May Introduction

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1 Part XIII Of The Securities And Futures Act And New Regulations Come Into Force On 1 July 2002 Introduction... 1 Overview... 1 Changes To Matters For Disclosure And The Prospectus Registration Process... 2 Schemes... 3 Securities Hawking... 5 Extra-Territorial Application Of The SFA Refined In The Regulations... 5 Repeal Of Provisions Of The Companies Act... 6 Conclusion... 6 Introduction The Securities and Futures Act 2001 ( SFA ) was first passed by Parliament on 5 October The amendments introduced by the SFA were first discussed as a whole in the Client Update, Securities And Futures Bill Undergoes First Reading In Parliament issued in October The SFA has been coming into force in parts. Part I (Preliminary), Part VIII (Securities Industry Council and Take-over Offers), Part IX (Supervision and Investigation), Part X (Assistance to Foreign Regulatory Authorities) and Part XV (Miscellaneous; except sections 314 and 342(1) and (3)) came into effect on 1 January 2002 (an update on the partial coming into force of the SFA, Securities And Futures Act 2001 Partially In Force, was issued in January 2002 and may be found on KnowledgeBase at The Monetary Authority of Singapore ( MAS ) announced on 23 that Part XIII of the SFA will come into force on 1 July Part XIII of the SFA deals with offers of shares, debentures and collective investment schemes. In tandem with the announcement of the in-force date of Part XIII of the SFA, the MAS has also issued new regulations to supplement Part XIII, of which the main regulations are: the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2002 ( Shares and Debentures Regulations ); and the Securities and Futures (Offers of Investments) ( Schemes) Regulations 2002 ( Schemes Regulations ). These regulations will also come into force on 1 July 2002 and are discussed in this Update. To provide a more holistic picture, the specific amendments to the current regime that are introduced by Part XIII of the SFA will also be discussed alongside the new regulations. It should also be noted that a new Listing Manual was recently issued and will also take effect from 1 July These changes were discussed in the Client Update, The Listing Rules In Singapore See Sea Of Changes Scheduled To Take Effect From 1 July 2002, issued in, available on KnowledgeBase. Overview The coming into force of Part XIII essentially means that the provisions relating to offers of shares and debentures move from the Companies Act, Chapter 50 ( Companies Act ) to the SFA. This is largely a relocation exercise as the major amendments to the prospectus regime were done in 13 November 2000 when the Companies Act was amended. Rajah & Tann, Knowledge & Risk Management Page 1

2 Corporate & Capital Markets David Yeow Executive Committee However, this does not mean that the coming into force of Part XIII will not see any changes. Of the changes made, the following sets of changes arising from Part XIII of the SFA stand out: an informed assessment of an investment, as well as the matters prescribed by the MAS. This test is essentially the same as that currently contained in section 45 of the Companies Act. the matters that need to be disclosed in prospectus has undergone further refinement; the process of lodgement and registration of a prospectus has also undergone further updating and refinement to encourage greater disclosure and to reflect MAS s position as the main regulatory body; and the current regime of interests other than shares under Part 4, Division 6 of the Companies Act will be replaced by a new concept: collective investment schemes. The Shares and Debentures Regulations set out the matters that have been prescribed by the MAS by way of prospectus checklists and updates the current list of matters set out in the Fifth Schedule of the Companies Act. In this regard, the Shares and Debentures Regulations have set out a total of eight checklists in the Fifth to Twelfth Schedules (a three-fold increase from the current three in the Companies Act). Broadly speaking, these checklists broadly distinguish between the following circumstances: Contact Details Direct: (65) Facsimile: (65) Regina Liew Partner Contact Details Direct: (65) Facsimile: (65) Contact Details Direct: (65) Facsimile: (65) Changes To Matters For Disclosure And The Prospectus Registration Process Registration Of Prospectus With MAS Matters That Must Be Disclosed In Prospectuses Matters that must be disclosed in a prospectus must satisfy the general test on disclosure set out in section 243 of the SFA. Generally speaking, this provides that prospectuses must disclose all the information that investors and their professional advisers would reasonably require to make Rajah & Tann, Knowledge & Risk Management Page 2 whether it is shares or units of shares that are to be issued, or whether it is debentures that are to be issued; whether the shares, units of shares, debentures, or units of debentures are to be quoted on a securities exchange, or whether they are not to be so quoted; and where debentures or units of debentures are to be issued under a debenture issuance programme. These changes will be discussed in greater detail below. Prospectuses will no longer be registered with the Registry of Companies and Businesses, and the MAS will take over as the body overseeing the lodgement and registration of prospectuses. Lam Chee Kin Partner These distinctions have been drawn in recognition of the different investment risks arising from each of the different situations set out above, and the separate checklists provide for different disclosure requirements accordingly. Hence: for debenture issues, the amount of historical financial information required in the prospectus has been reduced, focusing on the issuer s ability to meet its financial obligations; where the debenture or bond issue will involve multiple

3 offerings over a period of time under a debenture or bond issuance programme, a base prospectus may be registered (this is discussed further below); and prospectuses for shares or debentures that will be listed and traded on a securities exchange are subject to more exacting standards than for unlisted shares or debentures because listed shares or debentures tend to be offered to a wider group of investors. For ease of reference, a brief table outlining which schedule applies and when is set out on page 9. (Refer to Table A). Multiple Bond And Debenture Issues Only Require Registration Of A Base Prospectus As noted above, in respect of bond and debenture issues, the Shares and Debentures Regulations (regulation 7(3)) also allow an issuer to make multiple offers under a debenture issuance programme, provided that the issuer registers with the MAS a base prospectus that is applicable for the entire programme. Subsequently, the issuer will only need to register a brief pricing statement containing information specific to that particular offer without having to register the base prospectus. The intent is to encourage bond and debenture issues in Singapore by reducing costs for bond and debenture issuers and allow them to raise funds more quickly. Two-Week Holding Period For Prospectuses Lodged To Obtain Public Feedback Section 240(8) of the SFA provides that the MAS may register a prospectus lodged with it on any day between the 14th and 21st day from the date of lodgment of the prospectus unless it has extended time of registration (which cannot be more than 28 days from the date of lodgment of the prospectus). This essentially provides the MAS with a minimum two-week holding period to review the prospectus. The MAS has explained in its press release dated 23 that during this time, the MAS will post a copy of the lodged prospectus on a database to be made available to the public on the MAS web-site, the Offers and Prospectuses Electronic Repository and Access, or OPERA. This power is provided for under section 240(12) of the SFA. The public may view and comment on offer documents lodged with the MAS, and the intent of this is to raise the standard of prospectus disclosure. The MAS has assured the public that there will be safeguards in place to discourage frivolous comments. Refusal To Register A Prospectus If the MAS refuses registration, it is generally required to give the person or company who filed the prospectus an opportunity to state their case. There are certain exceptions to this. These are where the MAS refuses registration on the following bases: the corporation is in the course of being wound up or otherwise dissolved in Singapore or elsewhere; execution against the corporation in respect of a judgment debt has been unsatisfied in whole or in part; a receiver, a receiver and manager, a judicial manager or an equivalent person has been appointed; or the corporation has entered into a compromise or scheme of arrangement with its creditors and this is still in operation Stop Orders The MAS has the power to issue a stop order on a prospectus that has been lodged and registered with it (section 242 of the SFA). The intent of this provision is as a safeguard if a prospectus is found to be misleading or deficient after it has been registered. Such a stop order will direct the person issuing the prospectus to halt any issues or shares or debentures, or units of shares or debentures. Furthermore, where a stop order has been issued, section 242 of the SFA also provides that any applications made prior to the issuance of the stop order will be deemed to have been withdrawn. Where shares or debentures, or units of the same, have already been issued prior to the issuance of the stop order, any such issuance will be void. In either case, applicants must be refunded any payments that they had made. Schemes Currently, the Companies Act regulates the offer of interests other than shares under Part 4, Division 6 of the Companies Act. In order to bring our regulatory regime in line with that of international practice, the SFA instead provides for the regulation of collective investment schemes. Collective investment schemes are wider than and encompass interests other than shares, and include units trusts, investment arrangements, mutual funds and close-end funds. The SFA divides collective investment schemes into two categories: schemes constituted in Singapore, and schemes constituted outside Singapore with a different regulatory regime for each. Rajah & Tann, Knowledge & Risk Management Page 3

4 In addition, the SFA will also allow foreign investment funds to market themselves in Singapore, without having to constitute a public company in Singapore, as currently required under the Companies Act. Singapore Collective Investment Schemes For a scheme constituted in Singapore, the SFA provides (under section 286 of the SFA) that the MAS will authorise such a collective investment scheme if: there is a manager for the scheme that meets the requirements of the SFA; there is a trustee for the scheme that meets the requirements of the SFA (discussed further below); there is a trust deed in respect of the scheme that complies with the requirements of the Schemes Regulations (these are set out in Division 3 of the same); and the scheme, the manager for the scheme and the trustee for the scheme comply with the SFA and a Code on Schemes. Schemes Outside Singapore For a scheme constituted outside Singapore, the SFA provides (under section 287 of the SFA) that the MAS will recognise such a collective investment scheme if: the laws and practices of the jurisdictions under which the scheme and its manager are constituted give Singapore investors protection equivalent to that afforded under the SFA in the case of comparable authorised schemes; and in the case of a scheme which is constituted as a corporation, the corporation is registered as a foreign company with the Singapore Registry of Companies and Businesses; there is a manager for the scheme which satisfies the requirements of the SFA; there is a representative for the scheme who is an individual resident in Singapore for the purposes set out the SFA; the MAS has been furnished with information regarding the situation of the registered office of the foreign company or the manager, the name and contact particulars of the representative and such other information as the MAS may require; and the scheme, the manager for the scheme and the trustee for the scheme comply with the SFA and a Code on Schemes. Trustee Requirements The Schemes Regulations set out the financial requirements for trustees of collective investment schemes as a further protection for investors. Regulation 6 provides that to be an approved trustee, the applicant: must be a public company; have a paid-up capital of not less than S$1 million; have shareholders funds of not less than S$ million; have a sound financial position; have a sufficient number of qualified personnel with experience in performing the duties of an approved trustee or other relevant experience, having regard to the nature and extent of the activities which the public company carries on or will carry on; have sound compliance systems; be a fit and proper person; have officers who are each fit and proper persons; and have obtained professional indemnity insurance to cover claims that may arise from its business as a trustee of collective investment schemes, or furnish the MAS with a letter of undertaking from its holding company to meet any claims against it. Offers Of Foreign Collective Investment Schemes To Institutional And Sophisticated Investor Where under the current regime, an offer of interests in an overseas investment fund cannot take advantage of the exemptions under Part 4, Division 5A of the Companies Act (that is, public offers made to sophisticated or institutional investors), collective investment schemes under the SFA may be offered to such investors. Where investment in a collective investment schemes is to be offered to institutional investors, such offer and collective investment schemes do not have to comply with the requirements in the SFA for collective investment schemes (section 304 of the SFA). Where investment in a collective investment scheme is to be offered to sophisticated investors, such offers of such collective investment schemes (referred to in the Schemes Regulations as restricted schemes) will be subject to less stringent requirements. To be approved by the MAS, such Rajah & Tann, Knowledge & Risk Management Page 4

5 offers must satisfy the following criteria (set out in paragraphs 2 and 3 of the Fifth Schedule of the Schemes Regulations): the manager must be licensed (if the restricted scheme is one constituted in Singapore, the manager must be the holder of a capital markets services licence or, generally speaking, otherwise exempted) the manager be fit and proper ; and if the collective investment scheme is a Singapore unit trust, an approved trustee must be appointed. Disclosure Requirements For s Schemes The Third Schedule of the Schemes Regulations sets out a checklist of matters to be disclosed in prospectuses for collective investment schemes. This checklist updates and revises the current list of matters set out in the Seventh Schedule of the Companies Act. The key changes are: items which are necessary for making an investment decision such as the investment objective and specific investment risks of a fund as well as fees and charges, which are currently administrative requirements, will be required; and new requirements such as the track record of the manager and, where applicable, information on the past performance of a fund. Advertising For Collective Investment Schemes The Schemes Regulations enhance the advertising restrictions on collective investment schemes to prevent false and misleading advertisements. The provisions include detailed requirements on how each of the following should be presented if included in an advertisement: past performance of a fund; comparison of past performance of a fund with that of another fund, index or that of another form of investment; and performance of the manager or submanager; Projections of future fund performance continue to be generally prohibited. To prevent important information from being hidden in print, advertisements must comply with specified criteria on legibility and font size. Securities Hawking The SFA introduces the offence of securities hawking under section 309. Under the SFA, the offence arises where a person makes an offer of securities for subscription or purchase or an invitation to subscribe or purchase securities, in the course of, or arising from, an unsolicited meeting with another person. This is much wider than the current section 400 of the Companies Act which merely prohibits a person from going from place to place offering shares for subscription or purchase to, or seeking or receiving offers to subscribe for or to purchase shares from, the public or any member of the public. Extra-Territorial Application Of The SFA Refined In The Regulations Section 339 of the SFA provides for the extra-territorial application of the SFA. Section 339(2) stipulates that an act done out of Singapore which has a substantial and reasonably foreseeable effect in Singapore will be treated as an act carried out wholly in Singapore if the act would constitute an offence under certain parts of the SFA, including Part XIII. This provision was enacted essentially to deal with the international nature of communications, including the Internet. With respect to Part XIII of the SFA, it essentially ensures that a person cannot make a offer of securities, debentures or of units in collective investment schemes outside Singapore to persons in Singapore without being caught by the provisions of the SFA. Due to the wide-ranging nature of the provision, to ameliorate and clarify its width, the Shares and Debentures Regulations and the Schemes Regulations both provide further clarification on when acts will not be caught by section 339 of the SFA. The relevant regulations are the same in both, and these provide for: a minimum threshold before section 339(2) applies; and the non-applicability of section 339(2) where it was not the intention that Singapore was to be targeted by the offending acts. Accordingly, where there is an offer to the public of shares, debentures, or units of shares or debentures or collective investment schemes made outside Singapore, section 339(2) would not apply even if the offer reached persons in Singapore if all the following can be shown to be insubstantial (regulation 29 of the Shares and Debentures Regulations and regulation 35 of the Schemes Regulations): Rajah & Tann, Knowledge & Risk Management Page 5

6 the number of enquires or applications from persons in Singapore in response to the offer; the number of persons in Singapore to whom the offer is made; the number of persons in Singapore to whom the shares, debentures, units of shares or debentures which are the subject of the offer are issued; and the amount raised from persons in Singapore pursuant to the offer. Furthermore, even if the requirement of insubstantiality cannot be met, a person may still not be caught under section 339(2) where: the offer is not denominated in Singapore dollars; there are in place proper systems or procedures to prevent persons in Singapore from subscribing for or purchasing the shares, debentures, or units of shares or debentures or collective investment schemes, and adequate checks to ensure that these systems orprocedures are effective; the offer is not made to or directed at persons in Singapore, whether electronically or otherwise; there is in place a prominent disclaimer in relation to the offer stating that the offer is made to or directed at only persons outside Singapore and may be acted upon only by persons outside Singapore; the materials used for the offer do not contain information which is specifically relevant to persons in Singapore; and the offer is not referred to in, or directly accessible from, any source which is intended for persons in Singapore. Repeal Of Provisions Of The Companies Act Together with the coming into force of Part XIII of the SFA, the following provisions of the Companies Act will be repealed with effect from 1 July 2002 (Securities and Futures (Repeal of Provisions) Notification 2002): section 57 this deals with the prohibition of allotment of shares unless minimum subscription received, section 58 this provides that where an offer is made, the application and moneys must be held by the company in trust in a separate bank account until allotment, section 97 this set out the qualifications of trustees for debenture holders, section 98 this deals with the retirement of trustees for debenture holders, section 99 this deals with the contents of the trust deed or debentures, sections 101 to 106 these provisions deal with the duties, powers and liability of trustees, the obligations of borrowing corporations, etc; section 400 this section prohibits persons from going from place to place making offers of shares, among other things; Division 1 of Part IV this set out, among other things, the requirements to have a prospectus and the prospectus requirements and procedures for lodging and registering the same; Division 5A of Part IV this deals with the exemptions from Divisions 1 to 5 of Part IV of the Companies Act in relation to prospectus requirements; Division 6 of Part IV this deals with interests other than shares or debentures, the Fifth Schedule this sets out matters that must be disclosed in a prospectus; and the Seventh Schedule this sets out matters that must be disclosed in a statement required in relation to an offer of interests other than shares or debentures. Conclusion The gradual implementation of the SFA has allowed companies to prepare themselves for the new regime. The coming into force of Part XIII of the SFA will help in Singapore s continuing efforts to upgrade its financial markets, and assist companies in the raising of finances in Singapore. The remaining parts of the SFA will soon be brought into effect as well, and the MAS press release has indicated that this will take place in the third quarter of this year. Rajah & Tann, Knowledge & Risk Management Page 6

7 Table A Shares or Units of Shares Debentures or Units of Debentures Debentures or Units of Debentures Issued under a Debenture Issuance Programme To Be Quoted on a Securities Exchange Fifth Schedule Seventh Schedule Ninth Schedule Not To Be Quoted on a Securities Exchange Sixth Schedule Eighth Schedule Tenth Schedule * Note: The remaining two checklists deal with abridged prospectuses for a renounceable rights issues (Eleventh Schedule) and statements of material facts (Twelfth Schedule). Rajah & Tann is one of the largest law firms in Singapore. It is a full service firm and given its alliances, including US premier firm Weil, Gotshal & Manges, is able to tap into resources in a number of countries. Rajah & Tann is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealings with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems. The information contained in this Update is correct to the best of our knowledge and belief at the time of writing. The contents of the above are intended to provide a general guide for the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as the information above may not necessarily suit your specific business and operational requirements. It is to your advantage to seek specific legal advice for your specific situation. In this regard, you may call the lawyer you normally deal with in Rajah & Tann or the Knowledge & Risk Management Group at eoasis@rajahtann.com. Rajah & Tann, Knowledge & Risk Management Page 7