate Governance The “Comply or Explain” Regime 2 Interested Person Transactions (IPTs) Chapter 9 of the SGX Listing Manual Objective: To safeguard transactions with interested persons to ensure that interests of Issuer and its shareholders are not adversely affected IPTs deal essentially with conflicts of interest Deals with IPTs between: listed issuer, its subsidiaries and associated companies over which the listed group has control, and a director, CEO or controlling shareholder or an “associate” thereof 3 Interested Person Transactions (IPTs) “Associate” is defined in the Listing Rules as the director’s, CEO’s or controlling shareholder’s “immediate family” (i.e., spouse, child, adopted child, step-child, sibling and parent), trustees where he or his immediate family are beneficiaries, and any company in which he and his immediate family have an interest of 30% or more. “Controlling shareholder” is a person who: − holds directly or indirectly 15% or more of voting shares in the issuer; or − in fact exercises control over the issuer. 4 Interested Person Transactions (IPTs) Under Listing Rule 904(4A), the Exchange may deem any person or entity to be an interested person if the person or entity has entered into, or proposes to enter into: (a) a transaction with an entity at risk; and (b) an agreement or arrangement with an interested person in connection with that transaction 5 Interested Person Transactions (IPTs) “Transaction” includes: (a) the provision or receipt of financial assistance; (b) the acquisition, disposal or leasing of assets; (c) the provision or receipt of goods or services; (d) the issuance or subscription of securities; (e) the granting of or being granted options; and (f) the establishment of joint ventures or joint investments; whether or not in the ordinary course of business, and whether or not entered into directly or indirectly (for example, through one or more interposed entities). 6 Interested Person Transactions (IPTs) Under Listing Rules 905 and 906: − IPTs require immediate announcement if value of transaction is equal to or exceeds 3% of latest audited net tangible assets (“NTA”) − IPTs require shareholders’ approval if value of transaction is equal to or exceeds 5% of latest audited NTA − Transactions of value < S$100,000 disregarded for IPT purposes Aggregation required for all transactions with same interested person made in the same financial year 7 Interested Person Transactions (IPTs) Under Listing Rules 905(5) and 906(4), the Exchange is empowered to aggregate transactions below S$100,000 entered into during the same financial year and treat them as if they were one transaction to give effect to the objective of Chapter 9 or the economic and commercial substance of the IPT. 8 Interested Person Transactions (IPTs) Under Listing Rule 907, an issuer must disclose the aggregate value of IPTs entered into during the financial year under review in its annual report, including the following information: - name of interested person - nature of relationship - aggregate value of all IPTs during FY (excluding transactions less than S$100,000 and transactions conducted under shareholders' mandate) - aggregate value of all IPTs conducted under shareholders' mandate (excluding transactions less than S$100,000) 9 Interested Person Transactions (IPTs) Exceptions in Listing Rule 915 set out transactions which are not required to comply with the announcement, shareholder approval and annual report disclosure requirements. Some examples of such exceptions include: A payment of dividends, a subdivision or consolidation of shares, an issue of securities by way of a bonus issue, a preferential offer, or an off-market acquisition of the issuer's shares, made to all shareholders on a pro-rata basis, including the exercise of rights, options or company warrants granted under the preferential offer. The grant of options, and the issue of securities pursuant to the exercise of options, under an employees' share option scheme approved by the Exchange. A transaction between an entity at risk and an investee company, where the interested person's interest in the investee company, other than that held through the issuer, is less than 5%. 10 Interested Person Transactions (IPTs) Exceptions in Listing Rule 915 set out transactions which are not required to comply with the announcement, shareholder approval and annual report disclosure requirements. Some examples of such exceptions include: A transaction between an entity at risk and an interested person for the provision of goods or services if:(a) the goods or services are sold or rendered based on a fixed or graduated scale, which is publicly quoted; and (b) the sale prices are applied consistently to all customers or class of customers. The receipt of financial assistance or services from a financial institution that is licensed or approved by the Authority, on normal commercial terms and in the ordinary course of business. Director's fees and remuneration, and employment remuneration (excluding "golden parachute" payments). 11 Interested Person Transactions (IPTs) Exceptions in Listing Rule 916 sets out transactions which are not required to comply with the shareholder approval requirement (but the announcement and annual report disclosure requirements still apply). Some examples of such exceptions include: The entering into, or renewal of a lease or tenancy of real property of not more than 3 years if the terms are supported by a valuation carried out by a property valuer. The award of a contract by way of public tender to an interested person (subject to certain conditions). The receipt of a contract which was awarded by way of public tender, by an interested person (subject to certain conditions). 12 Interested Person Transactions (IPTs) Exceptions in Listing Rule 916 sets out transactions which are not required to comply with the shareholder approval requirement (but the announcement and annual report disclosure requirements still apply). Some examples of such exceptions include: Investment in a joint venture with an interested person if:— (a) the risks and rewards are in proportion to the equity of each joint venture partner; (b) the issuer confirms by an announcement that its audit committee is of the view that the risks and rewards of the joint venture are in proportion to the equity of each joint venture partner and the terms of the joint venture are not prejudicial to the interests of the issuer and its minority shareholders; and (c) the interested person does not have an existing equity interest in the joint venture prior to the participation of the entity at risk in the joint venture. The provision of a loan to a joint venture with an interested person if:— (a) the loan is extended by all joint venture partners in proportion to their equity and on the same terms; (b) the interested person does not have an existing equity interest in the joint venture prior to the participation of the entity at risk in the joint venture; and (c) the issuer confirms by an announcement that its audit committee is of the view that:—(i) the provision of the loan is not prejudicial to the interests of the issuer and its minority shareholders; and (ii) the risks and rewards of the joint venture are in proportion to the equity of each joint venture partner and the terms of the joint venture are not prejudicial to the interests of the issuer and its minority shareholders. 13 Interested Person Transactions (IPTs) Possible for issuers to obtain a general mandate from shareholders under Listing Rule 920 for recurrent transactions of a revenue or trading nature or those necessary for its day-to-day operations (e.g. purchase and sale of supplies and materials) Issuers will have to issue a circular to shareholders containing the prescribed information. A general shareholders mandate is subject to annual renewal. 14 Code of Corporate Governance Bedrock and foundation of corporate governance principles in Singapore The latest Code of Corporate Governance and the Practice Guidance were issued in August 2018 and this is the 4th edition of the Code Listing Rule 710 makes it clear that the Code is not law and is applied on a “comply or explain” basis 15 The “Comply-or-Explain” Regime “Comply or explain” is a middle ground between mandatory prescriptive rules (e.g. legislation & the Listing Rules) and voluntary best practices (e.g. Practice Guidance) Benefits − Avoid burdensome and costly mandatory rules − Avoids “one-size-fits-all” solution for different types of companies − Enables setup of aspirational principles and guidelines − Provides flexibility for innovation − Allows companies to internalize the principles of good governance 16 The “Comply-or-Explain” Regime How “Comply-or-Explain” is Effected under Listing Rule 710 An issuer must describe in its annual report its corporate governance practices with specific reference to the principles and provisions of the Code An issuer must comply with the principles of the Code Where an issuer’s practices vary from any provisions of the Code, it must explicitly state, in its annual report, the provision from which it has varied, explain the reason for variation, and explain how the practices it had adopted are consistent with the intent of the relevant principle 17  The “Comply-or-Explain” Regime Listing Rules Mandatory rules that every listed company Mandatory (Amended) must follow Overarching and non-disputable statements Mandatory Code 2018 which embody the fundamentals of good (Comply and 13 Principles corporate governance Explain) 52 Provisions Actionable steps which guide companies in Comply or complying with the substance of the Explain Principles Non-binding guidance on Code compliance Voluntary Practice Guidance and best practices The “Comply-or-Explain” Regime Practice Guidance Provides companies with guidance on compliance with the Code as well as sets out best practices Complements the Code but is non-binding (i.e. applies on a voluntary basis) Content of Practice Guidance to be overseen by the Corporate Governance Advisory Committee Notice Copyright © 2024, Singapore Institute of Legal Education. All rights reserved. The Course materials are developed by the Singapore Institute of Legal Education, based on the content, syllabus, and guidance provided by the Chief and Principal Examiners and their teams. No direct or indirect reproduction, publication, communication to the public, adaptation or any other use (that is prohibited and/or proscribed by copyright laws) of the Course materials in whole or in part in any form or medium is allowed without the written permission of the Singapore Institute of Legal Education. Part B Candidates should refer to the Code of Conduct for more information, particularly, the sections on conduct and behaviour, and the use of SILE resources. 20