Companies Act Reform – Highlights Of Key Amendments Phase 2

The Companies (Amendment) Bill 2014 was passed by Parliament in October 2014. The amendments were effected in two phases, on 1 July 2015 (Phase 1) and 3 January 2016 (Phase 2). We have set out briefly below some of the key changes in Phase 2 that are especially relevant to private companies.

New exemption from preparation of financial statements for dormant non-listed companies

In the past, a dormant company is required to prepare financial statements although it is exempted from audit requirement.

The new exemption allows a dormant non-listed company (other than a subsidiary of a listed company) is exempt from audit requirement to prepare financial statements, if:

1. the Company fulfills a substantial assets test, and
2. the Company has been dormant from the time of formation or since the year of the previous financial year.

The substantial asset test is that the total assets of the company at any time within the financial year must not exceed $500,000. For a parent company, the consolidated total assets of group at any time within the financial year must not exceed $500,000.

Dormant listed companies and their subsidiaries, and dormant unlisted companies which do not fulfill the substantial asset test must prepare financial statements but are exempt from audit. This remains unchanged from the current position. A summary of the effect for dormant company is illustrated as tabled below.

Effect of exemption for dormant companies

To increase the efficiency and speed in communications for companies, both private and listed companies are endowed with greater freedom to communicate electronically with their members/ shareholders under the amended regime. It thus reduce cost for companies in sending out documents and notices to their members.Liberalising electronic transmission of notices and documents

They are now allowed to pass written resolutions by email and also to use electronic means to transmit notices and other documents to their shareholders, provided that the approved mode of communication must be stated in the company’s constitution.

Electronic register of members of private companies to be kept by ACRA

Prior to the amendment, private companies were required to maintain a physical register of members. To streamline the administrative process for companies, and allow greater access by the public, the following electronic registers which will be updated and maintained with ACRA under the amended regime.

1. ACRA’s electronic register of members (“ROM”) for private companies

Companies must register share ownerships and changes to such information, with ACRA, and the effective membership/ cessation date will be based on the real time registration. The ROM will be publicly available, and a company may access its own records for no charge.

2. ACRA’s electronic register of directors, secretaries, auditors and chief executive officers, for all companies

A company must update the Registrar within 14 days after the date of change of director, secretary, auditor or chief executive officer. The word “manager” has been replaced by “chief executive officer’, but the legal definition remains substantially similar. The register of managers is replaced by the register of chief executive officers, and details of any current managers in ACRA’s records will be automatically transferred to and remain in the register of CEOs, until the registrar is notified by the company of any change.

Directors are allowed to report alternate address

To protect one’s privacy, the Amendment Act allows a director to report an alternate address. It must be noted that the alternate address must be an address where the directors can be located and must be in the same jurisdiction as the residential address. It cannot be a PO box number.

The director must still provide his residential address to ACRA which will be kept confidential if he opts to publish his alternate address on public records. If the person is not locatable at the alternate address or if ACRA has reasonable ground to believe that the provision has been misused, legal actions will follow and the person will not be allowed to use another alternate address for three years.

Merging of memorandum and articles into a single constitution

The memorandum and articles of association is merged into a single document called constitution and a person desiring to incorporate a company must submit the constitution of the company to ACRA.

A company may choose to adopt either the whole model (in force at the time of registration or from time to time) for the type of company to which it belongs, or part of the model. If it adopts a model constitution without amendments, it does not need to file the constitution but can refer to the type of constitution chosen during registration. In addition, the model constitution adopted can be either the constitution as at the point of registration, or whatever version of the constitution that is in force from time to time. If the company chooses the latter, there is no need for it to amend its constitution wherever changes are made to the model constitution.

New debarment regime

The Amendment Act empowered the Registrar, to debar individual directors and secretaries if they fail to submit any documents within three months of the prescribed deadline. If a person were debarred, he cannot take on any new appointment as a director or company secretary. However, he may continue with his existing appointments.

Before a debarment is made against a person, ACRA will send him a notice, at least two weeks beforehand. He will be required to explain why he should not be debarred. The debarred individual will be cleared upon rectifying their defaults.

Extensions of the types of loans permitted to directors to include quasi-loans, credit transactions and related arrangements

The Companies Act prohibit a company (excluding Exempt Private Companies (EPCs)) from making the loans, or providing guarantee or security in connection with loans made to its directors or family members of directors, or to directors of a related company. The Companies Act also prohibits a company from making loans to another company where the directors of the lending company have a stake of 20% or more.

The Amendment Act extends the above prohibition to quasi-loans, credit transactions or taking part in connection with such director-connected loans by the company; and loans, quasi-loans, credit transactions and related arrangements made or entered into for limited liability partnership (“LLP”) connected to a company’s directors (ie where a director is interested in 20% or more of the total voting power in that LLP).

Updates to the striking-off regime

The following updates have been made to the strike-off regime:

Any appeal to the court against striking-off of a company has to be made within a period of 6 years, as opposed to 15 years previously.

The 3 month “show cause” period for a company to respond to a notification in Gazette that it will be struck off, is reduced to 60 days.

Disqualification of directors of struck-off companies

A person who has served as a director of three or more companies which were struck-off as a result of ACRA initiated reviews (within a period of 5 years) will be disqualified from acting as a director of any company, or participating in the management of any company for a period of 5 years from the date of strike-off of the last company.

Directors have to be wary of all compliance requirements and must fulfill requirements promptly for their dormant companies and must initiate strike-off procedure for any defunct companies to prevent such disqualification.