The Shareholder Rights and Activism Review: Singapore
Shareholders play an important role in preserving balance in the corporate governance of a company. Even minority shareholders have legitimate interests in the governance of a company and a right to hold the board accountable. Substantial shareholders or management, or both, have historically been able to push through agendas without much shareholder resistance in Singapore, but this is changing: Singapore, like elsewhere in the world, is witnessing growing shareholder activism.
Recent noteworthy cases involving shareholder activism include Hyflux Ltd (Hyflux), HC Surgical Specialists Ltd (HC Surgical), Sabana Shariah-Compliant Real Estate Investment Trust (Sabana REIT), Raffles Education Corporation Limited (REC) and MC Payment Limited (MC Payment) as further described in Section IV.
Legal and regulatory framework
Shareholder rights and engagement are regulated by a combination of statutory and non-statutory instruments as well as under common law. The Companies Act (CA) and the Securities and Futures Act (SFA) make up the relevant core statutory framework, which is supplemented by non-statutory instruments such as the Listing Manual of the Singapore Exchange (the Listing Manual), the Singapore Code of Corporate Governance 2018 (the Governance Code) and the Singapore Code on Takeovers and Mergers (the Takeover Code).
The Listing Manual sets out the obligations with which companies listed on the Singapore Exchange (SGX) have to comply. It empowers RegCo, the SGX's regulatory unit, to issue enforcement and administrative orders to ensure that the market is fair, orderly and transparent, including:
- requiring a company to make specified disclosures;
- objecting to the appointment of individual directors or executive officers for a period not exceeding three years;
- requiring an issuer to appoint special auditors, compliance advisers, legal advisers or other independent professionals for specified purposes; and
- halting or suspending trading of listed securities of a company.
i Restrictions on shareholding
Generally, there are no restrictions on shareholding ownership for Singapore companies. However, in certain key sectors including telecommunications, media, banking and real estate, there are specific legislative restrictions on foreign ownership. Such restrictions include requiring prior approval from the relevant regulatory authority:
- before a person can become a substantial shareholder (who has an interest of five per cent or more of the total voting shares of the company) or controller of a company operating in the key sector; and
- in respect of any funds from a foreign source invested into such a company. For property companies that own residential properties subject to foreign ownership restrictions under the Residential Property Act, foreign ownership of such property companies will be prohibited except in limited cases (such as where such property companies are housing developers developing the residential properties for sale).
These requirements may limit foreign ownership and the possibility of foreign-based activists in these key industries.
ii Requisitioning or calling a general meeting
The CA empowers shareholders to either requisition for a general meeting or directly call a general meeting, if they collectively have at least 10 per cent of the total shareholding of the company. When requisitioning for a general meeting, the requisitioning shareholders will need to give the company's directors up to 21 days to proceed to convene a general meeting at a date no later than two months after the receipt by the company of the requisition, and only if the directors fail to act within the specified 21 days, may the requisitioning shareholders convene a general meeting at a date no later than three months from the requisition date. In contrast, shareholders wishing to directly call for a general meeting may do so under a more expedited procedure without having to exhaust any timeline given to the directors to act. However, although the company must pay the requisitioning shareholders all reasonable expenses incurred to call a general meeting (in the event of a failure by the directors to do so), no equivalent provision exists in relation to the direct calling of a general meeting. A general meeting will require 14 days' notice or a longer period as may be provided in the constitution of the company or the CA, unless it is convened for the passing of a special resolution, for which public companies require at least 21 days' notice.
iii Shareholder transparency
Under the SFA, public disclosure of substantial shareholding interest is required. This interest of 5 per cent or more must be disclosed by a substantial shareholder even if the shares are held through nominees. However, for shareholders who hold less than a 5 per cent shareholding as nominees, the actual beneficial shareholders may not be apparent. A listed company is also required to disclose all interests in shares and other securities issued that its directors and chief executive officer have in the company.
iv Removal of a director
Unlike a private company where it is possible for the directorship of a person to be entrenched in the constitution, a director of a public company can always be removed by an ordinary resolution of its shareholders, regardless of anything to the contrary in the company's constitution or in any agreement between the company and the director. The person proposing the resolution must give a special notice to the company at least 28 days before the meeting to be convened to approve the resolution, and a copy of the resolution must be sent to the director concerned, who will be entitled to be heard on the resolution at the meeting.
v Concert party obligations
Where shareholders act in concert to obtain or consolidate effective control of a public company, implications arising under the Takeover Code should be borne in mind, including the obligation to make a general offer for the shares in the company upon crossing certain shareholding thresholds. Shareholders voting together on resolutions at a general meeting would not normally be regarded as an action that would lead to an offer obligation, but coordinated voting patterns in more than one general meeting may be taken into account as an indication that the shareholders are acting in concert. Shareholders who requisition, or threaten to requisition, the consideration of a 'board control-seeking' proposal at a general meeting, however, will generally be presumed to be acting in concert with one another and with the proposed directors, such that subsequent acquisitions of shares of the company by any member of the concert party group could give rise to an obligation to make a general offer for the company under the Takeover Code.
vi Derivative action
Directors who have committed wrongdoings or have otherwise breached their fiduciary duties to the company would naturally have little incentive to procure the company to bring an action against themselves. The CA, therefore, provides for a statutory derivative action that gives shareholders an ability to bring an action on behalf of the company against errant directors or third parties in respect of the directors' conduct. Such action is subject to obtaining leave of court and is dependent on the company itself having a claim, given that the action is brought in the company's name. The complainant is required to give 14 days' notice to the board of the intention to apply for the action if it is not pursued by the board, and is required to demonstrate that the action is brought in good faith and is prima facie in the interests of the company. The statutory derivative action is available to all companies incorporated in Singapore, whether private or public (including listed) companies. Though foreign-incorporated companies do not currently fall within the scope of the statutory derivative action regime, they may avail themselves of the common law derivative action, the requirements of which require the complainant to establish the higher threshold that the errant directors committed fraud on the minority.
vii Oppression or unfair prejudice
Shareholders may also apply to court for what is commonly known as the 'oppression remedy' under the CA if they can establish that they have been treated in a manner that is 'commercially unfair', which is an exception to the principle of 'majority rule' in companies. As contrasted with a statutory derivative action, the oppression remedy is not brought in the name of the company but is personal to the complainant. The oppression remedy is very rarely seen in the context of listed companies.
viii Market manipulation and insider dealing
When pursuing any activist strategy, shareholders should be careful not to fall afoul of regulations against market manipulation, making false or misleading statements, or fraudulently inducing persons to deal in capital markets products, among others, all of which attract civil and criminal penalties under the SFA. Where an activist shareholder engages with the board on matters not otherwise made available by the board to the public and other shareholders, it is possible that insider information may have been divulged, in which case the activist shareholder must not deal or encourage another to deal in the company's securities until the material price-sensitive or trade-sensitive information has been disseminated to the public.
An activist shareholder wishing to launch a media campaign and level criticisms against a company or other individuals in the public domain should be aware of the risk of defamation suits. Though defences such as justification and fair comment are available, the law in this area in Singapore is very extensive and an activist shareholder should seek expert advice.
Key trends in shareholder activism
i Hedge fund activism
The corporate landscape in Singapore is changing as new hedge funds are set up with a focus on influencing the way local listed companies are run and maximising returns for its investors. Though such activist pressure on companies is generally welcomed by minority shareholders, these initiatives may not be successful given that it is quite common for Singapore companies to have significant controlling blocks of shares.
ii Influential investor lobby groups
The Securities Investors Association (Singapore) (SIAS) is one of the biggest investor lobby groups in Asia and has mediated many high-profile shareholder issues involving SGX-listed companies, with a preference of taking a conciliatory approach to resolving investors' rights issues. On a regular basis, SIAS analysts compile relevant questions based on annual reports of the companies and query the relevant companies on strategy, financials and corporate governance. SIAS also conducts workshops on the analysis of annual reports for retail investors to help them ask relevant questions at annual general meetings (AGMs), advocates progressive industry practices and organises investor education programmes through collaborative arrangements with financial institutions and listed companies interested in investor education as part of its corporate social responsibility agenda.
Further, SIAS takes an active frontline approach in monitoring SGX-listed companies and providing its commentary on corporate actions, including the following in 2021:
- Singapore Airlines Limited (SIA)2 in relation to its issue of S$6.2 billion mandatory convertible bonds, requiring disclosure on the factors leading to SIA's decision to proceed with the issue (noting that most of the bonds for the last fundraising were subscribed by Temasek, its majority shareholder) and whether privatisation or delisting, or both, is a consideration for SIA;
- Sakae Holdings Limited (Sakae)3 on its erroneous accounting entries and internal control weaknesses including those that have yet been addressed notwithstanding recommendations by a prior internal audit report. SIAS also requested for Sakae's internal audit function to be performed by independent service providers reporting directly to its audit committee; and
- Singapore Press Holdings (SPH)4 in relation to the restructuring of its media business, where SIAS questioned if it was premature for SPH to divest and deconsolidate its media segment and also stated that SPH's shareholders needed more explanation as it seemed that the shareholders were paying for the deconsolidation.
iii Media and commentators
Corporate governance analysts and commentators are often the first to highlight shortfalls in corporate governance best practices, define issues and set the agenda for change. Shareholders may then be galvanised to hold the relevant boards and management to account. When such issues are highlighted, companies may be requested by regulatory bodies to publicly address its shareholders' concerns or may be compelled to make appropriate disclosure. Recently, corporate governance articles have raised awareness of the necessity for true quality of independence of independent directors in listed companies and called for reforms to focus on giving minority shareholders greater say in the appointment of independent directors, making the criteria for determining independence more prescriptive and stronger enforcement.
Beyond traditional forms of media, shareholders may also reach out online through various social media and messaging platforms to air their grievances and to seek support for their positions.
Recent shareholder activism campaigns
Since filing for bankruptcy protection in May 2018, Hyflux had sought to restructure its debt through discussions with various investors. Due to steep haircuts proposed and a lack of background and information provided by the investors, the retail investors of Hyflux (comprising Hyflux's perpetual securities and preference shares) actively rallied support to reject the company's restructuring plans, including a protest against the Public Utilities Board's decision to take over Tuaspring, Hyflux's desalination and power plant for zero cost. Their activism included organising a public demonstration and also resulted in Hyflux working with SIAS to effectively engage with its shareholders and securities holders.
Hyflux is currently under judicial management, and its current and former directors remain under criminal investigation by the Criminal Affairs Department, Accounting and Corporate Regulatory Authority (ACRA) and Monetary Authority of Singapore (MAS) over corporate governance lapses. Although several final offers have been received from potential investors, in early June 2021 the judicial managers filed an application with the court to wind up Hyflux after failed negotiations.
ii HC Surgical
In April 2020, an article by a corporate governance analyst highlighted that in a then dismissed defamation suit5 filed against Ms Serene Tiong by Dr Julian Ong, Dr Ong was facing investigations by Singapore Medical Council due to a compliant by Ms Tiong, alleging that Dr Ong and another doctor had been taking advantage of vulnerable female patients. Dr Ong had previously sold a total of 70 per cent shareholding stake in his medical practice Julian Ong Endoscopy & Surgery Pte Ltd (JOES) to HC Surgical. The article raised questions on whether HC Surgical had made necessary timely disclosures and if the board had acted in its shareholders' interests when it purchased a further 19 per cent shareholding in JOES in September 2019 (with a separate agreement to be entered into for the acquisition of the remaining 30 per cent (the Balance Acquisition)), notwithstanding knowledge of the serious complaint made against Dr Ong.
This triggered a list of queries from the SGX to HC Surgical, resulting in more detailed disclosure from HC Surgical and HC Surgical eventually executing an agreement concerning the Balance Acquisition, which will be subject to, among others things, continued employment of Dr Ong, adjustments to the purchase consideration and options for HC Surgical to require Dr Ong to repurchase the JOES shares.
iii Sabana REIT
In July 2020, Sabana REIT and ESR-REIT announced an all-stock merger, a second attempt after talks terminated in 2017. This resulted in much reaction from vocal unitholders and the media in general, with certain unitholder funds setting up a website called 'Save Sabana REIT'and seeking regulatory intervention to disallow ESR Cayman from being the manager if the merger fails. Ultimately, Sabana REIT did not garner the required 75 per cent approval for the merger to proceed and this marked a notable win for shareholder activism in the Singapore REIT market.
Subsequently, the same unitholders penned open letters raising issues including, inter alia, that Sabana REIT not pay costs incurred on the rejected merger scheme; requesting future prior consultation on all major matters; that the manager resign, be removed or be internalised in view of the 'valuation gap'; for directors of the manager to include persons suggested by them; for the fees of the manager to be payable in units; for the valuation gap to be closed by options going beyond business as usual; and refusing to endorse the appointments of two appointed independent directors (which led to the resignation of these directors).
iv Various shareholder-initiated general meetings
Another indicator of growing shareholder activism in Singapore is the increasing number of shareholder-initiated meetings, where shareholders put forth proposals to remove existing directors and to appoint new directors on the board of the relevant companies.
Recent requisitions include:
- REC where Mr Oei Hong Leong and Oei Hong Leong Art Museum Limited are the requisitionists. Historically, the requisitionists have been in various disputes with REC since a placement diluted the requisitionists' shareholding in 2017, including discontinued action to oust the chair and founder of REC and a failed injunction to stop REC from proceeding with increasing its stake in a Chinese property firm. Most recently, REC has yet again rebutted the requisitionists' attempt to call for a general meeting to remove the chairman and founder of REC (on the basis of alleged impropriety), stating that the request is without merit and, therefore, REC is not required to convene a general meeting to vote on the proposed resolution. It is also notable that there is a website 'Save-Raffles-Education' https://save-raffles-education.com/ that aims to educate investors about issues surrounding REC, including publication of Mr Oei's letters.
- MC Payment where a controlling shareholder served a requisition notice to appoint five directors, along with the invitation to consider and appoint two other directors) (the First Notice). MC Payment had acquiesced with the First Notice and issued a notice of general meeting to its shareholders. Pursuant to queries by SGX concerning the suitability of certain directors and the size of the proposed board of MC Payment pursuant to the proposed appointment resolutions, a subsequent notice of requisition was issued by the same controlling shareholder for the removal of five existing directors, to be considered at the same general meeting (the Second Notice). MC Payment proceeded with the general meeting concerning the resolutions as proposed in the First Notice, and five new directors were approved to be appointed. Pursuant to the general meeting, five existing directors who were proposed to be removed by the Second Notice (the agenda of which was supposed to be subject to a separate general meeting to be held), the chief executive officer and chief operating officer collectively tendered their resignations.
i Multiple proxies
A multiple proxies regime was introduced in the CA where specified intermediaries, such as banks whose business includes the provision of nominee services and holding shares in that capacity, and capital markets services licence holders providing custodial services and holding shares in that capacity, are allowed to appoint more than two proxies to attend and vote at general meetings. This legislative change enfranchises such investors by enabling them to participate in shareholders' meetings with the same voting rights as direct shareholders and also raise any queries they may have to the board of the company.
ii Enhanced continuous disclosure obligations for listed companies
In February 2020, amendments were made to the Listing Manual to strengthen the continuous disclosure requirements. Specifically, the SGX updated its guidance on continuing obligations of listed companies in respect of the disclosure of material information to explicitly include information necessary to avoid the establishment of a false market in listed securities – 'trade-sensitive information', and information likely to materially affect the price or value of listed securities – 'materially price-sensitive information'. The corporate disclosure policy in the Listing Manual was amended to include additional events requiring immediate disclosure and provide assistance in the determination of whether information is trade-sensitive or materially price-sensitive. Since then, RegCo has issued further guidance on its expectations of disclosure of information:
- on significant litigation;
- during the covid-19 outbreak;
- to shareholders in connection with a general offer; and
- requirements for financial statements (including interim financial statements) to be prepared in accordance with prescribed accounting standards.
iii Revised Code of Corporate Governance
The MAS revised the Governance Code in August 2018 to make it more concise and less prescriptive. This was to encourage thoughtful application and move away from a 'box-ticking' mindset. Important requirements and baseline corporate governance practices have been shifted to the Listing Manual for mandatory compliance. It will also be mandatory to comply with the core broad principles of corporate governance set out in the Governance Code.
The changes emphasise strengthening director independence and enhancing board composition and diversity. For example, the shareholding threshold in determining a director's independence has been reduced from 10 to five per cent, independent directors are expected to make up a majority (increased from 'at least half') of the board where the chair is not independent, and with effect from 1 January 2022, independent directors must comprise at least one-third of the board, and a director who has been on the board for more than nine years will not be considered as an independent director unless approved by a two-tier shareholder vote. The changes also seek to promote transparent remuneration practices and stakeholder engagement.
iv Corporate Governance Advisory Committee
A Corporate Governance Advisory Committee (CGAC) (where the chair and members are appointed by the MAS) was established in February 2019 to advocate good corporate governance practices among listed companies in Singapore. The CGAC has an advisory role, without any regulatory or enforcement powers and serves to identify risks to corporate governance and take a lead in advocating good practices. The CGAC will also monitor international trends and recommend updates to the Governance Code, including issue statements for clarification on the interpretation of the Governance Code.
v Changes to the voluntary delisting regime
Under the revised rules of the voluntary delisting regime implemented in July 2019, a delisting application will require the voluntary delisting resolution to be approved by a majority of at least 75 per cent of the listed company's total number of issued shares (excluding treasury shares and subsidiary holdings) held by the shareholders present and voting at the general meeting. Although the 10 per cent blocking threshold has been removed, the offeror and parties acting in concert with it are now required to abstain from voting on the resolution, ensuring that the offeror and its concerted parties will not be able to vote and force a delisting through. The rules have also been enhanced to require the independent financial adviser to opine that an exit offer is not merely reasonable but also fair. The practice to require an exit offer to include a cash alternative as the default alternative has also been codified as a Listing Manual requirement.
vi Changes resulting from covid-19 restrictions
The covid-19 outbreak has drastically changed the way general meetings have been conducted since 2020, with most meetings by SGX-listed issuers being held virtually, pursuant to alternative arrangements with prescribed guidelines allowing these virtual meetings. Although the latest checklist issued by ACRA, MAS and RegCo encourages issuers to adopt enhanced digital tools at their general meetings to facilitate shareholder engagement, such as allowing for real-time remote electronic voting and real-time electronic communication, few companies have adopted this approach. The concern is that issuers will retain their virtual meetings, with shareholders only being able to observe and listen, and often having to vote before their questions are satisfactorily answered. It remains to be seen if the legislature will be further supplemented to ensure that shareholder concerns can be addressed sufficiently at these general meetings.
Notwithstanding concerns over the lack of shareholder views expressed at virtual meetings, it is expected that shareholder activism will continue to increase in Singapore as a result of several factors, including increasing investor sophistication and louder voices by investor lobby groups. Companies and their boards in Singapore should continue to be prepared for a changing corporate landscape by proactively developing a shareholder engagement plan, so that mutual understanding and different expertise can converge. It is crucial for any company to understand its shareholder base, appreciate that their interests are not monolithic and critically assess its own performance, practices and risk factors.
1 Bernard Lui is a director at Morgan Lewis Stamford LLC.
5 The High Court ultimately found Ms Tiong liable for defamation and dismissed Ms Tiong's application for leave to appeal. Further, Ms Tiong (as a shareholder) had then sought to commence a derivative action under Section 216A(2) of the CA against Dr Heah Sieu Min (CEO and executive director of HC Surgical) for breaching his duties as a director in relation to the acquisition of the additional interest in JOES, which was also ultimately dismissed.