Listing and Disclosure

2.
Listing and Disclosures | Hyrum
2. LISTING & DISCLOSURE REQUIREMENTS

1 LISTING AND DISCLOSURE REQUIREMENTS ......................................................................................... 3
1.1 INTRODUCTION ................................................................................................................................... 3
1.1.1 WHAT IS LISTING?........................................................................................................................................ 3
1.1.2 ARE PROCEEDS FROM LISTING PUT TO GOOD USE?............................................................................................. 4
1.2 SECONDARY LISTINGS AND FOREIGN COYS LISTINGS ...................................................................................... 4
1.2.1 DIFFERENCE BETWEEN SECONDARY MARKETS AND A QUOTATION ON CLOB .......................................................... 4
1.2.2 PROBLEM WITH FOREIGN LISTINGS .................................................................................................................. 5
2 LISTING APPLICATION ........................................................................................................................ 6

2.1 GENERAL REQUIREMENTS FOR LISTING ...................................................................................................... 6
2.1.1 DISTRIBUTION AND FREE FLOAT REQUIREMENTS (R 210(1)) ............................................................................... 7
2.1.2 QUANTITATIVE CRITERIA (R 210(2)) ............................................................................................................... 8
2.1.3 FINANCIAL POSITION OF COMPANY (R 210(4)) ................................................................................................. 9
2.1.4 DISCLOSURE OF INTEREST IN SECURITIES .......................................................................................................... 9
2.2 IS SGX IN THE BEST POSITION TO JUDGE MERITS OF A LISTING? ...................................................................... 10
3 CONTINUING LISTING REQUIREMENTS ............................................................................................. 11

3.1 REPORTING AND DISCLOSURE REQUIREMENTS [AFTER LISTING] ..................................................... 11
3.1.1 INFORMATION TO BE DISCLOSED BY ISSUER ..................................................................................................... 12
3.1.2 FAIR DISCLOSURE ...................................................................................................................................... 14
3.1.3 OBLIGATION TO REPORT FINANCIAL STATEMENTS ............................................................................................ 15
3.2 WHY WE NEED CLR ............................................................................................................................ 16
4 JUDICIAL CONTROL AND ENFORCEMENT OF LISTING AND CONTINUING DISCLOSURE RULES .............. 17
4.1.1 CONTRACTUAL NATURE OF LISTING RULES ...................................................................................................... 17
4.1.2 ENFORCEMENT VIA S 25 SFA? ..................................................................................................................... 17
4.1.3 ENFORCEMENT VIA S 325 SFA? ................................................................................................................... 22
4.1.4 POSITION IN AUSTRALIA .............................................................................................................................. 22
5 CORPORATE GOVERNANCE .............................................................................................................. 25

5.1 WHAT IS CORPORATE GOVERNANCE........................................................................................................ 25
5.1.1 CODE OF CORPORATE GOVERNANCE (CCG).................................................................................................... 26
5.2 CONFLICTS OF INTEREST ....................................................................................................................... 26
5.2.1 COI RULES UNDER LISTING MANUAL.............................................................................................................. 27
5.2.2 STATUTORY PROVISIONS AND COMMON LAW PRINCIPLES ON CONFLICTS OF INTEREST ............................................ 31
5.3 AUDIT COMMITTEES ........................................................................................................................... 39
5.3.1 201B OF CA ............................................................................................................................................. 39
5.3.2 CCG ON THE AUDIT COMMITTEE – USE OF INDEPENDENT DIRECTORS ON THE COMMITTEE .................................... 40
5.3.3 HIGHER DUTY OF CARE EXPECTED? ................................................................................................................ 41
5.4 RENUMERATION COMMITTEE................................................................................................................ 41
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2. Listing and Disclosures | Hyrum
5.5 NOMINATION COMMITTEE................................................................................................................... 43

5.6 INDEPENDENT DIRECTORS .................................................................................................................... 43
5.6.1 CCG REQUIREMENT ................................................................................................................................... 43
5.6.2 DEFINITION OF INDEPENDENT DIRECTOR ....................................................................................................... 44
5.6.3 LEAD INDEPENDENT DIRECTOR ..................................................................................................................... 46
5.6.4 EFFECTIVENESS OF INDEPENDENT DIRECTORS .................................................................................................. 46
5.7 DELINEATING THE POSITION OF CEO AND CHAIRMAN ................................................................................. 46
5.8 EFFECTIVENESS OF CORPORATE GOVERNANCE .......................................................................................... 47
5.8.1 ENFORCEMENT ISSUES ................................................................................................................................ 47
5.8.2 COMPLIANCE BY COMPANIES........................................................................................................................ 47
5.8.3 ‘COMPLY OR EXPLAIN’ APPROACH ................................................................................................................ 47
5.8.4 PROBLEMS WITH STOCK OPTIONS .................................................................................................................. 50
6 ENFORCING DUTY OF DISCLOSURE ................................................................................................... 52

6.1 ENFORCEMENT MEASURES IN SINGAPORE UNDER SFA ..................................................................... 53
6.1.1 S 203 SFA – OFFENCE TO INTENTIONALLY/RECKLESSLY/NEGLIGENTLY BREACH CDR ............................................. 53
6.1.2 S 199 – OFFENCE TO MAKE FALSE STATEMENTS LEADING SOMEONE TO BUY SECURITIES ......................................... 54
6.1.3 S 331 – CORPORATE OFFENDERS .................................................................................................................. 54
6.1.4 SS 204 AND 232 – CRIMINAL AND CIVIL PENALTIES ......................................................................................... 54
6.1.5 S 234 SFA – CIVIL COMPENSATION FOR BREACHES OF PART XII SFA ................................................................. 56
6.2 CLASS ACTION SUITS TO SEEK COMPENSATION FROM ISSUERS ....................................................... 57
6.2.1 SECTION 90A IN THE UK............................................................................................................................. 57
6.2.2 CLASS ACTION NOT AVAILABLE IN SINGAPORE ................................................................................................. 58
6.2.3 PROBLEM WITH CLASS ACTION SUIT AGAINST ISSUER – LOSS FALLS ON SHAREHOLDERS........................................... 58
6.3 OTHER ENFORCEMENT MEASURES .......................................................................................................... 58
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 NB: The rules in this Chapter overlap and sometimes a rule does not fall clearly into one category. But
category may determine enforceability.
o 1. Listing rules, eg shareholding spread.
 Contractual, regulated by SGX
o 2. Corporate governance rules, eg need for audit committee (both in CA and LM).
o 3. Continuing Disclosure rules, eg continuous disclosure of material information
 Backed by s 203 SFA
1 LISTING AND DISCLOSU RE REQUIREMENTS
1.1 INTRODUCTION
 Listing and Disclosure are largely SGX rules, and may be backed by the SFA
 Directly or indirectly linked to corporate governance or protecting shareholders
 But less enforceable than other duties, eg. directors duties to act in best interests of company?
o Since the listing rules are in the listing manual, and Codes are used
o But duty of disclosure has special characteristics, and may be enforceable
 SGX-ST operates the following markets:
o SGX-Mainboard: For Singapore or foreign incorporated companies that satisfy the requirements in
the Listing Manual. There are two types of requirements:
 Listing requirements (the requirements to be admitted into the board).
 Continuing requirements (the requirements to stay on the board).
o SGX Catalist: Alternative avenue for smaller companies which has less stringent requirements than
the Mainboard.
 It operates on a sponsored system, and these sponsors (typically investment or accounting
firms, which operate as reputational intermediaries) ensure that the companies are
complying with the relevant rules. They act in as informal regulators. Here, SGX takes a
lesser role in being a frontline regulator by outsourcing these regulatory roles to sponsors.
o CLOB International (now Global Quote): Over-the-counter market comprising only foreign companies.
 These companies are quoted on CLOB International but are not listed (unlike a secondary
listing which depends on the home exchange to regulate the companies). This means that the
Listing Manual does not apply to the counter. Global Quote is used to trades depository
receipts of large Chinese companies that are not listed here.
 Shift from merit based regulation to disclosure based regime in Singapore.
1.1.1 WHAT IS LISTING?

 Listing means a company being placed on the list of an exchange where the public can buy and sell the
company’s shares.
 Companies seeking a listing on the SGX-ST enter into a listing agreement in which they are bound to comply
with the listing rules so long as they remain on the official list of the SGX Main board or Catalist (which
replaced SESDAQ in 2008 – This Cap will focus on listing rules of the main board which is the main avenue for
public fund-raising in Singapore).
o SGX Catalist - alternative avenue for smaller companies. Less stringent requirements than Mainboard
(sponsored system)
o SGX-Mainboard - for Singapore or foreign incorporated companies that satisfy the requirements in
the Listing Manual
 The process of being listed is also referred to, in financial industry jargon, as “going public”, “flotation” and
making an “initial public offering”. This though can be misleading, since public fundraising can be done off an
exchange, although this is highly unusual in Singapore.
 Also, although the focus is on shares, other instruments such as debentures, investment funds and covered
warrants can also be listed.
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 Purpose of listing: Companies seek a listing for fundraising purposes – so that the public can buy their shares
and raise capital for the coy. Usually company will say that it is for growth. However:
o The money may be used to pay off loans or used for growth. This may not be a bad thing because the
company doesn’t need to pay off interest which improves bottom lines seriously, and debt reduction
likely to be an important strategy in high growth business.
o Founder now has an avenue to exit the company, which may look bad for the company.
o Some founders choose to keep most of the shares (say 80%), and only sell 20%. They do this so as to
try to increase the share prices so that they can make a profit. This is possible by as listing has a
signalling function that the company is complying with SGX requirements and having good corporate
governance so that investor confidence is boosted, thus driving prices up.
o HT: General sense that many domestic companies list in order to repay debt whereas foreign
company listing has a higher association with growth.
 Liberalisation of listing rules in 1999
o The listing criteria used by SGX-ST for Main Board listing were relaxed in Sep 1999 to cater to new,
emerging technology coys. Coys now do not need to show a profit track record so long as they
have a market capitalisation of 300 million at the point of listing (SGX-ST Listing Manual [LM],
r 210(2)(c))
o Further liberalisation occurred in 2009 to facilitate the listing of life science coys without a financial
track record and also to lower the IPO distribution requirement for a primary listing on the
Mainboard from 1000 public shareholders to 500 [quare – rationale behind having requirement
to spread distribution of shares? See 0 below].
o What has also been introduced is a watch list for Mainboard companies that are not performing well.
Recently 5 of 6 companies were delisted after being put on the watch list.
1.1.2 ARE PROCEEDS FROM LISTING PUT TO GOOD USE?

In The Business Times, Nov 26, 2003 it reported that
 In the last 10 IPOs, only 46% of the proceeds were used to build growth. The remaining proceeds went
into listing expenses, repaying loans and general working capital.
 That means for every dollar an investor pays for an IPO subscription, more than half will go into
paying other ppl for general expenses rather than growing the coy.
 There is no rule regarding what coys shld do with their IPO proceeds, but subscribers to the offers invariably
want to see returns on their investments and thus expect to see more than just a small fraction of their
subscription being used in growth areas
 However Investment banker Choo Chee Kong noted tt many owners put personal guarantees on the loans
when the coy is private and going public is a method for them to discharge their personal guarantees.
Such businesses are often highly geared and can improve their bottomlines significantly if they lower
their interest payments – so sometimes using IPO funds to pay off loans is not a bad thing
1.2 SECONDARY LISTINGS AND FOREIGN COYS LISTINGS
1.2.1 DIFFERENCE BETWEEN SECONDARY MARKETS AND A QUOTATION ON CLOB

 Shares of foreign companies may have a secondary listing on SGX-ST or a quotation on CLOB International
without being listed on the SGX-ST
o A secondary listing is any listing of a security on an exchange other than its primary exchange.
Secondary listings are usually an attempt to access new markets in order to raise capital when the
primary market is saturated.
 Foreign coys may have a secondary listing – see LM r 217
 Although r 217 provides that a foreign issuer with a secondary listing here need not comply
with the listing rules, the listing agreement between the foreign coy and the SGX-ST would
usually incorporate the continuing listing requirements from the LM.
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o A foreign coy may also have a quotation on the CLOB International (over-the-counter market
comprising only foreign companies)
o The SGX also runs a market for trading in shares of foreign companies, called CLOB International.
Companies whose shares are traded on CLOB International are merely quoted and not listed
on the SGX. As such, they are not subject to SGX’s listing rules. Singapore brokers make a
market in such shares.
Listing Manual r 217

“A foreign issuer applying for a secondary listing must already be listed or will be concurrently listed on a foreign
stock exchange (referred to as the "home exchange") and must be, or will be, subject to the listing (or other) rules
of the home exchange where it has a primary listing. The application need not comply with Part IX of this Chapter
with regard to the moratorium on promoters' shareholdings. A foreign issuer with a secondary listing on the
Exchange need not comply with the Exchange's listing rules, provided that it undertakes to:—
(1) release all information and documents in English to the Exchange at the same time as they are
released to the home exchange;
(2) inform the Exchange of any issue of additional securities in a class already listed on the Exchange and
the decision of the home exchange; and
(3) comply with such other listing rules as may be applied by the Exchange from time to time (whether
before or after listing)
1.2.2 PROBLEM WITH FOREIGN LISTINGS

1. There may be use of fraud by Chinese coys to get listed in an exchange. In The Straits Times, Nov 3 2003, “The
IPO influx from China”, the article stated that a host of around 40 chinese coys were waiting to get listed on the
SGX.
o In the stampede to list, questions are being raised about whether caution has been thrown to
the wind and whether stock scandals in HK like the Euro-Asia scandal can recur.
o For example, Yang Bin, chairman of the vegetable exporter Euro-Asia was alleged to have inflated
turnover figures to clinch an IPO. Yang was later arrested for tax evasion and Euro-Asia wound up.
o A merchant banker commented that these Euro-Asia cases are peculiar to China because of local
politics, local govs go back on their word on transactions
o The SGX has a safeguard in that it maintained a 14-day public exposure period before an IPO is
effected, during this time anyone knowing the IPO is a fraud will expose it.
2. Enforcement is an issue because foreign companies’ assets, directors, etc. are not in Singapore. Conflict of laws
problem? Some say that this belongs to company law, which applies based on the country of incorporation
and not on the country of listing. But company law is less harmonised than securities law (some jurisdictions
do not have fiduciary duties).
Mary Kwang – The IPO Influx from China (3 Nov 2003)
 The article reports that many companies from China are rushing to launch IPOs in Singapore (40 companies)
and Hong Kong (100 companies).
 However, there has been a recent spate of scandals involving mainland companies.
o For example, the chairman of Euro-Asia (which was listed in Hong Kong) was alleged to have inflated
turnover figures to clinch an IPO.
 In 2003, the Independent Commission Against Corruption arrested 13 people for suspected corruption over
the mainboard listing of Global Trend (a company).
 The scandals demonstrate the difficulty for IPO managers when they assess the clients’ management
capability and integrity.
o The risk of a bad deal is there, especially with relaxed regulations to develop more IPO managers in
Singapore.
o This has sparked off proposals that regulators should licence sponsors which must be qualified with
sufficient years of experience.
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 SGX contends that having regulatory roles separated between SGX and MAS strengthens the regulatory
aspects of listing. SGX’s role is to ensure that the issuing company meets the listing rule requirements. MAS is
responsible for registering the IPO prospectus.
o But some have voiced concerns that regulators can only glean so much from the prospectus. Indeed,
the HKEx asks hundreds of questions when examining prospectus, but they have still fallen prey to
cheaters who know how to answer the questions.
o Further, SGX’s proposals to decouple sponsorship from selling and underwriting have been met with
suspicion.
 But there’s a safeguard in Singapore, and SGX maintains a 14-day public exposure period before an IPO is
effected. The intention is that anyone knowing the IPO is a fraud will expose it during this period.
 The review time has also increased from 21 days to 30-40 days, a phenomenon consistent with HKEx’s
increased review time to 6 months.
o Some companies have sought to list on SGX because its review time is shorter.
 The article also suggested tighter sponsorship requirements – licensed sponsors with sufficient experience
and who value their reputation and are in the business for the long run.
2 LISTING APPLICATION
2.1 GENERAL REQUIREMENTS FOR LIS TING

 (1) Before a company may be listed on the SGX, the suitability of the company for listing would be
evaluated by the SGX.
o Listing procedures, guidelines and criteria are set out in the LISTING MANUAL [LM] (see generally
Chapters 2 to 6 and Appendix 2.1 of the Listing Manual, particularly rules 203 (Discussed below) and
210).
o R 606 provides that the SGX-ST will have regard to the IOSCO Document for Cross Border Offerings
when considering the adequacy of disclosure.
o R 107 provides that the Exchange may waive or modify compliance with a listing rule on a case-by-
case basis.
 (2) Upon obtaining SGX’s approval for a listing, a public offer of the securities is made. A prospectus has to be
issued.
o The prospectus is supposed to give potential investors sufficient information about the history,
prospects and financial condition of the company to enable the investors to make a properly
informed assessment of the shares as an investment option (discussed in next chapter)
o *Note that prospectus disclosure rules comes under sections 253-5 SFA and are clearly enforceable,
as opposed to the continuing disclosure requirements which lack clear statutory backing.
 Refusal to list/register: Even though we have moved from a merits-based regime to a disclosure regime, we
are still in a dual regulatory system where both SGX and MAS can refuse to list a company. SGX can refuse to
grant a company listing eligibility while MAS can refuse to register the company’s prospectus.
o SFA also allows MAS to issue a stop order on the use of a registered prospectus on grounds of public
interest - stop order first used in case of EC-Asia International in 2003 where issuer immediately
withdrew the offer.
o In the future, won’t change much. SGX still looks at listing, MAS looks at prospectus.
 Listing Criteria: mostly financial based
Examples in which SGX/MAS has refused to list:
“SGX withdraws FibreChem's listing eligibility”, SGX Press Release 7 November 2003
The Singapore Exchange (SGX) is withdrawing China-based textile fibre manufacturer FibreChem
Technologies' eligibility for a listing. The Exchange said it has received additional information that may
affect the basis on which the company was granted the eligibility. The Exchange said Fibrechem failed
to provide the information in its listing submissions. If Fibrechem's IPO falls through, it would be the third
one to be scuttled by the authorities this year. The two earlier aborted IPO bids are by Cambodian casino
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operator NagaCorp and chip recycler EC-Asia.
“MAS Refuses Registration of Nagacorp Limited's Prospectus”

Singapore, 21 October 2003...The Monetary Authority of Singapore (MAS) today refused registration of
Nagacorp's prospectus.
On 8 September 2003, MAS notified Nagacorp of its intention to refuse registration of the company's
prospectus as it was of the opinion that it would not be in the public interest to do so (MAS has reservations
that Nagacorp's operations are not subject to a fully developed and implemented legal and
supervisory framework for the regulation of casinos and the prevention of money laundering, as
recommended by the Financial Action Task Force. Nagacorp also does not possess an established track
record of independent audits of the effectiveness of its internal controls for addressing money
laundering risks.)
Nagacorp was given the opportunity to make submissions to MAS as to why MAS should register the
company's prospectus. Nagacorp submitted its representations to MAS on 29 September 2003.
MAS has considered Nagacorp's submissions carefully and is of the opinion that its earlier reservations have
still not been adequately addressed. MAS has therefore decided to refuse registration of Nagacorp's
prospectus.
2.1.1 DISTRIBUTION AND FREE FLOAT REQUIREMENTS (R 210(1))

 There is a need to satisfy distribution and free float requirements (which depends on the market
capitalisation). Under r 210(1) of the SGX-ST Listing Manual, by the close of the Application List, the issue
manager and the company must satisfy themselves that the shares have been distributed so as to
satisfy both the shareholding spread and distribution requirements.
o Where the total invitation size is 75 million or less and the market capitalization is less than 300
million, then at least 40% of the invitation shares or 15 million (whichever is lower) must be
distributed to investors each allotted not more than 0.8% of the total invitation size or $300 000
(whichever is lower).
o The higher the invitation size, the smaller percentage of the shares need to be distributed. E.g. If
invitation size more than 75 million but less than 120mill, at least 20% of the invitation shares must
be distributed to investors each allotted not more than 0.4% of the invitation size.
 Rationale: This shareholding spread must not be obtained by artificial means, such as through giving shares
away and offering loans to prospective shareholders to buy shares. In addition, they have to ensure an overall
distribution of shareholdings so as to render it unlikely to lead to a corner situation and that the spread of
shares will provide an orderly secondary market in the shares when trading commences
o Terminology: Free float requirement dictates the ratio of shares issued to public investors while
distribution requirements relate to the proportion of shares held by different groups. Corner
situation is when a person has sufficient control of the stock to allow its price to be manipulated.
R 210, Listing Manual
(1) Shareholding Spread And Distribution
(a) The following table sets out the shareholding and distribution requirements:—
Public Float Distribution
Proportion of
Market post- Total Offer
Capitalisation invitation Number of Size
Distribution
(S$ million) share capital shareholders (S$ million)
(“M”) in public (“O”)
hands
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M < 300 25% 500 O < 75 At least 40% of the invitation shares or $15
million whichever is lower, must be
distributed to investors each allotted not
more than 0.8% of the invitation shares or
$300,000 worth of shares whichever is
lower.
300 ≤ M < 400 20% 500 75 ≤ O < 120 At least 20% of the invitation shares must
be distributed to investors, each allotted not
more than 0.4% of the invitation shares.
400 ≤ M < 1000 15% 500 O ≥ 120 No requirement applicable.
M ≥ 1000 12% 500 1. The shareholdings of an applicant and
his associates must be aggregated and
treated as one single holder.
2. Preferential allotments made pursuant
to Rule 234 must be excluded.
(i) The shareholding spread must not be obtained by artificial means, such as giving shares away and
offering loans to prospective shareholders to buy the shares.
(ii) In the computation of the percentage of shares to be held in public hands, existing public shareholders
may be included, subject to an aggregate limit of 5% of the issuer's post-invitation issued share capital
and provided such shares are not under moratorium. For the purpose of this rule, "existing public
shareholders" refer to shareholders of the issuer immediately before the invitation and who are deemed
"public" as defined in the Manual. This rule is not applicable to an application for listing by way of
introduction.
(iii) An overall distribution of shareholdings that is expected to provide an orderly secondary market in
the securities when trading commences, and that will be unlikely to lead to a corner situation in the
securities.
(iv) The subscription and allocation value of the shares at IPO for each investor must be at least S$500
and must be based on an integral multiple of a board lot.
(b)
(i) For a secondary listing, an issuer must have at least 500 shareholders worldwide. Where the Exchange
and the primary home exchange do not have an established framework and arrangement to faciliate the
movement of shares between the jurisdictions, the issuer should have at least 500 shareholders in
Singapore or 1,000 shareholders worldwide.
(ii) The subscription and allocation value of the shares at IPO for each investor must be at least S$500 and
must be based on an integral multiple of a board lot (either traded on the primary home exchange or on
the Exchange as may be agreed by the Exchange).
2.1.2 QUANTITATIVE CRITERIA (R 210(2))

 R 210(2) provides for three alternative quantitative criteria:
o (a) The company must have profits of at least S$30 million in the latest financial year and an
operating track record of at least three years.
o (b) The company must be profitable in the latest financial year, a track record of at least three years
and a market capitalisation of not less than S$150 million based on the issue price.
o (c) The company does not need to show a profit track record so long as they have a market
capitalisation of $300 million at the point of listing and as long as they can demonstrate that they will
generate operating revenue immediately upon listing.
 Note the quantitative rules do not wholly apply to life science (r. 210(8)) and mineral, oil and gas companies
(r. 210(9)). However, they are still expected to meet the S$300 million market capitalisation requirement.
 Quantitative requirements which contemplate high levels of profits or market capitalisation reflect the
intention of the SGX to attract large companies.
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(2) Quantitative Criteria
An issuer must also satisfy one of the following requirements:—
(a) Minimum consolidated pre-tax profit (based on full year consolidated audited accounts) of at least S$30
million for the latest financial year and has an operating track record of at least three years.
(b) Profitable in the latest financial year (pre-tax profit based on the latest full year consolidated audited
accounts), has an operating track record of at least three years and has a market capitalisation of not less than
S$150 million based on the issue price and post-invitation issued share capital.
(c) Operating revenue (actual or pro forma) in the latest completed financial year and a market capitalisation of
not less than S$300 million based on the issue price and post-invitation issued share capital. Real Estate
Investment Trusts and Business Trusts who have met the S$300 million market capitalisation test but do not have
historical financial information may apply under this rule if they are able to demonstrate that they will generate
operating revenue immediately upon listing. [here, doesn’t need to show profit track record]
2.1.3 FINANCIAL POSITION O F COMPANY (R 210(4))

 Although the listing criteria were relaxed in 1999 to remove the need for a profit track record, SGX has
amended r 210(4) to require an applicant seeking a listing on the SGX to be in a healthy financial
position, having regard to whether the company has positive cash flow from its operations.
o The relaxation of the market was due to the dot-com boom. Many of these emerging tech companies
had no profit track record to speak of. The subsequent tightening of rules was due to the realization
that it did not make sense to liberalize the rules for companies in all industries (e.g. manufacturing).
This all goes back to increasing investor confidence and encouraging investment on SGX.
o The Straits Times, 23 Dec suggests that the SGX-ST has even begun to re-examine the profit track
records of issuers proposing to list on the main board
(4) Financial Position And Liquidity

(a) The group must be in a healthy financial position, having regard to whether the Group has a positive
cash flow from operating activities.
(b) Prior to listing, all debts owing to the group by its directors, substantial shareholders, and companies
controlled by the directors and substantial shareholders must be settled. For the purposes of this paragraph (b),
reference to debt includes third party indebtedness (including contingent liabilities for guarantees and
indemnities) incurred by the group for the benefit of the directors, substantial shareholders and companies
controlled by the directors and substantial shareholders. This rule does not apply to debts owing by the
subsidiaries and associated companies of the issuer to the group.
(c) While the surplus arising from revaluation of plant and equipment can be shown in the books of the issuer,
such surplus should not be capitalised or used for calculating its net tangible assets per share.
2.1.4 DISCLOSURE OF INTEREST IN SECURI TIES

SGX-ST Listing Manual requires the following parties that are associated with an offering to announce, before the
admission to listing of the issuer’s securities, if it has acquired an interest in the securities being marketed, what
that interest is and the circumstances resulting in the interest being acquired:
 Directors of issuer and associates;
 substantial shareholders of the issuer and associates;
 issue manager and connected clients (note: connected clients are as defined in the rule 240(3) of the Listing
Manual)
 underwriter and connected clients
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 lead broker and connected clients

 any distributor of the issuer and connected clients;
SGX-ST has amended rule 240 so as to clarify that disclosure must be made on a best efforts basis, and to allow the
disclosure of subscription by the respective parties and their associates (or connected persons) to be on an
aggregated basis.
2.2 IS SGX IN THE BEST POSITION TO JUDGE MERITS OF A LISTING?

(1) It can be argued that SGX is the most appropriate institution to judge the merits of a listing since it is in the
best position to receive information about the company applying for listing. (2) However, there are critics who
argue that SGX, being a for-profit company, faces a conflict of interest when determining if a company should be
listed, and may compromise on the quality of listings (“HK regulator said to face conflict of interest”). (3)
Furthermore, SGX has not been performing as well (see below on avg P-E ratio)
HT: SGX may not in the best position but not in the worst position. The market can decide, but do we leave too
much to the market? We cannot act in the extreme (no regulation or full regulation).
 Note that there are about 150 Chinese companies and another 150 from other countries listed on the SGX.
 Also in early 2010, the local media noted that the price earnings ratio on SGX was about 6 and that in the
exchanges in North Asian countries about 13. Better now.
o Why? Two possible reasons: (1) the market is more vibrant than in SG, (2) SGX is not as well-
regulated.
 Are retail investors important? 8% here, 17% Australia and 25% HK (market capitalisation)
o Could be that retail investors here are not as confident buying shares here, due to rogue companies
be listed and then having their share-trading suspended, and investors end up quitting altogether. HT
notes that perhaps we have left too much to the market.
The Economist – Investor Self-Protection (28 Nov 2002)
The danger after the Sarbanes-Oxley Act is that there may be too many new rules not too few, increasing the risk
that audit and corporate governance turn into meaningless box-ticking exercises that afford investors no extra
protection.
Some of the corporate governance rules may be too cumbersome or prescriptive: requiring chief executives and
finance officers to sign their accounts is good theatre, but it is unlikely to help investors much. A more useful idea
is a toughening of checks and balances for bosses.
Investors are also protected by a more powerful force than any rules or regulations: the self-correcting
discipline of the marketplace.
In the end, if investors are ready to suspend disbelief when confronted by companies with inflated
numbers and implausible business plans, no amount of regulation can save them. For prudent investors,
the price of the marketplace has to be eternal vigilance.
HK Regulator said to face conflicts of Interest – Business Times June 13 2002

 HKEx found itself accused of COI – Securities and Futures Commission alleged that the quality of new
listing may be sacrificed when the listed HKEc seeks to achieve commercial benefits (HKEx like SGX has
a dual role as both listed coy and a regulator)
 HKEx issued a statement saying the post-listing quality and operational performance of listed coys
shld not be linked to HKEx’s listing approval
 The HKEx considers listing applications according to the listing rules and it has never approved a listing
application when the applicant failed to meet the listing requirements
 However it is also unable to reject an application if all the requirements are met
 Stock exchange’s listing approval does not guarantee a successful listing. Investors must always be vigilant
Page 10 of 59
3 CONTINUING LISTING REQUIREMENTS
3.1 REPORTING AND DISCLOSURE REQUIREMENTS [AFTER LISTING]

 Listed coys are obliged to comply with SGX’s continuing listing requirements by virtue of LM rule 209 and
Appendix 2.3.1. (the listing undertaking: where the listing applicant makes an undertaking to abide by the SGX
listing rules and signs the undertaking)
 Listed coys are also bound by SFA s 25(2) to comply with the listing rules
 There is statutory backing for SGX’s CLR under SFA s.203 which makes it an offence for a listed coy to
recklessly/intentionally/negligently withhold disclosure as required by the listing rules
 Thus there also cannot be any waivers of the CLR by SGX in r 703 and Appendix 7.1 (r 703(5))
o c.f. other listing rules below at 3.2. and see what cannot be waived
 Officers may be liable for non-disclosure under s 331 of the SFA if an offence which has been created by a
body corporate is proved to have been committed with the consent or connivance of, or to be attributable to
any neglect on the part of those officers. But no civil fines for such officers.
o HT: this makes sense as officers are human beings who can consent or connivance, whereas the
company itself cannot consent or connive (see last week’s Chapter)
 Ask whether investors (shareholders) can recover damages from issuers (companies) or their directors?
Compare prospectus disclosure under s 253-4 SFA.
While an issuer remains on the Official List of SGX Mainboard or Catalist, it must comply with the listing rules. If
the issuer has a secondary listing on SGX Mainboard or Catalist, it must comply with Rule 217.
S 203 SFA
Continuous disclosure
(1) This section shall apply to —
(a) [a listed coy] an entity the securities of which are listed for quotation on a securities exchange;
(b) a trustee of a business trust, where the securities of the business trust are listed for quotation on a
securities exchange; or
(c) (c) a responsible person of a collective investment scheme, where the units of the collective investment
scheme are listed for quotation on a securities exchange, if the entity, trustee or responsible person is
required by the securities exchange under the listing rules or any other requirement of the securities
exchange to notify the securities exchange of information on specified events or matters as they occur or
arise for the purpose of the securities exchange making that information available to a securities market
operated by the securities exchange.
(2) The persons specified in subsection (1)(a), (b) or (c) shall not intentionally, recklessly or negligently fail to
notify the securities exchange of such information as is required to be disclosed by the securities exchange under
the listing rules or any other requirement of the securities exchange.
(3) Notwithstanding section 204, a contravention of subsection (2) shall not be an offence unless the failure to
notify is intentional or reckless.
[non-compliance may result in civil fines or criminal prosecution]

(5) The Exchange will not waive any requirements under this Rule.
 The CLR are set out in Cap 7-11 of the LM
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o The CLR obligations deal largely with listed coy’s reporting and disclosure obligations. Essentially, a
listed coy is obliged to keep the market informed of material price-sensitive information
o In particular:
 Chapter 7 (Continuing Listing Requirements),
 Chapter 10 (Acquisitions and Realisations),
 Chapter 11 (Takeovers) and
 Appendix 7.1 (Corporate Disclosure Policy) of the Listing Manual
sets out the information which the company is obliged to provide the SGX
 Upon receipt of such information, the SGX functions as a conduit for dissemination of such information to
the market.
 The need for disclosure is so as to gain the full trust of global investors (David Mason, Business Times, 3 June
1999)
o A lot of blame for the continuing economic problems of Asia has been attributed to poor corporate
ethics.
o More has to be done to gain the full trust of global investors
o What we need is a long term educative process in business ethics and the first place to start wld be
disclosure – Singaporean directors have to lose their “kiasu” mentality that their secrets wld be lost
to competitors in order to ensure honest, clarity and completeness of info for investors
3.1.1 INFORMATION TO BE DISCLOSED BY ISSUER

 Listed coys must disclose information necessary to avoid a false market in the issuer’s securities and any
info that would materially affect the price of its shares (r 703(1)).
o Investopedia definition of “false market” - A market where prices are manipulated and impacted by
erroneous information, preventing the efficient negotiation of prices. These types of markets will
often be marred by volatile swings because the true value of the market is clouded by the
misinformation.
o Appendix 7.1 corroborates r 703 [on clarification of rumours and definition of material info]:
 A false market may exist if information is not made available that would, or would be likely
to, influence persons who commonly invest in securities in deciding whether or not to
subscribe for, or buy or sell the securities. For this reason, an issuer may be required to
clarify or confirm a rumour (Appendix 7.1 Para 3(a))
 HT: and monitor unusual trading activity
 Issuer’s confirmation or clarification of rumour is required (Appendix 7.1 Paras 15-17):
 Where public circulation of info that is likely to have an effect on the price of the
issuer’s listed securities has not been substantiated by the issuer
 If rumours indicate that material info has been leaked
 If a rumour or report predicting future sales, earnings or other data is materially
incorrect and may mislead investors; or is specific enough to suggest it came from an
inside source
 Material information includes information, known to the issuer, concerning the issuer's
property, assets, business, financial condition and prospects; mergers and acquisitions; and
dealings with employees, suppliers and customers; material contracts or development
projects, whether entered into in the ordinary course of business or otherwise; as well as
information concerning a significant change in ownership of the issuer's securities owned by
insiders, or a change in effective or voting control of the issuer, and any developments that
affect materially the present or potential rights or interests of the issuer's shareholders.
(Appendix 7.1 Para 4)
o Hans Tjio at [5.08]: The listed company must clarify or confirm unsubstantiated rumours or
reports and seek to find out the cause of any unusual trading activity.
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(1) An issuer must announce any information known to the issuer concerning it or any of its subsidiaries or
associated companies which:—
(a) is necessary to avoid the establishment of a false market in the issuer's securities; or
(b) would be likely to materially affect the price or value of its securities.
Appendix 7.1, Listing Manual

Corporate Disclosure Policy
Part II Issuers' Obligations Under Rule 703

3 Under Rule 703, an issuer must disclose information:—
(a) necessary to avoid the establishment of a false market in its securities. A false market may exist if
information is not made available that would, or would be likely to, influence persons who commonly
invest in securities in deciding whether or not to subscribe for, or buy or sell the securities. For this
reason, an issuer may be required to clarify or confirm a rumour (see "Clarification or Confirmation of
Rumours or Reports" below); or
(b) that would be likely to have a material effect on the price or value of securities of that issuer.
4 Material information includes information, known to the issuer, concerning the issuer's property, assets,
business, financial condition and prospects; mergers and acquisitions; and dealings with employees, suppliers and
customers; material contracts or development projects, whether entered into in the ordinary course of business
or otherwise; as well as information concerning a significant change in ownership of the issuer's securities owned
by insiders, or a change in effective or voting control of the issuer, and any developments that affect materially the
present or potential rights or interests of the issuer's shareholders.
Part VI Clarification or Confirmation of Rumours or Reports

15 Public circulation of information, whether by an article published in a newspaper, by a broker's market letter,
or by word-of-mouth, either correct or false, which has not been substantiated by the issuer and which is likely to
have, or has had, an effect on the price of the issuer's listed securities or would be likely to have a bearing on
investment decisions must be clarified or confirmed promptly.
16 If rumours indicate that material information has been leaked, a frank and explicit announcement is required.
If rumours are in fact false or inaccurate, they should be promptly denied or clarified. A statement to the effect
that the issuer knows of no corporate developments that could account for the unusual market activity can have a
salutary effect. In addition, a reasonable effort should be made to bring the announcement to the attention of the
party that initially distributed the information (in the case of an erroneous newspaper article, for example, by
sending a copy of the announcement to the newspaper's financial editor, or in the case of an erroneous market
letter, by sending a copy to the broker responsible for the letter). If rumours are correct or there are
developments, an immediate statement to the public as to the state of negotiations or corporate plans in the
rumoured area must be made. Such statements are essential despite the business inconvenience which may result,
even if the matter had yet to be presented to the issuer's board of directors for consideration.
17 In the case of a rumour or report predicting future sales, earnings or other data, no response from the issuer is
ordinarily required. However, the issuer must make a prompt announcement so that the market remains properly
informed if the rumour or report is materially incorrect and may mislead investors, or is specific enough to
suggest that information came from an inside source, or the market moves in a way that appears to be referable to
the rumour or report.
 Information that need not be disclosed (r 703(3)):

o (1) where a reasonable person would not expect the information to be disclosed;
Page 13 of 59
o (2) the information is confidential; and

o (3) one or more of the following applies:
 (a) the information contains an incomplete proposal or negotiation;
 (b) the information contains matters of supposition or is insufficiently definite to warrant
disclosure
 (c) the information is generated for the internal management purposes of the entity
 (d) the information is a trade secret.
 It appears that the issuer can only refrain from disclosure under this provision on a temporary basis, see
Appendix 7.1, para 9. The longer a secret is being kept, the more likely there is insider trading. Thus you need
to force out the information as soon as possible.
(3) Rule 703(1) does not apply to particular information while each of the following conditions applies.
Condition 1: a reasonable person would not expect the information to be disclosed;
Condition 2: the information is confidential; and
Condition 3: one or more of the following applies:
(a) the information concerns an incomplete proposal or negotiation;
(b) the information comprises matters of supposition or is insufficiently definite to warrant disclosure;
(c) the information is generated for the internal management purposes of the entity;
(d) the information is a trade secret.

Part III Exception to Rule 703
9 Rule 703 includes two exceptions from the requirement to make immediate disclosure. One allows information
not to be disclosed if to do so breaches the law (Rule 703(2)). The other allows an issuer to temporarily refrain
from publicly disclosing particular information, provided that the information is of a certain type, a reasonable
person would not expect it to be disclosed and the information is kept confidential (Rule 703(3)).
3.1.2 FAIR DISCLOSURE

 Fair disclosure is concerned with the issue of providing equal access to corporate information. In essence,
this requires corporate info to be disseminated to all the players in the market simultaneously, rather than
having info selectively disclosed to institutional investors and analyst. This principle is encapsulated under
Appendix 7.1, para 23.
o Under no circumstances should disclosure of material information be made on an individual or
selective basis to analysts, stockholders, or other persons unless such information has previously been
fully disclosed and disseminated to the public.
o If material information is inadvertently disclosed at meetings with analysts or others, it must be
publicly disseminated as promptly as possible by the means described in this Part
 Appendix 7.1, para 24 provides an exception to the fair disclosure principle. In some instances selective
disclosure is allowed (such as due diligence process in an M&A where info has to be passed to a potential
bidder):
o One example is the pursuit of the issuer's business or corporate objectives, such as when the issuer is
undertaking a major corporate exercise.
o Another example is due diligence when the issuer is the subject of an acquisition.
o However, such disclosure should be made on a need to know basis and subject to appropriate
confidentiality restraints.
o HT: this uses a “trade-sensitivity test” (also used for insider trading) which is easier to prove than
“price-sensitivity test” used under r 703(1).
Page 14 of 59

Part VIII Policy on Thorough Public Dissemination
23 The Exchange recommends that issuers observe an "open door" policy in dealing with analysts, journalists,
stockholders and others. However, under no circumstances should disclosure of material information be made on
an individual or selective basis to analysts, stockholders, or other persons unless such information has previously
been fully disclosed and disseminated to the public. If material information is inadvertently disclosed at meetings
with analysts or others, it must be publicly disseminated as promptly as possible by the means described in this
Part.
24 The Exchange recognizes that there may be limited instances where selective disclosure is necessary. One
example is the pursuit of the issuer's business or corporate objectives, such as when the issuer is undertaking a
major corporate exercise. Another example is due diligence when the issuer is the subject of an acquisition. In
these circumstances, selective disclosure may be required to facilitate the exercise. However, such disclosure
should be made on a need to know basis and subject to appropriate confidentiality restraints.
3.1.3 OBLIGATION TO REPORT FINANCIAL STATEMENTS

R 705 requires listed companies to issue the financial statements for the full financial year no later than 60 days
after the relevant period. However, an issuer must report quarterly if: (1) its market cap exceeds $75m at 31
March 2003, (2) its market cap exceeded S$75m at the time of listing (after 31 March 2003), or (3) its market cap
exceeds $75 million on last trading day of each year from 31 Dec 2006.

(1) An issuer must announce the financial statements for the full financial year (as set out in Appendix 7.2)
immediately after the figures are available, but in any event not later than 60 days after the relevant financial
period.
(2) An issuer must announce the financial statements for each of the first three quarters of its financial year (as set
out in Appendix 7.2) immediately after the figures are available, but in any event not later than 45 days after the
quarter end if:—
(a) its market capitalization exceeded S$75 million as at 31 March 2003; or
(b) it was listed after 31 March 2003 and its market capitalization exceeded S$75 million at the time of listing
(based on the IPO issue price); or
(c) its market capitalization is S$75 million or higher on the last trading day of each calendar year commencing
from 31 December 2006. An issuer whose obligation falls within this sub-section (c) will have a grace period of a
year to prepare for quarterly reporting. As an illustration, an issuer whose market capitalization is S$75 million or
higher as at the end of the calendar year 31 December 2006 must announce its quarterly financial statements for
any quarter of its financial year commencing in 2008. Notwithstanding the grace period, all issuers whose
obligation falls under this subsection (c) are strongly encouraged to adopt quarterly reporting as soon as possible.
Is quarterly reporting a bad thing? Note that the Government accepted the Council of Disclosure and
Governance’s (CCDG) recommendation to move towards quarterly reporting despite criticism that this would
make companies take a short term view towards their businesses. The CCDG has been disbanded, with corporate
governance oversight now under MAS and SGX
 HT: can’t see how this QR leads to short termism. Maybe for smaller companies, but not for bigger companies.
Big companies will have QR anyways for foreign investors. Might be a political thing.
Council on Corporate Disclosure and Governance Recommendation

Criticisms of quarterly reporting [QR]are:
1) that it would prompt coys to take a short term view towards their business
2) Perceived high costs in doing QR
3) Suspected volatility of shares
Page 15 of 59
Arguments for QR:

1) Provides (especially small investors) with timely financial info. Such timeliness is important in the rapidly
moving globalised businesses
2) Frequent reporting compelled coys to improve their systems, exercise tighter controls and discipline
3) Removing QR was seen as a step backwards in an era where several leading jurisdictions were moving
towards a greater scheme of disclosure
Kay – Review of UK Equity Markets and Long-Term Decision Making (2012)

 Professor Kay chartered the decline of ICI from a leading chemical and pharmaceutical company to one which
sold off that core business and focused on its short-term share price to the ultimate detriment of the
shareholders.
o He argues for a policy that reduces the pressures for short-term decision making that arise from
excessively frequent reporting of financial and investment performance (including quarterly
reporting by companies), and from excessive reliance on particular metrics and models for
measuring performance, assessing risk and valuing assets.
 Short-termism is the natural human tendency to make decisions in search of immediate gratification at the
expense of future returns: decisions which we subsequently regret. Short-termism can also manifest itself in
hyperactivity.
o In the corporate sector, hyperactivity can be seen in frequent internal reorganisation, corporate
strategies designed around extensive mergers and acquisitions, and financial re-engineering which
may preoccupy senior management but have little relevance to the capabilities of the underlying
business.
 A high proportion of dealing in equity markets today is conducted by high frequency traders, whose time
horizons are typically measured in fractions of a second.
o The appointment and monitoring of active asset managers is too often based on short-term relative
performance. The shorter the timescale for judging asset manager performance, and the slower
market prices are to respond to changes in the fundamental value of the company’s securities, the
greater the incentive for the asset manager to focus on the behaviour of other market participants
rather than on understanding the underlying value of the business.
UK Implementation of the Kay Review: Progress Report (2014)

The Government agreed with Professor Kay’s recommendation to remove mandatory quarterly reporting. Rigid
quarterly reporting requirements can promote an excessive short-term focus by companies, investors and market
intermediaries and impose unnecessary regulatory burdens on companies, without providing useful or
meaningful information for investors.
3.2 WHY WE NEED CLR

David Mason – S’pore Firms Must Improve on Disclosure (3 Jun 1999)
 The author emphasized that confidence is a fragile thing and must continue to be bolstered. He pointed out
that a lot of the blame for the continuing economic problems of Asia has been laid at the door of poor
corporate ethics.
 Singapore is perceived to have the best rules in Asia, but it must be remembered that Asia lags some way
behind Western economies, which are the main source of global capital.
 Also, Singapore has the reputation of being one of the worst places in Asia for corporate disclosures, despite
its overall good record on governance rules. Directors have to lose their fear of giving away secrets to
competitors and their fear of saying things that the regulators will blame them for later.
 Regulation is one part of the equation in gaining trust, but it is not the whole answer. The real work comes
with corporate practice and attitudes, which do not change overnight.
 What Singapore needs is a long-term educative process in business ethics and internal controls.
Page 16 of 59
4 JUDICIAL CONTROL AND ENFORCEMENT OF LISTING AND CONTINUING DISCLOSURE

RULES
Must SGX enforce listing rules that have been breached? Can a shareholder of a breaching coy compel SGX to
enforce the rules? It seems that other than the CLR under Cap 7 of the LM which are statutorily backed by s 203 of
the SFA (above), the other listing rules can be waived by SGX, and cannot be mandatorily enforced.
 Note: statutorily backed rules can be enforced by anyone (eg. Penal Code)
4.1.1 CONTRACTUAL NATURE OF LISTING RULES

Coys seeking a listing on the SGX-ST enter into a listing agreement in which they agree to be bound by the listing
rules so long as they remain on the official list of the SGX-ST (see above LM r 209). Due to the contractual nature
of the listing rules and privity of contract, SGX-ST probably does not have recourse against persons like a
director of a listed coy, but only the coy itself (HT at [5.01]). This also means that shareholders cannot avail
themselves to direct actions but need to join the exchange as a party in an action against persons
associated with a listed coy (Quancorp Pty Ltd v MacDonald). SGX-ST needs to be enjoined in an action under
s.25 (discussed below).
SGX Disciplinary Powers when listing rules breached – r 1305 - delisting
 A failure to comply with the LM may lead SGX-ST to discipline the listed coy, but not expressly a director
 Under r 1305(1) of the LM, SGX-ST may delist an issuer if it is unable or unwilling to comply with or
contravenes a listing rule
o In early 2010, 5-6 coys on the Main Board watch list were delisted
 Unlike some other exchanges, SGX-ST does not have the power to fine listed coys for failure to comply with
the rules, nor does it have formal sanctions against 3Ps (such as directors)
4.1.2 ENFORCEMENT VIA S 25 SFA?

Section 25 of the SFA gives the courts the power to make an order compelling the breaching coy to comply with
the listing rules on application of an aggrieved person. Does this section provide statutory basis for the mandatory
enforcement of the listing rules by SGX?
 Note that s 25 applies to SGX itself as an enforcer of rules
S 25 SFA
Power of court to order observance or enforcement of business rules or listing rules
(1) Where any person who is under an obligation to comply with, observe, enforce or give effect to the business
rules or listing rules of an approved exchange fails to do so, the High Court may, on the application of the
Authority, an approved exchange or a person aggrieved by the failure, and after giving the first-mentioned person
an opportunity to be heard, make an order directing the first-mentioned person to comply with, observe, enforce
or give effect to those business rules or listing rules.
(2) A person against whom an order under subsection (1) may be made shall be —
(a) a corporation which —
(i) has been admitted to the official list of an approved exchange; and
(ii) has not been removed from that official list;
(b) a person associated with a corporation which —
(i) has been admitted to the official list of an approved exchange; and
(ii) has not been removed from that official list,
to the extent to which the business rules or listing rules purport to apply to him; or
(c) an approved exchange.
(3) This section is in addition to, and not in derogation of, any other remedy available to an aggrieved person
referred to in subsection (1).
Section 25 is derived from s 793C Australian Corporations Act 2001. Thus Australian cases on the similar
provision found in s 793C of the Australian Corporations Act 2001 (and its predecessors) also serve as a useful
Page 17 of 59
guide and form the bulk of the relevant case authority on this provision. However, note that the Australian statute
extends the definition of “person aggrieved by the failure” as one “who holds financial products of the body
corporate that are able to be traded on the market”.
S 793C Australian Corporations Act 2001
Enforcement of operating rules
(1) If a person who is under an obligation to comply with or enforce any of a licensed market’s operating rules
fails to meet that obligation, an application to the Court may be made by:
(a) ASIC; or
(b) the licensee; or
(c) the operator of a clearing and settlement facility with which the licensee has clearing and settlement
arrangements; or
(d) a person aggrieved by the failure.
…
(5) For the purposes of this section, if a body corporate fails to comply with or enforce provisions of the operating
rules of a licensed market, a person who holds financial products of the body corporate that are able to be traded
on the market is taken to be a person aggrieved by the failure.
Hans Tjio at [5.03] argues that s 25 cannot be used to provide statutory backing to the mandatory enforceability of
the listing rules for the following reasons:
(HT: However, in light of s 325, s 25 tries to give more to the contractual terms between the Exchange and the
listed coys)
1. s.25 imposes no obligation to comply with listing rules.
 HT at [5.03]: The section itself does not impose an obligation on any person to comply with the rules, and only
states in the case of non-compliance with an obligation, the court may make relevant orders.
 There is also a leap in logic by arguing that since listing rules are somewhat enforceable by s.25, that it is thus
public in character and hence not only reviewable by the courts but the exchange has a statutory obligation to
enforce those rules.
o Section 25 does not make the listing rules statutory.
o Indeed, Paul Latimer, “Legal Enforcement of Stock Exchange Rules” argues that s.25 only works
where the underlying obligation can properly be described as contractual:
 For a listed company, there is a contractual obligation - the "listing agreement" - to
comply with the rules, which is derived from acceptance of listing by the stock exchange
and terms may be implied into this including those relevant from the Memorandum and
Articles.
 Section 25 comes in by way of enforcement of this contract, the court may grant an
injunction to a shareholder in the exercise of its ordinary equitable jurisdiction to restrain a
threatened breach of contract (Repco Ltd v Bartdon)
o NB: Spender argues that this is a "highly unusual contract" which gives the stock exchange power to
change the rules and suspend trading so long as it is "within the contemplation of the parties when
the contract was made, having regard to the nature and circumstances of the contract" . The
absolute discretion given to the exchange militates seeing the relationship as a normal
contractual one (Spender in “The Legal Relationship between the Aussie Stock Exchange and Listed
Coys”).
2. Singapore did not adopt amendments to 793C of the Aussie CA which expanded scope of 793C
 The Singapore regulators have not adopted the 1994 amendments in Australia that appeared to widen the
ambit of 793C. Under 793C, an “aggrieved person” now extends to “a person who holds financial
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products of the body corporate that are able to be traded on the market (i.e. shareholders)” and they
have locus standi to apply for a court order compelling enforcement of the rules (see 793C(5) above)
o Before the 1994 amendment, the court in Robox Nominees v Bell Resources (1986) 4 ACLC 164 held
that s.42 of the Securities Industry Code (equivalent to s.25 of SFA) did not recognise a Pf qua
shareholder to have standing to have the rules enforced.
 The fact that MAS has not incorporated the newer provisions where there was an opportunity to do so when
the SFA replaced the Security Industries Act 2002 probably reflects MAS’s discomfort in giving greater
statutory effect to an exchange’s business and listing rules.
 Also, in Hall v Cable & Wireless Plc [2011] BCC 543, the Commercial Court has considered a case where one
of the issues was whether a breach of the Listing Rules gave rise to a cause of action by a private person. The
Financial Services and Markets Act 2000 s.91 gave the Financial Services Authority (FSA) power to impose a
penalty where there has been a contravention of the Listing Rules, and s.382 gave the court power, on the
application of the FSA, where a person has contravened a requirement (including the Listing Rules) to make a
restitution order where loss was suffered as a result of that contravention. The court held that Parliament
did not provide expressly that a breach of the Listing Rules would give rise to a cause of action at the
suit of a private person. To hold that Parliament did so intend would interfere with the scheme and
modes of enforcement provided by the Act.
 HT: [so who are aggrieved persons in Singapore?]: An aggrieved person could include independent
directors of the listed company. Also we need not follow Aussie decisions to say that even without
amendment that it cannot include shareholders. Parliament here just hasn't even considered any of this. But
it's true that the regulators may not have been too worried about enforceability of listing rules until now
because of China Sky
Name Robox Nominees Pty Ltd v Bell Resources Ltd (1986) 13 ACLR 475 (Western Australia – Supreme
Court)
Facts R held 200 shares in BR, a listed company whose capital consisted of 126 million shares. R alleged
that BR had failed to comply with certain listing requirements and sought orders under the s. 25
equivalent.
Held The court held that a shareholder is not necessarily a “person aggrieved”. The phrase imports an
element of some prejudice to be attached to the conduct which the person claiming to be aggrieved
complains of.
 A shareholder is not a policeman for the enforcement of the statue law, and more than just the
mere holding of shares is necessary to give a plaintiff standing.
 Presently, given the minimal shareholding in BR, there has been no prejudice to the interests
of R caused by the failure to comply with the listing requirements. However, the Court
emphasised that a minimal proportion of shareholding is not necessarily fatal to the case.
Also, concerning the discretion that is given to the Court under s. 25 to make orders, it was thought
that three facts militated against the exercise of the discretion:
 First, the holder of 63.5 million shares did not join the plaintiff.
 Secondly, the Commission did not join the plaintiff.
 Thirdly, the Exchange did not join the plaintiff.
Name Hall v Cable & Wireless Plc [2011] BCC 543 (UK – High Court)
Facts The defendant company applied, in claims relating to the sale of shares in the company at a loss,
for a striking-out order on the grounds that there was no real prospect that the actions would
succeed. One of the issues was whether a breach of the Listing Rules gave rise to a cause of action
by a private person and whether market abuse was so actionable.
Held Teare J. held that Parliament did not provide expressly that a breach of the Listing Rules
would give rise to a cause of action at the suit of a private person. To hold that Parliament did
so intend would interfere with the scheme and modes of enforcement provided by the Act.
The Financial Services and Markets Act 2000 s. 91 gave the Financial Services Authority (FSA)
Page 19 of 59
power to impose a penalty where there has been a contravention of the Listing Rules, and s. 382
gave the court power, on the application of the FSA, where a person has contravened a
requirement (including the Listing Rules) to make a restitution order where loss was suffered as a
result of that contravention.
3. SGX has unfettered discretion in the way its listing rules are interpreted and administered in order to
protect investor interest
 To render s.25 such significance may also be inconsistent with r 105 of the LM which grants the exchange
“absolute discretion” in the way the listing rules are interpreted, administered and enforced.
 The exchange is given such powers in order to be able to exercise their powers fearlessly to protect investor
interest. In Kwikasair Industries v Sydney Stock Exchange (1968) the Sydney SE suspended the shares of K
because it believed that some activities were in breach of the spirit of the rules of the exchange. K sought an
injunction against the SE to lift the suspension. The court refused to do so, holding –
o “The SE...is bound to be vitally concerned with the maintaining of a fair market for the buying and
selling of securities...the members of its committee should be left free to exercise honestly their
powers of entry or removal from the official list unencumbered by ...litigious investigation of the
correctness of their decision. The powers of the committee in this regard are arbitrary;
[but[ they are intended to be exercised summarily and fearlessly in protecting the public
interest...”
 To this end, r 101 of the LM reflects this principle by stating that the SGX’s principle function “is to provide a
fair, orderly and efficient market for the trading of securities” and thus Kwikasair shld be equally applicable in
Singapore.
o This means that the exchange has almost unfettered discretion in deciding whether to accept new
coys on its official list, to grat waivers from the listing rules in furtherance of its principle function
stated ibid. This militates against the argument of mandatory enforcement of the listing rules by s.25
as such a reading wld be inconsistent with the aforementioned principle.
A principal function of the Exchange is to provide a fair, orderly and transparent market for the trading of
securities.
R 105
(1) Subject to the review procedures set out in Chapter 14, the Exchange's listing rules are interpreted,
administered and enforced by the Exchange and the decisions and requirements of the Exchange are conclusive
and binding on an issuer. The Exchange may at any time vary its decision in any way, or revoke it. It may do so
upon the application of the issuer or of its own accord and at its absolute discretion. The variation or revocation
will take effect from the date specified by the Exchange.
Name Kwikasair Industries v Sydney Stock Exchange (1968) ASLR 30,701

Facts The Sydney Stock Exchange suspended the shares of the Kwikasair company because it believed
that some activities were in breach of the spirit of the rules of the exchange. The company sought
an injunction against the stock exchange to lift the suspension.
Held No injunction given.
(Per Street
CJ) The stock exchange is not only entitled but is bound to be vitally concerned with the maintaining of
a fair market for the buying and selling of securities.
 The members of its committee should be left free to exercise honestly their powers of entry on
or removal from the official list unencumbered by any prospect of their having to face a
litigious investigation of the correctness of their decision.
 The powers of the committee in this regard are arbitrary; they are intended to be exercised
summarily and fearlessly in protecting the public interest.
Page 20 of 59
Evaluation Tjio: Kwikasair Industries also suggests that the exchange has almost unfettered discretion in
deciding whether to accept new companies to the official list, or to grant waivers from the listing
rules in the furtherance of its principal function under r. 101 of the Listing Manual, which is "to
provide a fair, orderly and efficient market for the trading of securities".
4. SGX can grant waivers of particular rules

Since waivers are clearly recognised in order not to fetter the exchange’s discretion, it is difficult to argue that s 25
makes it SGX’s statutory duty to enforce its listing rules.
 Waivers have statutory recognition under s 26 of the SFA so long as the failure to comply with the rules does
not substantially affect the rights of the person aggrieved. SGX itself has stated that waivers from compliance
with the listing rules can be granted where the interest of the investing public is not prejudiced As a matter of
practice, SGX-ST also occasionally grants waivers of particular rules where the circumstances justify waiver.
o From Oct 2008, waivers granted to issuers and the reasons for them are disclosed by SGX on a
quarterly basis
 The practice of waiver has received judicial recognition in Harman v Energy Research Group Australia
where the court held that the listing rules have statutory recognition but not statutory force. In Devereaux v
Pelsart Resources Cohen J thought that the Perth Stock Exchange had a wide discretion in waiving breaches of
the listing rules.
 Furthermore, where waivers cannot be granted, they are expressly stated. For example, r 703(5) of the
LM specifically states that the SGX cannot waive any of the requirements pertaining to the CLR in rule 703 and
Appendix 7.1 (Corporate Disclosure Policy). The Cap 7 CLR also has express statutory backing under s.203.
The fact that other listing requirements are not provided such expression of mandatory enforceability shows
that s 25 was not meant to give statutory backing to all the listing rules.
S 26 SFA
Non-compliance with business rules or listing rules not to substantially affect rights of person
Any failure by an approved exchange to comply with —
(a) this Act;
(b) its business rules; or
(c) where applicable, its listing rules,
in relation to a matter shall not prevent the matter from being treated... as done in accordance with the business
rules or listing rules so long as the failure does not substantially affect the rights of any person entitled to require
compliance with the business rules or listing rules.
Name Harman v Energy Research Group Australia Ltd (1985) 9 ACLR 897
Facts The Pf shareholders sought to restrain the Df company from holding an EGM on the ground that
the company had wrongly refused to accept the plaintiffs’ nominations for election as directors.
The plaintiffs had nominated within the time specified by the company’s articles, but outside the
time prescribed by the Listing Requirements. The company was bound to observe the Listing
Requirements.
Held Coy had wrongly refused to accept the Pfs’ nominations
Per Brinsden
J Because the listing requirements do not have statutory force but only statutory recognition, there
is nothing to prevent the Stock Exchange waiving strict compliance with its List Requirements.
 The obligation in s. 42 of the Securities Industry Code is an obligation to comply with, observe
and enforce or give effect to the Listing Requirements, but this can only mean an obligation to
comply with such of the Listing Requirements as the Stock Exchange, in its discretion, has
required the company to comply with.
Page 21 of 59
Presently, the Court held that, given that the company’s articles are inconsistent with the Listing
Requirements, the only reasonable inference is that the Stock Exchange has waived compliance.
Misc Similarly, in Devereaux Holdings Pty Ltd v Pelsart Resources NL (1985), Cohen J thought that the
Perth Stock Exchange had a wide discretion in waiving breaches of the listing rules. He also
thought that the court should not intervene until the exchange had actively exercised its discretion.
4.1.3 ENFORCEMENT VIA S 325 SFA?

S 325 SFA
Power of court to make certain orders

(1) Where —
(a) on the application of the Authority, it appears to the court that a person —
(i) has committed an offence under this Act;
(ii) has contravened any condition or restriction of a licence, or the business rules of a securities
exchange, futures exchange, or designated clearing house, or the listing rules of a securities
exchange; or
(iii) is about to do an act with respect to dealing in securities or trading in futures contracts that,
if done, would be such an offence or contravention;
(b) on the application of a securities exchange, it appears to the court that a person has contravened
the business rules or listing rules of the securities exchange;
(c) on the application of a futures exchange, it appears to the court that a person has contravened the
business rules of the futures exchange; or
(d) on the application of a designated clearing house, it appears to the court that a person has
contravened the business rules of the designated clearing house,
the court may, without prejudice to any orders it would be entitled to make otherwise than under this section,
make one or more of the following orders:
(i) in the case of a persistent or continuing breach of this Act, or of any condition or restriction of a licence, or of
any business rule of a securities exchange, futures exchange or clearing house, or any listing rule of a securities
exchange an order restraining a person from carrying on business to deal in securities or trade in futures
contracts, or acting as a representative of such a person, or from holding himself out as so carrying on businessor
so acting;
(ii) an order restraining a person from acquiring, disposing of or otherwise dealing with any securities or
trading in any futures contracts that are specified in the order
Section 325 allows the courts wide powers to direct a person to comply with not only the listing rules, but the SFA
and business rules. However, unlike s.25, the person bringing the application to court will be the authority or
exchange, and not an aggrieved person. Section 325 is wider than s 25 in that it also includes impending breaches
of the listing rules (see 325(a)(iii)).
However the last 2 reasons provided under 4.1.2 above militate against using 325 as statutory backing for
the enforceability of the listing rules.
4.1.4 POSITION IN AUSTRALIA

 The case of FAI Insurance v Pioneer Concrete (No.2) (1986) is the high watermark for the enforceability of
s.25 (s.42 of Aussie SIC) and 325 (s.14 of Aussie Securities Industry Code), the equivalent provisions of which
in Australia have been strengthened.
o In Australia, the equivalent of ss 25 and 325 give their listing rules statutory importance. If the
exchange doesn’t enforce, action can be brought to compel them to do so by person aggrieved.
o By contrast, ss 25 and 325 have not been amended in the same way as in Australia. In Australia they
have extended the meaning of “person aggrieved” in s 25 to “a person who holds financial products of
the body corporate” (thus including shareholders) and allowing such a person to invoke s 325.
Page 22 of 59
 Should FAI be applicable in Singapore?

o It is submitted that FAI does not apply in Singapore to the extent that s.25 and s.325 give the listing
rules statutory status. As discussed earlier, the fact that SGX can waiver the listing rules and that
express statutory backing is given to the CLR all point to the fact that the listing rules do not have
statutory status and shld not be mandatorily enforced. Thus, to say that the Listing Manual has
statutory force would be going too far and would arguably be going against Parliament’s intentions.
Indeed, this is in stark contrast where there is clear statutory backing given to the continuous
disclosure rules by s 203.
o Moreover, giving too much statutory recognition to these provisions would not be consistent with the
absolute discretion given to the exchanges in the listing rules, as well as the recognised powers of an
exchange to grant waivers. All that can be said is that a waiver has to be clear and unequivocal, and
any inaction by SGX will not rule out the possibility of a court ordering SGX-ST to comply with or
enforce its listing rules.
o HT: You want to have flexible market-sensible rules so you do not want the rules to become hard law,
but stay as soft rules
 HT at [5.05]:
o The way to rationalise the provision appears to be that in cases of inaction on the part of the
exchange in enforcing its rules, an order to force compliance can be obtained under s.25 and s.325.
o But the SGX-ST can still at its discretion waive compliance after considering the matter. But not for
CLR since there is statutory backing under s 203 SFA.
o At this stage, judicial review should be the only avenue remaining for an aggrieved investor to
pursue, which can only review the process of SGX’s decision.
Name FAI Insurances Ltd v Pioneer Concrete (1986) 10 ACLR 801

Facts The case involved a take-over of Pioneer Concrete by FAI. In order to ward off FAI’s bid, 19 persons
were allotted shares as poison pills. These shares were listed on the Sydney Stock Exchange. An
action was brought under both s. 42 (s. 25 of SFA) and s. 14 (s. 325 of SFA) of the Securities
Industry (NSW) Code to restrain these shareholders from disposing their shares. FAI Insurance
contended that there were two breaches by Pioneer of the listing rules. It was contended that these
listing rules have acquired a statutory status by virtue of s. 42 (s. 25), and it sought an order for the
rectification of the register of shares.
The Trial Judge (Young J) refused, holding that s. 42 (s. 25) can only be used to give directions
which will bring about compliance with the listing requirement. Once the listing requirements
were breached, s 14 (s 325) must be used. If s 42 could be used to grant substantive relief for
breach of listing requirements (ie. undoing of a transaction), there would be too much overlapping
of the operation of s 14 (s 325). However, s 14 could not be invoked by the Pfs since it could only
be invoked by the Commission of the exchange.
Held While s 42 (s 25) is not confined to orders compelling compliance with the listing rules, it does not
entitle a court to rectify the share register.
Per Street CJ
 Street CJ thought that Young J’s judgment was too restrictive a statement of the range of
jurisdiction under s. 42 (s. 25). He noted that s. 42 (s. 25) may overlap with s. 14 (s. 325) in
some cases, although the range of remedies under the latter (s. 325) is considerably wider.
o S. 42 (s. 25) should not be confined to giving directions which will bring about
compliance with the listing requirements. This is a gloss that is not within the terms of
s. 42 (s. 25) and there may well be cases where the court’s jurisdiction could properly
and usefully be more extensively exercised.
o An irremediable breach does not necessarily close off the exercise of the court’s
jurisdiction. But, in the present case, he did not consider that the jurisdiction extends
to ordering rectification of the register so as to take off the names of the shareholders
Page 23 of 59
who were allotted additional shares.

 He recognized the importance of enabling the stock exchange to impose requirements on
listed companies according to ordinary and proper commercial standards.
o But ss. 42 (s. 25) and 14 (s. 325) confer on the court jurisdiction to underwrite the
binding nature of the stock exchange rules. The obligation to comply with them is
expressly imposed by s. 42(2) (s. 25(2)), and the jurisdiction conferred by s. 42(1) (s.
25(1)) and by s. 14(1) (s. 325(1)) imposes on the court a complementary
responsibility to enforce that binding significance whenever appropriate.
Per Kirby P
 Kirby P disagreed with the limited construction by Young J of s. 42 (s. 25).
o Firstly, the word “enforcement” could include the contemplation of the making of
complex orders. The words “giving effect to” can also be construed very widely.
o Secondly, there is an inescapable overlap between ss. 14 (s. 325) and 42 (s. 25). One
important difference lies in the standing which is accorded to the “person aggrieved”
by s. 42 (s. 25).
 The fact that a “person aggrieved” may initiate proceedings under s. 42 (s. 25)
suggests that the section contemplated remedial action which might affect
third party rights, which is likely to be raised by the typical concerns of such
persons aggrieved about non-compliance with the listing requirements.
o Thirdly, Young J undervalued the special statutory status now accorded to the listing
rules. The phrase “person associated with a body corporate” shows that the remedial
potential of s. 42 (s. 25) is wider than what Young J thought.
o Fourthly, the wording of s. 42 suggests the contemplation of an order against persons
other than the person who is under the obligation to comply with the listing rules
(note: does not apply to s. 25)).
 One important difference between s.25 and s.325 is that s.25 accords
standing to “persons aggrieved”. By virtue of these additional words s.25 shld
be accorded a wide interpretation. The fact that a person aggrieved may
initiate proceedings under s.25 suggests the possibility that the section
contemplated remedial action which might affect 3P rights such as are likely
to be raised by the typical concerns of such persons aggrieved about non-
compliance with the listing requirements (at 811)
 Kirby opined that this wider interpretation should be adopted as ss 25 and 325 give listing
rules statutory significance and they must be enforced to protect public interests
o “Making due allowance for the discretion of the court, which is assured by the terms of
s.25, it permits the protective intervention of the court to ensure that breaches of
listing requirements, which...are not pursued by the...Exchange, can be brought to the
notice of the court by a person aggrieved. That facility provides appropriate
protection [of] public interest....By s.25 and 325 of the Code, [the listing rules] are
given statutory significance...in recognition of the fact that they necessarily affect large
transactions, potentially involve the movement of very considerable funds and
concern the public interest as well as interests of private shareholders” (at 812)
Per Samuels JA
 He was of the opinion that s. 42 (s. 25) does not authorize the court to divest third party rights,
even those acquired by a breach of the listing rules.
Page 24 of 59
5 CORPORATE GOVERNANCE
5.1 WHAT IS CORPORATE GOVERNANCE

“Corporate governance” concerns the way that directors and auditors handle their responsibilities toward
shareholders. Generally, corporate governance is concerned with establishing a system of accountability primarily
directed toward shareholders whereby directors are entrusted with responsibilities and duties as they steer and
chart the overall direction of a company’s affairs.
Corporate governance is needed because of agency costs created by the separation of ownership and management.
The Code of Corporate Governance tries to deal with this through the use of independent directors. But the Code
is weaker than a listing rule because you can waive it if you explain in your annual report, whereas listing rule can
be enforced by SGX (though it also can waive it).
 The report of the Corp Gov Committee, which accompanied the introduction of the Code, relied heavily on a
McKinsey Investor Opinion Survey of 200 institutional investors where 77% of the respondents in Asia rated
board practices to be at least as important as financial considerations when deciding where and how to invest.
 The Code thus embraces the need for the independence of directors and modern board structures, premised
on the underlying theme of enlightened shareholder interest
o Enlightened shareholder interests refers to the processes and structure by which the business
and affairs of a company are directed and managed, in order to enhance long-term
shareholder value through enhancing corporate performance and managerial accountability,
whilst taking into account the interests of other stakeholders, such as creditors and employees
Business Times – Premium Seen for Corporate Governance (1 Nov 2002)
 A McKinsey & Company survey has found that corporate governance gives listed companies a competitive
edge in winning investor support.
 Fund managers are prepared to pay an average premium of 21% for a well-run company.
 Investors were putting corporate governance on par with financial indicators when evaluating investment
decisions.
o Investors ranked the 10 most important factors for investment decisions, in order of importance
account disclosure; shareholder equality; market regulation and infrastructure; international
accounting standards; market liquidity; property rights; pressure on corruption; insolvency and
bankruptcy regulation; fiscal environment and the banking system.
Business Times, “Does Corp Gov Really Work?”, 1 Sep 2003
 The Singapore CGC recommends reforms such as separating the job of the CEO and chairman of the board;
appointing more independent corporate directors etc
 The evidential research is clear – good governance leads to better oversight and reduces the risk of
financial reporting problems, including fraud, and results in higher quality of financial reporting
 Empirical data provided by different surveys:
o Board independence and separation of CEO and board chair reduces the extent of earnings
manipulation (2002 issue of Journal of Accounting and Economics)
o Coy performance increases with effective gov and board independence (1994 issue of Journal of
Financial Economics)
M Roe – The Inevitable Instability of American Corporate Governance (2004)
 Separation of ownership and management allows firms to combine managers with talent but without much
capital with investors who have capital but neither time nor the skills to manage.
 But separation’s advantage comes with costs. Manager’s goals sometimes deteriorate into just wanting to be
paid well and to live well. Managers pursue their own agenda, and it seems that in every decade there’s been a
Page 25 of 59
systematic failure.
 Thus, in the author’s view, the separation of ownership and management will always be a problem. With
control separated from ownership, managers’ agenda differs from that of others inside the corporation.
 But he also acknowledges that other nations with less ownership separation encounter another set of
problems, mostly those that arise from concentrated ownership and weak stock markets (because one key
financing source is less viable).
5.1.1 CODE OF CORPORATE GOVERNANCE (CCG)

 The draft of the CCG was prepared by the Corporate Governance Committee and accepted by MOF in 2001.
 Although adherence to the Code is not strictly necessary, the SGX LM now requires all listed coys, in their
annual reports, to provide a complete description of their corporate governance practices with specific
references to the guidelines set out in the Code (R 710)
 However, the Code recognises that there is no “one size fits all” approach, and allows companies to deviate
from it. But the Code provides that explanations for deviations from the Code should be given, and the quality
of the explanations is for the market to assess and judge. In other words, this is a “comply or explain”
approach (see more at 5.8.3)
 In many financial centres, Codes of Governance, usually issued by a stock exchange require a listed company
to set up: (1) audit committees, (2) nomination committees, and (3) remuneration committees.
o The most important of these is the audit committee.
An issuer must describe its corporate governance practices with specific reference to the principles of the Code in
its annual report. It must disclose any deviation from any guideline of the Code together with an appropriate
explanation for such deviation in the annual report.
Easterbrook & Fishel – “The Corporate Contract” (1993)
 The corporate code is an “enabling” statute. An enabling statute allows managers and investors to write their
own tickets, to establish systems of governance without substantive scrutiny from a regulator and without
effective restraint on the permissible methods of corporate governance.
o The corporation is a complex set of explicit and implicit contracts, and corporate law enables the
participants to select the optimal arrangement for the many different sets of risks and opportunities.
No one set of terms will be the best for all; hence the “enabling” structure of corporate law.
 In general, all the terms in corporate governance are contractual in the sense that they are fully priced in
transactions among the interested parties. They are thereafter tested for desirable properties – the firms that
pick the wrong terms will fail in competition with other firms competing for capital.
o The price of the securities reflects the effects, good or bad, of corporate law and contracts, just as it
reflects the effects of good and bad products.
 The function of corporate law is to serve as a set of terms available off-the-rack so that participants in
corporate ventures can save the cost of contracting. There are lots of terms, such as rules for voting,
establishing quorums, and so on, that almost everyone will want to adopt.
o Corporate codes and existing judicial decisions supply these terms “for free” to every corporation.
5.2 CONFLICTS OF INTEREST

The possible temptation of directors, chief executive officers or substantial shareholders to abuse any
management power they may have, and to cause the company to enter into transactions that are favourable to
them, is a constant danger. These are agency costs that have to be minimised.
Chapter 9 of the Listing Manual addresses this problem and provides a method of lessening the risk of
“interested person transactions” which may adversely affect shareholders’ interests.
Page 26 of 59
The objective of this Chapter is to guard against the risk that interested persons could influence the issuer,
its subsidiaries or associated companies, to enter into transactions with interested persons that may
adversely affect the interests of the issuer or its shareholders.
5.2.1 COI RULES UNDER LIST ING MANUAL

5.2.1.1 Interested person transaction (IPT)
An interested person transaction (“IPT”) is a transaction between(r 904(5)):
 an entity at risk and

o issuer; or
o unlisted subsidiary of issuer; or
o unlisted associated company that listed group and its interested persons have control over
 an associated coy is one where between 20-50% of its shares are controlled by the listed
group and its associated persons
 an interested person.
o Coy’s director/CEO/ controlling shareholder of the issuer [a controlling shareholder owns 15% or
more of the coy (either directly or indirectly)]; or
o Associate of any such director/CEO/ controlling shareholder
 an associate means his immediate family, trustees of any trust of which he or his immediate
family is a beneficiary; any coy in which he or his immediate family has an interest of 30% of
more
 Note: substantial shareholder is 5%, there is also major shareholder
Listing Manual
Definitions and Interpretation

“associate” – in the case of a company,
(a) in relation to any director, chief executive officer, substantial shareholder or controlling shareholder
(being an individual) means:—
(i) his immediate family;
(ii) the trustees of any trust of which he or his immediate family is a beneficiary or, in the case of
a discretionary trust, is a discretionary object; and
(iii) any company in which he and his immediate family together (directly or indirectly) have an
interest of 30% or more;
(b) in relation to a substantial shareholder or a controlling shareholder (being a company) means any
other company which is its subsidiary or holding company or is a subsidiary of such holding company or
one in the equity of which it and/or such other company or companies taken together (directly or
indirectly) have an interest of 30% or more;
“controlling shareholder” a person who:—
(a) holds directly or indirectly 15% or more of the total number of issued shares excluding treasury
shares in the company. The Exchange may determine that a person who satisfies this paragraph is not a
controlling shareholder; or
(b) in fact exercises control over a company
"associated company" – a company in which at least 20% but not more than 50% of its shares are held by the
listed company or group
R 904
Page 27 of 59
(2) "entity at risk" means:

(a) the issuer;
(b) a subsidiary of the issuer that is not listed on the Exchange or an approved exchange; or
(c) an associated company of the issuer that is not listed on the Exchange or an approved exchange,
provided that the listed group, or the listed group and its interested person(s), has control over the
associated company.
(4)(a) In the case of a company, "interested person" means:—
(i) a director, chief executive officer, or controlling shareholder of the issuer; or
(ii) an associate of any such director, chief executive officer, or controlling shareholder.
(5) "interested person transaction" means a transaction between an entity at risk and an interested person.
IPTs are regulated by SGX-ST Listing Manual Ch 9. Under r 905 and 906, such “interested person transactions”
will have to be announced or ratified by shareholders:
 if the transaction is equal to or above Threshold 1 (i.e. 3% of the listed company's net tangible assets
according to its latest audited accounts) and below Threshold 2, then an immediate announcement must be
made.
 if the transaction is equal to or above Threshold 2 (i.e. 5% of the listed company's net tangible assets
according to its latest audited accounts), then the transaction must be approved by the shareholders of the
listed company.
 transactions below $100,000 are ignored.
NB: Since IPT is a form of COI and has statutory backing by s.156 of the CA – there cannot be waiver (R 923).
R 905 and 906, Listing Manual
905
(1) An issuer must make an immediate announcement of any interested person transaction of a value equal to, or
more than, 3% of the group's latest audited net tangible assets.
(2) If the aggregate value of all transactions entered into with the same interested person during the same
financial year amounts to 3% or more of the group's latest audited net tangible assets, the issuer must make an
immediate announcement of the latest transaction and all future transactions entered into with that same
interested person during that financial year.
(3) Rule 905(1) and (2) does not apply to any transaction below $100,000.
906
(1) An issuer must obtain shareholder approval for any interested person transaction of a value equal to, or more
than:—
(a) 5% of the group's latest audited net tangible assets; or
(b) 5% of the group's latest audited net tangible assets, when aggregated with other transactions entered into
with the same interested person during the same financial year. However, a transaction which has been approved
by shareholders, or is the subject of aggregation with another transaction that has been approved by
shareholders, need not be included in any subsequent aggregation.
(2) Rule 906(1) does not apply to any transaction below $100,000.
5.2.1.1.1 GENERAL MANDATE – R 920

In practice, a General Mandate under rule 920 is obtained in advance from the shareholders to permit the
company to enter into interested person transaction, subject to certain requirements.
Page 28 of 59
 This is done under an AGM under an ordinary resolution.
(1) An issuer may seek a general mandate from shareholders for recurrent transactions of a revenue or
trading nature or those necessary for its day-to-day operations such as the purchase and sale of supplies and
materials, but not in respect of the purchase or sale of assets, undertakings or businesses. A general mandate is
subject to annual renewal.
(a) An issuer must:—
(i) disclose the general mandate in the annual report, giving details of the aggregate value of transactions
conducted pursuant to the general mandate during the financial year. The disclosure must be in the form set out
in Rule 907; and
(ii) announce the aggregate value of transactions conducted pursuant to the general mandate for the financial
periods which it is required to report on pursuant to Rule 705 within the time required for the announcement of
such report. The disclosure must be in the form set out in Rule 907.
Hans Tjio at [5.12]:

 The circular to shareholders seeking a general mandate must include an opinion from an independent
financial adviser on whether procedures for determining transaction prices are sufficient to ensure that the
transactions will be carried out on normal commercial terms and not prejudicial to the interests of the issuer
and minority shareholders.
 SGX has amended rule 920 such that an IFA’s opinion is not required upon renewal of a general mandate
for recurrent interested person transactions if the audit committee confirms that the methods and
procedures for determining transactions prices have not changed.
o We trust the audit committee because they have a majority of independent directors
5.2.1.2 Elimination of conflicts before listing

Note that the Listing Manual requires conflicts of interest to be resolved prior to listing (r 223)
R 223 and 224, Listing Manual
223 An issuer should resolve or eliminate conflict situations prior to listing. The Exchange may accept a proposal
to resolve or eliminate conflicts of interest within a reasonable period after listing. Conflicts of interest include
situations in which interested persons:—
(1) Carry on business transactions with the issuer or provide services to or receive services from the issuer or its
group;
(2) Lend to or borrow from the issuer or its group;
(3) Lease property to or from the issuer or its group; or
(4) Have an interest in businesses that are competitors, suppliers or customers of the issuer or its group.
224 In reviewing compliance with the Exchange's policy on conflicts of interest, the Exchange takes into
account:—
(1) The parties involved in the conflict situation and their relationship to the issuer;
(2) The significance of the conflict in relation to the size and operations of the issuer and in relation to its potential
influence on the interested person;
(3) Whether the parties who are involved in the conflict derive any special advantage from it; and
(4) Whether the conflict can be terminated, and if so, how soon and on what basis; or, if the conflict cannot be
Page 29 of 59
promptly terminated, whether:—

(a) the arrangement is necessary and beneficial to the operations of the issuer;
(b) the terms of the arrangement are the same or better than those that can be obtained from third
parties;
(c) the arrangement will be reviewed at regular intervals and approved by independent directors or
shareholders;
(d) the issuer has or will have adequate internal procedures to ensure that the terms of the arrangement
are fair and reasonable; and
(e) there is, or has been, adequate disclosure of the conflict, the parties to it, and the measures taken in
respect of it. This may be through the prospectus, offering memorandum, introductory document, circular
or other reports.
(5) Whether the issuer has entered into any right of first refusal agreements and whether such agreements are
valid for as long as the conflicts of interest exist. Where a business trust or REIT enters into right of first refusal
agreements, Paragraph 3 of Practice Note 4.1 shall apply.
5.2.1.3 Disclosure of appointment of directors

R 704(7)(a) states that the issuer must announce any appointment or cessation of service of key persons such as
director, chief executive officer, chief financial officer, chief operating officer, general manager, qualified person or
other executive officer of equivalent authority, company secretary, registrar or auditors of the issuer.
 Information to be disclosed is contained in Appendix 7.4.1 and 7.4.2., and includes whether he has been
convicted of any offence or whether he has been disqualified from acting as a director.
In addition to Rule 703, an issuer must immediately announce the following:—

…
(7)
(a) Any appointment or cessation of service of key persons such as director, chief executive officer, chief
financial officer, chief operating officer, general manager, qualified person or other executive officer of
equivalent authority, company secretary, registrar or auditors of the issuer. The announcement of an
appointment or cessation of service of key persons such as director, chief executive officer, chief financial
officer, chief operating officer, general manager, qualified person or other executive officer of equivalent
authority must contain the information contained in Appendix 7.4.1 or Appendix 7.4.2, as the case may be.
(b) In the case of a cessation of service of any director, chief executive officer, chief financial officer, chief
operating officer, general manager or other executive officer of equivalent authority, such persons must inform
the Exchange in writing as soon as possible if he is aware of any irregularities in the issuer which would have a
material impact on the group, including financial reporting.
(8) Any appointment or reappointment of a director to the audit committee. The issuer must state in the
announcement whether the board considers the director to be independent. The issuer must also provide such
additional disclosure as may be appropriate in the circumstances to enable its shareholders to assess the
independence or otherwise of the appointed director. In the event of any retirement or resignation which renders
the audit committee unable to meet the minimum number (not less than three) the issuer should endeavour to fill
the vacancy within two months, but in any case not later than three months.
(9) Any appointment of a person who is a relative of a director or chief executive officer or substantial
shareholder of the issuer to a managerial position in the issuer or any of its principal subsidiaries. The
announcement must state the job title, duties and responsibilities of the appointee, and the information required
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in Rule 704(7).
5.2.2 STATUTORY PROVISIONS AND COMMON LAW PRINCIPLES ON CONFLICTS OF

INTEREST
The provisions regarding conflicts of interest in the Listing Manual supplement the statutory provisions and
common law principles that address the problem of directors’ conflicts of interest.
Under the CA, disclosure of any conflicts of interest to the board of directors will absolve the director from civil
liability (s 156 CA). However, this is insufficient under common law, where the director has to disclosure to the
shareholders in a general meeting (Dayco).
The SGHC in Dayco opined that the articles of a company can permit a director who is interested in a proposed
transaction to take the benefit of the transaction if he discloses his interest to the board. However, as Prof. Tjio has
noted, such an article may not square easily with s. 172 of the Companies Act which provides that provisions in
the articles indemnifying officers are void. Nonetheless this can be resolved if one considers the duty to avoid
conflict of interests as a disability rather than part of the fiduciary duty, and disclosure removes the proscription
so that no breach ever arises in the first place (Movitex).
S 156 CA
Disclosure of interests in transactions, property, offices, etc.

(1) Subject to this section, every director of a company who is in any way, whether directly or indirectly,
interested in a transaction or proposed transaction with the company shall as soon as practicable after the
relevant facts have come to his knowledge declare the nature of his interest at a meeting of the directors of the
company.
Name Gwembe Valley Development v Koshy (No 3) [2004] 1 BCLC 131

Facts The first defendant K, was the managing director of GVDC. He was also the largest investor in GVDC
through a company (Lasco) of which he was a controlling shareholder, having acquired 2/3 of its
shares. K arranged various loan transactions between Lasco to GVDC which led to GVDC’s debt to
Lasco of US$5.8 million (advanced by Lasco in 56.4m Zambian currency). Due to Zambian currency
restrictions, Lasco was able to purchase K56.4m for US$1m through a process called “pipeline
dismantling”. Although the pipeline loan transactions were informally approved by GVDC’s
members, they were never considered by or resolved upon by the GVDC board. Subsequently,
GVDC was put into receivership, and an action was brought against K for breaching his fiduciary
duty.
Art. 88 of GVDC’s articles provides that a director who is interested in a contract shall declare the
nature of his interest at a director meeting. Upon disclosure, he shall be entitled to vote on the
issue. Art. 89 provides that any contract entered into by the company in which any director is
interested shall not be voided.
The issue was whether K had a duty to disclose his interest in the transaction (his profits).
Held Yes
Arguments based on GVDC’s Provisions
It was first argued that disclosure is unnecessary in light of art. 89. The court disagreed, stating
that it is necessary to read art. 89 in conjunction with art. 88, which requires a formal declaration
of interest to be made by a director at a board meeting.
“51 …the relaxation in art. 89 of the strict doctrine of equity against unauthorized self-dealing and
secret profits, applicable to directors as fiduciaries, is made on the basis of compliance with the
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director’s duty of disclosure under art. 88, even though not expressed to be conditional on it.”
Arguments based on GVDC’s Board Composition
It was also argued that K does not have to disclose because the board was entirely composed of
nominee directors. They would protect the interests of the shareholders, who appointed them,
rather than the interests of the shareholders generally. It was not intended to be an independent
board. Thus, it was contended that the directors did not hold fiduciary duties to GVDC as they were
intended to be excluded. The court disagreed.
“56 There was no evidence of any other express agreement (other than arts. 88 and 89) modifying
the fiduciary duties owed to GVDC by its directors.”
Evaluation HT: This case confirms that the language of fiduciary duties is still extremely strict, and the
purpose of this is to channel directors to make disclosure to the correct decision maker (with
modern day articles this is usually the board) which will decide whether permitting the
transaction is in the best interests of the company.
Name Dayco Products Singapore Pte Ltd v Ong Cheng Aik [2004] 4 SLR(R) 318 (SGHC)
Facts Pf Dayco was wholly owned subsidiary, whose ultimate holding Coy was Mark IV. Df was MD of
Dayco. Dayco and Df agreed to sell goods to Dayco’s current distributors. However, ultimately the
Df sold the goods to Mark IV and APA instead, Companies that Df had an interest in.
Held There was breach of fiduciary duty by Df
“13 There is no difficulty here with the formulation of the law on this topic and in the analysis
of the facts. A director, being a fiduciary, cannot exercise his powers for his own benefit or gain
without clearly disclosing his interest and obtaining the necessary consent. The English Court of
Appeal in Gwembe Valley Development Co Ltd v Koshy (No 3) [2004] 1 BCLC 131 at [65] said:
The requirement of the general law is that, although disclosure does not have to be made
formally to the board, a company director must make full disclosure to all the
shareholders of all the material facts. The shareholders in the company, to which he owes
the fiduciary duty not to make an unauthorised profit from his position, must approve of,
or acquiesce in, his profit. Disclosure requirements are not confined to the nature of the
director’s interest: they extend to disclosure of its extent, including the source and scale of
the profit made from his position, so as to ensure that the shareholders are ‘fully informed
of the real state of things’, as Lord Radcliffe said in Gray v New Augarita Porcupine Mines
Ltd [1952] 3 DLR 1 at 14.
14 Separately, s 156(1) of the Companies Act (Cap 50, 1994 Rev Ed) and sometimes the articles
of a company, permit a director who is interested in a proposed transaction to take the benefit of
the transaction if he discloses his interest to the board and takes no part in the decision of the
board on the transaction. If the director makes that disclosure and abstains from taking part in the
decision, the validity of the transaction is not impaired.
…
17 … the law requires disclosure to and the consent of a fully independent board under s 156(1) of
the Companies Act or the shareholders under general law before it will regard the fiduciary as
absolved. As the essential fiduciary obligation is to avoid conflict between personal interest and
duty to the plaintiff, it is necessary for the defendant to actually disclose that his companies were
buying the plaintiff’s goods and to seek its approval for the sales. As counsel for the plaintiff rightly
submits, there was factually no disclosure, as such, in the present case, leading to informed consent
that would absolve a fiduciary from what would otherwise have been a breach of duty. It was
never suggested that the defendant had formally informed the board of directors of the plaintiff or
its shareholders or that they had given their consent to sell the respective stocks in question to
Page 32 of 59
APA and Mark IV Singapore.”
Name Movitex v Bulfield [1988] BCLC 104

Facts Movitex (B and P were directors) wanted a property that it could not afford. So a company (CRS)
set up by B and P bought it and leased it to Movitex. Subsequently, Movitex executed a mortgage
over the leasehold interest in favour of Harper Investments (B as director), the shares of which
were held by P for his children. The benefit of the mortgage were transferred to CRS. The articles
of Movitex modified the self-dealing rule and provided that a director could be interested in a
contract with his company provided that he made full disclosure and could not vote on the matter.
However, s. 205 (s. 172 equivalent) renders an article void for exempting directors from liability
for breach of duty or breach of trust.
The issue was whether the articles were void.

Held No
(Vinelott J)
Movitex argued that a provision which allows a director to enter into an interested transaction
with the company is one which “exempts” the director from a liability, and therefore contravenes s
205 and would be thus void.
Vinelott J noted that if this was true, then arts 78 and 84 in Table A (in the First Schedule to the
Companies Act 1948) which were similar to Movitex’s articles in question would also be void,
which would be absurd.
 “The legislature in enacting the 1948 Act must have contemplated that the modifications of the
self-dealing rule in Art. 78 and 84 do not infringe sec. 205 . Accordingly, if sec. 205 is fairly
capable of a construction which avoids that conflict, that construction must clearly be
preferred to one which does not.
The Court resolved the conundrum by citing Tito v Waddell and stating that fair-dealing rule
(which is a “duty” not to self-deal) was not really a fiduciary duty in the true sense of the word.
Rather it was a proscription involving a negative duty not to put oneself in a position where there
is a conflict between one’s duty to the company and one’s own interest.
 “In my judgment, what equity does is to subject trustees to particular disabilities in cases
falling within the self-dealing and the fair-dealing rules.” [quoting Sir Robert Megarry in Tito v
Waddell]
 The true principle is that if a director places himself in a position in which his duty to the
company conflicts with his personal interest, the court will intervene to set aside the
transaction without inquiring whether there was any breach of the director’s duty to the
company. The shareholders of the company, in formulating the articles, can exclude or modify
the application of this principle. In doing so, they do not exempt the director from a breach of a
duty owed to the company.”
 “In Tito & Ors. v. Waddell & Ors. (No. 2) Sir Robert Megarry suggested that the fair-dealing rule
was similarly “a rule of equity that certain persons (including trustees) are subject to certain
consequences without, where appropriate, complying with certain rules”
Vinelott J nonetheless went on to say that modifying the duty of disclosure and duty to promote
the interests of the principal will infringe s 205.
 “In the instant case Mr. Perry and Mr. Bulfield as directors of Movitex owed a statutory duty of
disclosure under sec. 199 of the 1948 Act and a duty of disclosure under Art. 99. Moreover, it
is common ground that as directors of Movitex they owed a duty to promote the interests of
Movitex and, where the interests of Movitex conflicted with their own, to prefer the interests
of Movitex. Any proposed modification of either duty would infringe sec. 205.”
Page 33 of 59
Evaluation So certain duties are not really fiduciary duties but more of negative proscriptions? But there are
still fundamental duties that cannot be modified
Tjio – The Rationalisation of Directors’ Duties in Singapore (2005)
 Directors are required to exercise their powers for proper purposes. This duty usually comes up in share
issues and the takeover context, where it is difficult to articulate the duty of directors in terms of the
company’s interest.
o This is because the company is less relevant here as a separate entity, and the balance of power
between shareholders may be affected by the decision of the directors.
 The proper purpose rule recognises that there are different interests within the constituency of shareholders
that fall within the conception of a company that directors have to bear in mind in making their decisions.
o Prof. Schwarcz sees the proper purpose rule in company law as balancing the interests between
present investors, and not one between such investors and potential bidders or future shareholders.
o What directors have to do is to balance the interests of those shareholders who wish to sell and those
longer-term investors who intend to hold on to their shares.
 Tjio argues that the proper purpose rule should be extended to take into account future shareholders.
o The disclosure-based philosophy (as opposed to merit regulation) implicitly recognises and in fact
logically requires it. Where continuous or periodic disclosure is concerned, Hu highlights the inter-
generational problem:
o The timing and nature of such disclosures could help those who are shareholders at one point in time
and hurt those who are shareholders at another. To the extent that securities laws allow some
discretion in the timing of disclosures, managers have a basic fiduciary problem in terms of which
“generation” of shareholders to favour.
o In Singapore r. 703 of the Listing Manual requires immediate disclosure of material information, and
thus favours future shareholders. However, the disclosure exceptions favour present shareholders.
5.2.2.1 Breach of fiduciary duty

In UK, a equitable compensation as a result of breach of fiduciary duty is subject to the ‘but-for’ causation (Swindle,
Target Holdings), though the UKSC has recognised that the detailed rules may not be applicable to a bare trust
arising in the context of a commercial contract (AIB v Mark Redler). On the other hand, some cases, including the
SGHC, suggested that a culpable/fraudulent breach of fiduciary duties can sustain a claim for damages without
proving causation (Evans LJ in Swindle and Then Kek Koon v Arjun [2014] (SGHC)). However, some doubts were
expressed by the Singapore Court of Appeal on this matter in Then Kek Koon in light of AIB v Mark Redler. Also, in
Swindle, Evans LJ was the only judge that held that there is no need to prove causation in the presence of fraud.
This is unlike the position taken by Mummery LJ who held that causation has to be established but the quantum of
equitable compensation is not restricted by the principle of foreseeability. Further, where a breach of fiduciary
duty is contended, it is important to isolate the precise duty that has been breached and the damages flowing
therefrom. In this regard, Yeo & Tjio (1998) prefers Mummery LJ’s decision for being consistent with principle.
 UK position – While the common law principles of causation and remoteness does not apply, there has to be
some causal connection between the breach and the loss suffered, which is satisfied by the ‘but for’ test
(Target Holdings affirmed in AIB v Mark Redler)
o Principles of equity did not differ according to the nature of the trust, but the detailed rules in respect
of traditional trusts were not necessarily applicable to a bare trust arising in the context of a
commercial contract
 SG Position – Recognised 2 classes of cases. (A) Brickenden class cases: liability without regard to the
principles of causation, foreseeability and remoteness including even the need for fundamental “but for”
causation, need only be a material cause. (B) Liability only attaches if the “but for” test of causation is satisfied:
Target Holdings class cases.
Whether a case falls into the Brickenden class or Target Holdings class depends on (1) whether the fiduciary
Page 34 of 59
relationship was a well-established category or a novel one, and (2) whether the breach was culpable or
innocent (Then Khek Koon (2014))
o A fiduciary who is in one of the well-established categories of fiduciaries and who commits a
culpable breach of his core duties of honesty and fidelity is liable to pay equitable compensation even
if the object of those duties is unable to prove but-for causation: Brickenden.
o A fiduciary who is in one of the well-established categories of fiduciaries and who causes loss to the
trust property as a result of an innocent breach of his fiduciary duties is not liable to reconstitute the
trust property unless the object of those duties is able to prove at least a but-for causal connection
between the breach of fiduciary duty and the loss to the trust fund: Target Holdings.
o Commentary: Since this was decided before AIB clarified that the same principles apply to all types
of trusts but that the detailed rules might not be applicable to some types of trusts, it is submitted
that AIB should be followed as this is a more principled approach. There is much confusion in
deciding which class a case falls under.
 Date of assessment is at the date of judgement (Target Holdings, Quality Assurance SGHC)
Cases
 Swindle v Harrison [1997] 4 All ER 705
o Harrison wanted to buy a restaurant. There was a shortfall in financing despite her mortgaging her
house. Sale went through because Swindle (the solicitors) offered to lend her shortfall and terms of
the loan was fair. However, Pfs failed to disclose that their firm was making a profit for themselves.
Business did not prosper and solicitors sought possession of the house. The defendant
counterclaimed for the value of the lost equity in the house as compensation for the solicitor’s breach
of fiduciary duty.
o HELD: Harrison’s claim was rejected. It cannot be said that the loss Harrison suffered is attributable
to Swindle’s actions/omission. She would have completed the transaction anyway. It was purely
unfortunate that business did not prosper.
 Per Evans LJ: Since the defendant would have accepted the loan and completed the purchase,
even if full disclosure had been made to her, she would have lost the value of the equity in
her home in any event.
 She cannot recover damages or compensation for that loss except on proof either that the
plaintiffs acted fraudulently or in a manner equivalent to fraud or that she would not
have completed the purchase if full disclosure had been made, i.e. if the breach of duty had
not occurred. Here, she can do neither.
 Per Mummery LJ: Foreseeability and remoteness of damage are generally irrelevant to
restitutionary remedies for breach of fiduciary duty. The liability is to make good the loss
suffered by the beneficiary of the duty.
 But causation must be proved. Although equitable compensation is not damages, it is still
necessary for Mrs Harrison to show that the loss suffered has been caused by the relevant
breach of fiduciary duty
 John While Springs (S) Pte Ltd v Goh Sai Chuah Justin [2004] 3 SLR 596 (SGHC) – Reverse Onus of Proof
o Df was a director of the Pf manufacturing company. Pf sued Df for breach of fiduciary duty. Df
accepted that he had acted in breach of his duty of good faith as a director.
o HELD (Choo Han Teck J): For an errant fiduciary to avoid making restitution, he must be able to show
that the wronged party would have incurred those losses even if there were no breach of duty.
o The burden was on the Pfs to prove that they had suffered losses and that these losses were caused
by or linked to the Dfs’ breaches of fiduciary duties. The burden then shifted to the Dfs to show that
the Pfs would have incurred those losses even if there had been no breach by the Dfs.
o Once liability is proven, the wrongdoer has to compensate the principal for the loss as was
occasioned by the breach – In this sense, foreseeability and remoteness are irrelevant.
o The question was therefore whether the Pls or Dfs had proved their case on a balance of probabilities.
 Then Khek Khoon v Arjun Permanand Samtani [2014] 1 SLR 0245
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o Pfs had applied to SGCA for order that their legal costs arising from the objection to a collective sale
be paid on the indemnity basis, but the court only awarded 80% on the standard basis. Pf commenced
this suit to recover from Dfs the difference between the costs awarded by SGCA and their actual costs.
o (SGHC) HELD: dismissing claim
o Duties of care and skill: A fiduciary’s liability to pay equitable compensation for breaches of the
duties of skill and care and of prudence and diligence is subject to the doctrines of foreseeability,
causation and remoteness.
o Core duties of honesty and fidelity:
 (a) In one class of cases, equity holds a breaching fiduciary liable to pay equitable
compensation without regard to the principles of causation, foreseeability and remoteness
including even the need for fundamental “but for” causation: Brickenden v London Loan &
Savings Company of Canada
 (b) There is another class of cases in which equity holds a breaching fiduciary liable to pay
equitable compensation only if the “but for” test of causation is satisfied: Target Holdings Ltd
v Redferns
o Whether a case falls into the Brickenden class or Target Holdings class depends on (1) whether the
fiduciary relationship was a well-established category or a novel one, and (2) whether the
breach was culpable or innocent.
 A fiduciary who is in one of the well-established categories of fiduciaries and who
commits a culpable breach of his core duties of honesty and fidelity is liable to pay
equitable compensation even if the object of those duties is unable to prove but-for
causation: Brickenden.
 A fiduciary who is in one of the well-established categories of fiduciaries and who causes
loss to the trust property as a result of an innocent breach of his fiduciary duties is not
liable to reconstitute the trust property unless the object of those duties is able to prove at
least a but-for causal connection between the breach of fiduciary duty and the loss to the
trust fund: Target Holdings.
o Application
o The present case fell under the Target Holdings class of case, where a but-for causal connection must
be shown. This is for 3 reasons:
 First, a sale committee’s relationship with the objecting subsidiary proprietors is not a classic
principal/agent relationship. Instead, it is a sui generis and modern analogue of agency
which differs in significant respects, having its foundation in statute.
 Second, this sui generis agency relationship did not constitute a sale committee an actual
trustee of its power of sale for the subsidiary proprietors, and a sale committee’s duties are
not identical to those of a trustee exercising a power of sale. A sale committee’s duties “are
akin to those of a trustee with a power of sale”.
 Third, the defendants’ breach of the duty of fidelity was an innocent breach.
o (SGCA) HELD: dismissing appeal (Maryani Sadeli v Arjun Permanand Samtani [2015] 1 SLR 496)
o Noted the recent UKSC case of AIB v Mark Redler
o Did not decide the issue of the test of causation since it was unnecessary in the appeal.
 AIB Group (UK) Plc v Mark Redler & Co [2014] UKSC 58
o Pf bank agreed to lend borrowers money for remortgage of their property, on the condition that
another bank’s (Barclays) charge on the property would be redeemed. Df solicitors contacted
Barclays to obtain information about the 2 accounts relating to the charge, but only got the figure of
one account. This account was discharged, leaving a debt of £309k from the other account. Df didn’t
tell Pf of the mistake, but made a deed of postponement so that Pf can register the second charge and
Barclay’s priority was limited to the outstanding debt. The borrowers defaulted on their repayments
and Barclays sold the home for £1.2m, with Pf receiving £867,697. Pf sued Df for breach of trust and
fiduciary duty, breach of contract and negligence, seeking the full loan amount less the proceeds from
the sale. Trial Judge and CA awarded £273,777 as equitable compensation.
Page 36 of 59
o UKSC HELD: dismissing appeal

o Affirms Lord Browne-Wilkinson’s analysis in Target Holdings
o Where trust property had been misapplied, the principles of equitable compensation required the
trustee to restore the trust fund, if still in existence, to the position in which it would have been but
for the trustee’s breach and, if the trust were no longer subsisting, to pay monetary compensation to
the beneficiary on the same basis
o The measure of compensation was to be assessed at the date of the trial, with the benefit of hindsight
and on a common sense view of causation so as to establish that the losses had in fact been caused by
the breach, but foreseeability of loss was irrelevant
o Although the principles of equity did not differ according to the nature of the trust, the detailed
rules relating to equitable compensation developed in respect of traditional trusts were not
necessarily applicable to a bare trust arising in the context of a commercial contract
 Such a contract defined the parameters of the trust, which was part of the machinery for its
performance, and the contractual terms were relevant to the question whether,
applying the “but for” test, the loss had in fact been suffered by reason of the breach
o Application
o It was artificial and unrealistic to hold that the defendants’ conduct had caused a loss to the claimant
in respect of their release of advance moneys which they had in any event been instructed to make
o the commercial effect of the defendants’ release to the borrowers was to complete, or execute, the
transaction thereby changing the relationship between the borrowers and the claimant into one of
contract borrowers and lender
o Accordingly, the claimant was not entitled to a full restoration of the trust fund; but that, since the
loss to the trust estate as a result of the defendants’ breach was the monetary value of the difference
between the first ranking security and the security postponed to B, the measure of compensation due
to the claimant was the sum awarded by the judge, which represented the extent of the equitable
compensation to which the claimant was entitled
5.2.2.2 Bribes taken by Fiduciaries

The UKSC in FHR European Ventures has clarified that all breaches of fiduciary duties will allow the profits made
to be subject to a constructive trust. It was cited with approval in the SGCA Guy Neale v Nine Squares. Thus a bribe
or secret commission received by an agent will be held on constructive trust for the principal.
 Reasons given by Lord Neuberger for the decision:

o It was just that a principal whose agent had obtained a bribe or a secret commission should be able to
trace the proceeds into other assets and follow them into the hands of knowing recipients
o The objectionable nature of bribes and secret commissions undermined trust in the commercial
world so that the law had to be particularly stringent in relation to a claim against an agent who
received them,
o THEREFORE general equitable rule applied, consistently with the fundamental law of agency and the
undivided loyalty owed by an agent to his principal, with the consequence that it was held by him in
trust for his principal;
o The point that this will be unfair to other unsecured creditors has limited force in the context of a
bribe or secret commission, since in the first place, the proceeds of a bribe or secret commission
consists of property which should not be in the agent's estate at all. Secondly, in many cases, the bribe
or commission will very often have reduced the benefit from the relevant transaction which the
principal will have obtained, and therefore can fairly be said to be his property.
 FHR European Ventures v Cedar Capital Partners [UKSC] - A bribe or secret commission accepted by an agent
is held on trust for his principal
o Agents (Consultants) were employed to sell a hotel. However, they also advised the Pl purchaser. Pl
sued the consultants to recover the unauthorized profits made by the agents, as the agents had taken
secret commissions of 10m euros from the seller without the fully informed consent of the
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purchaser. The question arose as to should there also be a CT over and above the requirement to
account for the unauthorized profits.
o HELD (Lord Neuberger):
o Where an agent acquired a benefit which came to his notice as a result of his fiduciary position, or
through an opportunity resulting from that position, the general equitable rule was that he was to
be treated as having acquired the benefit on behalf of his principal, so that the benefit was owned by
the principal who had a proprietary as well as personal remedy against the agent
 No distinction made between fiduciary misusing principal’s assets and committing a wrong
to the principal
o (1) It was just that a principal whose agent had obtained a bribe or a secret commission should be
able to trace the proceeds into other assets and follow them into the hands of knowing recipients
o (2) Policy Considerations: The objectionable nature of bribes and secret commissions undermined
trust in the commercial world so that the law had to be particularly stringent in relation to a claim
against an agent who received them,
o THEREFORE general equitable rule applied, consistently with the fundamental law of agency and
the undivided loyalty owed by an agent to his principal, with the consequence that it was held by him
in trust for his principal;
o The point that this will be unfair to other unsecured creditors has limited force in the context of a
bribe or secret commission, since in the first place, the proceeds of a bribe or secret commission
consists of property which should not be in the agent's estate at all. Secondly, in many cases, the bribe
or commission will very often have reduced the benefit from the relevant transaction which the
principal will have obtained, and therefore can fairly be said to be his property.
o Application: Accordingly, the claimants were entitled to a proprietary remedy in respect of the
secret commission
 Guy Neale v Nine Squares [2015] 1 SLR 1097
o The case revolved around the issue whether certain trademarks were held by Nine Squares on trust
for the Partnership and should be transferred to it
o HELD: There was an express trust, or alternatively a constructive trust arose by operation of law
(strictly orbiter)
o Cited FHR v Cedar with approval
 “127 In the recent decision of the FHR European Ventures, Lord Neuberger of Abbotsbury PSC
set out to clarify the law in this regard. The case concerned the question of whether a bribe
or secret commission received by an agent was held by him on trust for his principal, or
whether the principal was confined to a claim for equitable compensation of a sum equal to
the value of the bribe or secret commission. The former results in the principal having a
proprietary claim to the bribe or secret commission, while the latter results in the principal
having only a personal claim for equitable compensation.”
 “129 When an agent receives a benefit in breach of his fiduciary duty, another well-
established principle is that the agent is obliged to account to his principal for that benefit
and to pay, in effect, a sum equal to the benefit by way of equitable compensation. On the
other hand, some cases show that where an agent has acquired a benefit which came to him
as a result of his fiduciary position or pursuant to an opportunity which results from his
fiduciary position, the equitable rule is that he is to be treated as having acquired the benefit
on behalf of his principal such that it is beneficially owned by the principal. In such cases, the
principal has a proprietary remedy in addition to his personal remedy against the agent, and
the principal can elect between the two remedies (at [6]–[7]). In FHR European Ventures, the
UK Supreme Court was concerned with whether this equitable rule would apply to all
benefits received by an agent in breach of his fiduciary duty, including bribes and secret
commissions.
 “130 After a survey of various cases, … Lord Neuberger eventually concluded … that the
equitable rule applied to all unauthorised benefits which an agent received. This was
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justified, Lord Neuberger explained, on the basis that equity did not permit an agent to rely
on his own wrong to retain a benefit: as the agent acquired the benefit in question as a result
of his agency and in breach of his fiduciary duty, he would be taken to have acquired that
benefit for his principal (at [30]). Thus, any benefit acquired by an agent in the course of his
agency and in breach of his fiduciary duty would be held on trust for his principal (at [35]);
and in all cases where an agent was obliged to account for any benefit received in breach of
his fiduciary duty, his principal could also claim the beneficial ownership of the benefit (at
[36]). A bribe or secret commission received by an agent would thus be caught by this rule.
In the event, the UK Supreme Court approved the earlier Privy Council case of Attorney
General for Hong Kong v Reid [1994] 1 AC 324 (which this court also approved in Thahir
Kartika Ratna v PT Pertambangan Minyak dan Gas Bumi Negara (Pertamina) [1994] 3 SLR(R)
312 at [56]–[59]). What is relevant for present purposes is the holding in FHR European
Ventures that a principal is entitled to all the benefits acquired by a fiduciary in the
course of the fiduciary acting in breach of the duties which he owes to his principal. In
order to give legal effect to this, specific property can be ordered to be delivered up to the
principal.
5.3 AUDIT COMMITTEES
5.3.1 201B OF CA
Even before the CCG, there have been mandatory requirements for audit committees even as early as 1989. See
s.201B of the CA.
S 201B CA
Audit committees
201B(1) Every listed company shall have an audit committee.
(2) An audit committee shall be appointed by the directors from among their number (pursuant to a resolution of
the board of directors) and shall be composed of 3 or more members of whom a majority shall not be —
(a) executive directors of the company or any related corporation;
(b) a spouse, parent, brother, sister, son or adopted son or daughter or adopted daughter of an executive
director of the company or of any related corporation; or
(c) any person having a relationship which, in the opinion of the board of directors, would interfere with
the exercise of independent judgment in carrying out the functions of an audit committee.
(3) The members of an audit committee shall elect a chairman from among their number who is not an executive
director or employee of the company or any related corporation.
(4) If a member of an audit committee resigns, dies or for any other reason ceases to be a member with the result
that the number of members is reduced below 3, the board of directors shall, within 3 months of that event,
appoint such number of new members as may be required to make up the minimum number of 3 members.
(5) The functions of an audit committee shall be —
(a) to review —
(i) with the auditor, the audit plan;
(ii) with the auditor, his evaluation of the system of internal accounting controls;
(iii) with the auditor, his audit report;
(iv) the assistance given by the company’s officers to the auditor;
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(v) the scope and results of the internal audit procedures; and
(vi) the financial statements of the company and, if it is a parent company, the consolidated
financial statements, submitted to it by the company or the parent company, and thereafter to
submit them to the directors of the company or parent company; and
(b) to nominate a person or persons as auditor, notwithstanding anything contained in the constitution or
under section 205,
together with such other functions as may be agreed to by the audit committee and the board of directors.
…
5.3.2 CCG ON THE AUDIT COM MITTEE – USE OF INDEPENDENT DIRECTORS ON THE
COMMITTEE
In contrast to s.201B, the CGC requires:
1) The entire audit committee to be made up of non-executive directors
2) With a majority, including its chairman, to be independent of management
3) At least two members to possess accounting or financial experience
Code of Corporate Governance
12.1 The AC should comprise at least three directors, the majority of whom, including the AC Chairman, should be
independent. All of the members of the AC should be non-executive directors. The Board should disclose in the
company's Annual Report the names of the members of the AC and the key terms of reference of the AC,
explaining its role and the authority delegated to it by the Board.
12.2 The Board should ensure that the members of the AC are appropriately qualified to discharge their
responsibilities. At least two members, including the AC Chairman, should have recent and relevant accounting or
related financial management expertise or experience, as the Board interprets such qualification in its business
judgement.
There are two problems with implementing the audit guidelines – 1) shortage of independent directors in
Singapore 2) Smaller listed coys will have problems complying with the code. This prompted a flexible philosophy
in implementing the Code – meaning that the code has even less enforceability than the listing rules.
 SGX had previously prescribed comprehensive provisions on independence for audit committees in the
aftermath of the collapse of Amcol Holdings in 1995 under Cap 9B of the LM
 Almost immediately there was a public outcry abt the difficulties and costs of appointing independent
directors (Straits Times, 27 June 1997)
 Thus Cap 9B was replaced with a Best Practices Guide that while stating that audit committee members
should be independent from management, was accepted by SGX to be intended to serve only as
“principles and best practices” and not enforceable.
 SGX made this decision also because they acknowledged that each listed coy’s approach to corp gov may differ
(due to operating constraints, organisational structure etc) and it wld be difficult to impose the same corp gov
structure for all listed coys. This philosophy found its way into the CGC
o As stated above, any listed coy can deviate from the CGC as long as it provides an explanation in its
annual report (r 710 LM)
Chia – SES May Ease Strict Rules Governing Internal Controls (27 Jun 1997)
 Just seven months after the enactment of regulations to beef up corporate governance, the exchange is now
proposing to relax the definition of independence of audit committee members and reduce their
responsibilities as company watchdog.
o Chapter 9B of the Listing Manual was intended to enhance the watchdog role of audit committees and
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regulate the appointment of auditors. It was in response to the collapse of Amcol Holdings.
 Under the new rules:
o Audit committee members will assist the board of directors rather than oversee the extent to which
management acts in shareholders’ interests.
o Internal auditors will not report to audit committees. But the committees will have full access to
these in-house auditors.
o Audit committees must still write reports on internal controls of listed companies, but need not make
these public. The reports will be submitted to the board.
o If the board agrees, audit committee members can still be considered independent when they receive
fees of more than $30,000 for a transaction. This is a sign of non-independence under current rules.
5.3.3 HIGHER DUTY OF CARE EXPECTED?

The New South Wales Supreme Court in ASIC vs Rich held that the chairman of the board of directors may have
special responsibilities above and beyond those of other non-executive directors. In the case, Justice Austin held
that the Corporations Act 2001 imposed a duty of care and diligence on the chairman of a listed public company
which could lead to the imposition of a series of more specific duties which reflect contemporary community
expectations. Similar, it could be argued that directors serving in the Audit committee is under a higher duty of
care which reflects community expectations. Indeed in Lim Weng Kee v PP [2002], the SGHC held that the standard
of diligence will be calibrated to a higher standard if the director holds himself out to possess some special
knowledge or experience.
 But in Australia they have the Business Judgement Rule enshrined in statutory form (s 180(2)), so perhaps
that is why they are willing to increase the standard of duty of care? Whereas in Singapore our business
judgement rule is under common law (eg. Vita Health), so is weaker
o Business judgement rule just states that courts should not, with the benefit of hindsight, substitute its
own decisions for the honestly held business judgments of directors (Howard Smith (HL), affirmed in
Vita Health)
 It can be argued that special knowledge or experience cannot be equated with special responsibilities and
positions, although a director may have been chosen to be in the Audit committee precisely because of his
special knowledge or expertise (see CCG 12.2 above)
 HT: standard sounds high, but in reality, it’s hard to find liability especially if the director is well represented
by lawyers?
Name Lim Weng Kee v PP [2002] 4 SLR 327

Held The civil standard of care and diligence expected of a director is objective, namely, whether he has
exercised the same degree of care and diligence as a reasonable director found in his position.
This standard is not fixed but is a continuum depending on various factors such as the individual’s
role in the company, the type of decision being made, the size and the business of the company.
However, it is important to note that, unlike the traditional approach, this standard will not be
lowered to accommodate any inadequacies in the individual’s knowledge or experience. The
standard will, however, be raised if he held himself out to possess or in fact possess some special
knowledge or experience.
By virtue of “reasonable diligence”, s. 157 implies that the appellant’s conduct must be measured
against some objective standard of behaviour. Therefore, the tests for both civil and common
liability under s. 157 are objective in nature.
5.4 RENUMERATION COMMITT EE

 Principle 7 provides that there should be a formal and transparent procedure for developing policy on
executive remuneration. No director should be involved in deciding his own remuneration.
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 Guideline 7.1 states that the Board should establish a Remuneration Committee. It should comprise of at least
three directors, the majority of whom, including the RC Chairman, should be independent. All of the members
should be non-executive directors to minimise the risk of any potential conflict of interest.
 Guideline 9.1 provides that the company should report to the shareholders each year on the remuneration of
directors, the CEO and at least the top five key management personnel (who are not also directors or the CEO)
of the company.
 Guidelines 8.1 & 8.2 recommend long-term incentive schemes for executive directors and key management
personnel. Performance-related remuneration should be aligned with the interests of shareholders and
promote the long-term success of the company.
o HT: The Code sees benefit in greater use of longer-term incentive schemes using share options or
other forms of deferred remuneration in order to align the interests of management and
shareholders. But stock options may have been abused as a means of remuneration in countries like
the US, and there are signs of investor activism against the overuse of options in Singapore as well.
Now we are moving towards other performance-based compensation such as shares which cannot be
sold for 10 years.
o See below at 5.6.3 for evaluation on the use of stock options
 Note: The shareholders only decide on fees (amount directors get per meeting) and emoluments (perks like
sitting on business class), salary is determined by RC
o Should shareholders have say in remuneration? UK position complex – annual pay report subject to
advisory vote with binding vote on pay policy every 3 years.

PROCEDURES FOR DEVELOPING REMUNERATION POLICIES
Principle:
7 There should be a formal and transparent procedure for developing policy on executive remuneration and for
fixing the remuneration packages of individual directors. No director should be involved in deciding his own
remuneration.
Guidelines:
7.1 The Board should establish a Remuneration Committee ("RC") with written terms of reference which clearly
set out its authority and duties. The RC should comprise at least three directors, the majority of whom, including
the RC Chairman, should be independent. All of the members of the RC should be non-executive directors. This is
to minimise the risk of any potential conflict of interest. The Board should disclose in the company's Annual
Report the names of the members of the RC and the key terms of reference of the RC, explaining its role and the
authority delegated to it by the Board.
LEVEL AND MIX OF REMUNERATION
Guidelines:
8.1 A significant and appropriate proportion of executive directors’ and key management personnel's
remuneration should be structured so as to link rewards to corporate and individual performance. Such
performance-related remuneration should be aligned with the interests of shareholders and promote the long-
term success of the company. It should take account of the risk policies of the company, be symmetric with risk
outcomes and be sensitive to the time horizon of risks. There should be appropriate and meaningful measures for
the purpose of assessing executive directors’ and key management personnel's performance.
8.2 Long-term incentive schemes are generally encouraged for executive directors and key management
personnel. The RC should review whether executive directors and key management personnel should be eligible
for benefits under long-term incentive schemes. The costs and benefits of long-term incentive schemes should be
carefully evaluated. In normal circumstances, offers of shares or grants of options or other forms of deferred
remuneration should vest over a period of time. The use of vesting schedules, whereby only a portion of the
benefits can be exercised each year, is also strongly encouraged. Executive directors and key management
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personnel should be encouraged to hold their shares beyond the vesting period, subject to the need to finance any
cost of acquiring the shares and associated tax liability.
DISCLOSURE ON REMUNERATION
Guidelines:
9.1 The company should report to the shareholders each year on the remuneration of directors, the CEO and at
least the top five key management personnel (who are not also directors or the CEO) of the company. This annual
remuneration report should form part of, or be annexed to the company's annual report of its directors. It should
be the main means through which the company reports to shareholders on remuneration matters.
5.5 NOMINATION COMMITTEE

 Nomination committee to consist of majority of independent directors (to include the NC chairman). Its role is
to:
o Provide transparency in the process of selecting and re-electing directors.
o Assess the effectiveness of the entire board, as well as individual directors
 Why
o Given the importance of board composition and the role of the Chairman, it is crucial that there is a
nominating committee to provide transparency in the process of selecting and re-electing
directors
o Its mandate is to develop a criteria for and seek an optimal mix of board members
o It is also expected to assess the effectiveness of the entire board as well as individual directors
o The Nomination Committee Chairman should be a “lead independent director” who is entitled
to attend the meetings of other board committees. In this context, Guideline 4.1 of the CCG
provides that the NC Chairman should be a director who os not be associated with substantial
shareholder of the coy [only provision recognising this need for a higher lvl of independence]
 In Singapore 94% of companies had NC in 2009.
o But maybe now the figure won’t be as high because of the change in the definition of ID
BOARD MEMBERSHIP
Principle:
4 There should be a formal and transparent process for the appointment and re-appointment of directors to the
Board.
Guidelines:
4.1 The Board should establish a NC to make recommendations to the Board on all board appointments, with
written terms of reference which clearly set out its authority and duties. The NC should comprise at least three
directors, the majority of whom, including the NC Chairman, should be independent. The lead independent
director, if any, should be a member of the NC. The Board should disclose in the company's Annual Report the
names of the members of the NC and the key terms of reference of the NC, explaining its role and the authority
delegated to it by the Board.
5.6 INDEPENDENT DIRECTORS
5.6.1 CCG REQUIREMENT

 As seen above, the Code requires independent directors to sit on audit committees and remuneration
committees. The CCG also states that there should be an ideal mix of board members in order to assist and
guide the coy in meeting the operational, regulatory and industry challenges it might face from time to time in
its core business
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o At least 1/3 of the board of directors should be independent in order to reconcile the divergent
interests of management and shareholders (2.1 CCG)
o Independent directors should make up at least half of the Board where the Chairman and CEO is the
same person/related, where the Chairman is not independent (2.2 CCG)
 The role of the IDs is to watch over the majority shareholders or EDs and to make sure they do not act in their
own self-interests (entering into IPTs) (see Principle 2, CCG)
 But see also Principle 1.1 “The Board's role is to: (a) provide entrepreneurial leadership, set strategic
objectives, and ensure that the necessary financial and human resources are in place for the company to meet
its objectives;”
o So does that mean that IDs are supposed to ensure success of company?
Principle:
2 There should be a strong and independent element on the Board, which is able to exercise objective judgement
on corporate affairs independently, in particular, from Management and 10% shareholders. No individual or small
group of individuals should be allowed to dominate the Board's decision making.
Guidelines:
2.1 There should be a strong and independent element on the Board, with independent directors making up at
least one-third of the Board.
2.2 The independent directors should make up at least half of the Board where:
(a) the Chairman of the Board (the "Chairman") and the chief executive officer (or equivalent) (the "CEO") is the
same person;
(b) the Chairman and the CEO are immediate family3 members;
(c) the Chairman is part of the management team; or
(d) the Chairman is not an independent director.
5.6.2 DEFINITION OF INDEPE NDENT DIRECTOR

 According to the CCG Guideline 2.3, an “independent” director” is one who has no relationship with the
company, its related corporations, its 10% shareholders or its officers that could interfere, or be reasonably
perceived to interfere, with the exercise of the director's independent business judgement with a view to the
best interests of the company. Examples of relationships (non-exhaustive) include:
(a) a director being employed by the company or any of its related corporations for the current or any of the
past three financial years;
(b) a director who has an immediate family member who is, or has been in any of the past three financial
years, employed by the company or any of its related corporations and whose remuneration is
determined by the remuneration committee;
(c) a director, or an immediate family member, accepting any significant compensation from the company
or any of its related corporations for the provision of services, for the current or immediate past financial
year, other than compensation for board service;
(d) a director or immediate family member who, in the current or immediate past financial year, is or was a
10% shareholder of, or an executive officer of, or a director of, any organisation which received from
or paid to the company or any of its subsidiaries significant payments or material services, in the current
or immediate past financial year.
a. Payments aggregated over any financial year in excess of S$200,000 should generally be deemed
significant
(e) a director who is a 10% shareholder or an immediate family member of a 10% shareholder of the
company; or
(f) a director who is or has been directly associated with a 10% shareholder of the company, in the
current or immediate past financial year.
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 If the company wishes to consider such a director independent, it should disclose in full the nature of the
director’s relationship with the company and/or its related companies and bear responsibility for explaining
why he should be considered independent
Note: Prior to 2012, it seemed that most of the Coys complied with the CCG, and this was because the definition of
IDs included a nominee director. However, after the amendment of the CCG, it is a question whether Coys are still
in compliance with the CCG.
 Nominee directors should not be perceived as independent because of potential conflicts of interests on the
part of the ID of a listed target coy if the ID has links to a major shareholder seeking to take-over the rest of
the coy on the face of a competing bid from another offeror.

2.3 An "independent" director is one who has no relationship with the company, its related corporations, its 10%
shareholders or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the
director's independent business judgement with a view to the best interests of the company. The Board should
identify in the company's Annual Report each director it considers to be independent. The Board should
determine, taking into account the views of the Nominating Committee ("NC"), whether the director is
independent in character and judgement and whether there are relationships or circumstances which are likely to
affect, or could appear to affect, the director's judgement. Directors should disclose to the Board any such
relationship as and when it arises. The Board should state its reasons if it determines that a director is
independent notwithstanding the existence of relationships or circumstances which may appear relevant to its
determination, including the following:
(a) a director being employed by the company or any of its related corporations for the current or any of the past
three financial years;
(b) a director who has an immediate family member who is, or has been in any of the past three financial years,
employed by the company or any of its related corporations and whose remuneration is determined by the
remuneration committee;
(c) a director, or an immediate family member, accepting any significant compensation from the company or any
of its related corporations for the provision of services, for the current or immediate past financial year, other
than compensation for board service;
(d) a director:
(i) who, in the current or immediate past financial year, is or was; or
(ii) whose immediate family member, in the current or immediate past financial year, is or was,
a 10% shareholder of, or a partner in (with 10% or more stake), or an executive officer of, or a director of, any
organisation to which the company or any of its subsidiaries made, or from which the company or any of its
subsidiaries received, significant payments or material services (which may include auditing, banking, consulting
and legal services), in the current or immediate past financial year. As a guide, payments5 aggregated over any
financial year in excess of S$200,000 should generally be deemed significant;
(e) a director who is a 10% shareholder or an immediate family member of a 10% shareholder of the company; or
(f) a director who is or has been directly associated with6 a 10% shareholder of the company, in the current or
immediate past financial year.
The relationships set out above are not intended to be exhaustive, and are examples of situations which would
deem a director to be not independent. If the Board wishes, in spite of the existence of one or more of these
relationships, to consider the director as independent, it should disclose in full the nature of the director's
relationship and bear responsibility for explaining why he should be considered independent.
2.4 The independence of any director who has served on the Board beyond nine years from the date of his first
appointment should be subject to particularly rigorous review. In doing so, the Board should also take into
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account the need for progressive refreshing of the Board. The Board should also explain why any such director
should be considered independent.
5.6.3 LEAD INDEPENDENT DIRECTOR

From above, lead independent director should be part of the NC.
3.3 Every company should appoint an independent director to be the lead independent director where:
(a) the Chairman and the CEO is the same person;
(b) the Chairman and the CEO are immediate family members;
(c) the Chairman is part of the management team; or
(d) the Chairman is not an independent director.
The lead independent director (if appointed) should be available to shareholders where they have concerns and
for which contact through the normal channels of the Chairman, the CEO or the chief financial officer (or
equivalent) (the "CFO") has failed to resolve or is inappropriate.
3.4 Led by the lead independent director, the independent directors should meet periodically without the
presence of the other directors, and the lead independent director should provide feedback to the Chairman after
such meetings.
5.6.4 EFFECTIVENESS OF INDEPENDENT DIRECTORS

 It is not clear how the number of ID would improve corporate performance and shares prices. SGX Chairman
JY Pillay recognised having IDs as “just a matter of good governance” [see Business Times, 17 Jan 2003]
o However the Code takes the view that the number and background of the ID may indicate that a
board is actively monitoring management
 Also, unlike a number of other jurisdictions, the Code does not indicate the maximum number of directorships
one can have. JY Pillay suggested in early 2010 that this should number no more than five, which is consistent
with the number recommended by the UK Institute for Directors. But the Singapore Institute of Directors have
publicly stated that they do not believe in a cap.
o The difficulty is that in Singapore, IDs are not sufficiently remunerated and might assume many
directorships as it provides additional fees. With their attention split between multiple boards, they
will then spend little time on the affairs of a particular coy. Indeed some studies have indicated that
on average such ID attend fewer than 3 meetings a year [Business Times, 1 Sep 2003]
o Yet if independent directors are too well paid, particularly with stock options, they will then lose
their objectivity. (see more below at 5.8.3.2)
5.7 DELINEATING THE POSITION OF CEO AND CHAIRMAN

 Guideline 3.1 recommends that position of CEO and Board Chairman be clearly delineated to reduce
the possibility of any individual or group dominating the Board.
o Generally, the Chairman will be seen as a monitor of management, whose responsibilities include
scheduling meetings, preparing meeting agenda, controlling the flow of info between the
management and the board and ensuring compliance with coy guidelines on corp gov
 Where the CEO and Board chairman are related, this should be disclosed in the annual report.
 Note: CEO is involved in the day-to-day activities, while the Chairman is not always there, only there during
meetings, maybe 20 times a year. However, nowadays the Chairman may be taking on a more important role,
such as ensuring compliance.
 HT: Generally, the Chairman will be seen as a monitor of management, whose responsibilities include
scheduling meetings, preparing meeting agenda in consultation with the CEO, exercising control over the
quality, quantity and timeliness of the flow of information between the management and the board and
assisting in ensuring compliance with the company’s guidelines on corporate governance.
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3.1 The Chairman and the CEO should in principle be separate persons, to ensure an appropriate balance of
power, increased accountability and greater capacity of the Board for independent decision making. The division
of responsibilities between the Chairman and the CEO should be clearly established, set out in writing and agreed
by the Board. In addition, the Board should disclose the relationship between the Chairman and the CEO if they
are immediate family members.
5.8 EFFECTIVENESS OF CORPORATE GOVERNANCE
5.8.1 ENFORCEMENT ISSUES

The only mode of enforcement is that issuers have to disclose it in their annual reports. However, because the
Code is not statutory, it cannot be breached, per se. The Code depends on shareholders keeping an eye out on
companies, but it is questionable if shareholders are concerned with corporate governance (see below).
Moreover, shareholders cannot sue directors directly, they can only do it via other directors or derivative actions
(s 216A CA). In any event, a derivative action presupposes that directors have breached their duties, but mere
non-compliance with the Code does not constitute a breach; indeed, the Code expressly allows companies to
deviate from it. The only realistic option is for shareholders to sell their shares. The hope is that the market will
discipline the company. But note that companies who do well tend to be let off ("comply or perform").
Moreover, big institutional investors with large shareholdings (e.g. 10%) may find it difficult to dump these large
holdings (see the concept of dark pools). They have an interest in seeing the company be run well, but they cannot
readily call shareholder meetings. Effectively, such shareholders are locked in without a viable exit or
improvement option.
HT: In rare circumstances, oppression (s216) can be used) can be used
5.8.2 COMPLIANCE BY COMPANIES

Nevertheless, even though the Code requirements are not mandatory, the figures show that a large number of
companies do comply with its requirements (more than 98% of all listed companies comply with the Code).
 But note that figures before 2012 may not be accurate since def of ID includes ND (see above comments)
HT: As a whole, the market has weathered the financial crisis and there has been no systemic collapse. But the
problems in smaller listed companies, some of overseas origin, have led to a loss of investor confidence, and lower
valuations in Singapore compared to a rival financial markets like Hong Kong. The no one-size-fits-all approach
has allowed listed companies to differentiate themselves from each other, but the overall market may have
suffered in a reputational sense.
Smaller listed coys
 The cost of setting up these board structures to comply with the code indicates that smaller listed coys will
have difficulty complying.
 The inherent flexibility of the Code, which avoids a one-size-fits-all approach to corp gov means that no coy
shld lose its official listing merely because of non-compliance with the code
Reputational Considerations factor in prompting coys to abide by code
 Hans Tjio at [5.24] suggests that reputational considerations will provide the incentive for coys to raise their
standards of corp governance – they will abide by the Code and announce to the public to increase investor
confidence in them
5.8.3 ‘COMPLY OR EXPLAIN’ APPROACH

There are two aspects of corporate governance. One is the rules themselves. The other is the “glaring light of
publicity”. Indeed, some would argue that where competitive forces exist, regulators need only concentrate on
laws promoting disclosure of information, and equal access to that information.
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This aspect is reflected in “comply or explain” approach under the CCG where compliance with the codes is not
mandatory but that disclosure relating to compliance is. The rationale is that once this is disclosed to the market,
it is up to the market to judge and reward each company for its standard of corporate governance.
Sept 2006 listing rule changes improve transparency and disclosure by encouraging issuers to adopt best
practices set out in the Operating and Financial Review (OFR) Guide. Issuers are to follow the Guide when
preparing the operating and financial review in their annual reports. This will be effective for all AGMs held on or
after 1 January 2007.
There have been arguments that pure disclosure is not enough (The SEC, The Accountants, Some Myths and
Some Realities).
 If the disclosure is too complex , investor will not understand
 If disclosure is too brief, how can the investor be properly informed and make an intelligent decision?
 Thus Kripke argues that the intelligent investor who tries to act in an informed way does so by getting at least
part of his info second hand though professionals. The concept that a prospectus enables the investor to act in
an informed fashion without professional aid is a delusion.
o But are professional help really useful? Analysts will very likely recommend buying stocks even
during the peak of recessions (Healy & Grynbaum).
On the other end of the spectrum, some argue that a mandatory disclosure is unnecessary (Battle of the
Philosophies)
 Corporate managers possess sufficient incentives to disclose voluntarily all or virtually all information
material to investors
Kripke – The SEC, The Accountants, Some Myths and Some Realities (1970)
 The author argues that pure disclosure is not enough. If the disclosure is too complex, investors may not
understand it. On the other hand, if the disclosure is too brief, investors may not be properly informed and
unable to make an intelligent decision.
 The intelligent investor who tries to act in an informed way does so by getting at least part of his information
second hand, filtered through professionals. The concept that a prospectus enables the investor to act in an
informed fashion without professional aid is a delusion.
 Furthermore, investors need comparative information in order to decide what they should invest in, not just
information about the company. The only meaningful answer as to whether an investment is a good buy is
when it is compared with alternative choices.
Healy and Grynbaum – To Some Analysts, It’s Always Time to Buy (11 Feb 2009)
 The authors point out that, even at the peak of the recession, analysts continue to urge investors to buy or
hold onto stocks about 95% of the time.
 Regardless of whether it is a bear market, a bull market, a flat market, investors are going to get 95% of the
research telling them to buy.
Loss & Seligman – Battle of the Philosophies (2004)
 In response to an approach that prefers merit regulation, Louis Brandeis advocated for the disclosure
philosophy of securities regulation, and had strongly urged publicity as a remedy for social and industrial
diseases. In his view, the law should not try to keep investors from making bad bargains.
o But William Douglas noted that, with a disclosure-based regime, those needing investment guidance
will receive small comfort from the balance sheets, contracts, or compilation of other data revealed in
the registration statement.
 Later financial theorists have argued that a mandatory corporate disclosure system is unnecessary because
corporate managers possess sufficient incentives to voluntarily disclose all or virtually all information
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material to investors.
o Since the conflicting interests of corporate managers and outside shareholders are obvious, in an
equity market characterized by rational expectations, outside shareholders will discount the value of
the shares; and so, both shareholders and corporate managers will have incentives to enter into
contracts that restrict the manager’s ability to enter into conflicted transactions, so as to increase the
value of the firm’s shares.
 But the authors note that many firms’ disclosure practices, if not subject to mandatory rules, would be the
product of both financial considerations and concerns about the firms’ competitive position.
o Because of concerns about the competition’s response, some firms presumably would prefer to suffer
lower stock market prices or pay higher costs of capital than run the risk of inspiring additional
entrants into their product markets (or takeover bidders).
5.8.3.1 ‘Comply or Perform’

 Ian MacNeil and Xiao Li pointed out that there is empirically, an acceptable trade-off from the perspective
investors between compliance and share price. Investors can tolerate non-compliance with the CCG if share
prices are high
o Investors thus accept a “comply or perform” approach
 However, Lynn Stout noted that prices are unreliable as the sole determinant of corporate performance. She
believes that companies end up pursuing short-term opportunities and business strategies that seek to raise
share prices but are unhealthy for long-term corporate growth.
 This in turn causes problems to future investors, who in the case of corporate disclosure, may want
compliance and are in conflict with other existing shareholders who desire immediate stock gains. There have
been calls for directors to take their interest into account as well.
 HT: It is important to remember that there are different types of shareholders: long-term shareholders, short-
term shareholders, future shareholders
Ian MacNeil & Xiao Li – Comply or Explain: Market Discipline and Non-Compliance with the Combined Code
(2006)
 Non-compliance disclosure made by companies is not straightforward, as they are usually extremely brief and
uninformative.
 This suggests that instead of engaging in detailed examination and evaluation of instances of non-compliance,
investors may be routinely adopting a proxy to judge the merits of non-compliance, which is the financial
performance of the company as measure by its share price.
 The authors point out that there is, empirically, an acceptable trade-off from the perspective of investors
between compliance and the share price.
 Investors can tolerate non-compliance with a code of corporate governance if share prices are high. In other
words, investors accept a “comply or perform” regime.
Lynn Stout “Share Price as a Poor Criterion for Good Corporate Law”
 There are many reasons why stock prices often fail to reflect true corporate performance, including the
problem of private information; obstacles to effective arbitrage; investors' cognitive defects and biases;
problems with options (below)
 These considerations argue against assuming there is a tight connection between stock prices and underlying
corporate wealth generation.
 A corporation or a corporate law system designed around the philosophy that “anything that raises
share price is good” is likely to produce a firm that cooks its books; that avoids long-term projects that
won't appeal to unsophisticated investors; that chases after investment fads and fancies; that tries to
opportunistically exploit creditors, employees, and customers; and that pursues business strategies
that harm its diversified shareholders' other investment interests.”
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 The author believes that the world should shift its focus away from price as the sole determinant of corporate
performance.
 She suggests adopting Prof Klein’s laundry list of factors which reflects the complex realities of the business
world, where the consequences of any particular decision are often opaque, widespread, multifaceted, and
played out over long periods of time.
5.8.3.2 Questions on disclosure

 Do you believe that the market properly assesses information that has been disclosed to it? Low volume high
value information?
o Depends, retail investors may not assess them as much
o There may be problem with too much information. Regulation can require forms that highlight
essential information
 What is needed for a fully functioning disclosure based regime?
o Sufficient enforcement? But enforcement is difficult. But still need sanctions
 Do individual investors really monitor closely information in the market? Do they have to?
o No, they don’t really need to because they can’t (lack of expertise). Usually it’s the institutional
investors who push the companies, but in order to benefit the retail investors they should disclose
any information they have before acting
 Who controls corporate disclosure?
o Directors
 In whose interests do they act when they decide whether and when to disclose information to the market
(through SGXNet).
o Company, different types of shareholders
 Is there a difference in the legal regime between the kinds of information that have to be disclosed? What
does s 203 SFA cover?
o There is still a judgement call, not all information need to be disclosed.
5.8.4 PROBLEMS WITH STOCK OPTIONS

A stock option gives the option holder the right (but not obligation) to buy shares in the future at a previously
determined price (strike price). In practice, many IDs and NEDs are being paid with stock options so that their
interest aligns with the shareholders.
 Problems
o [problems with off-balance sheet accounting]: However what started out as alignment became
their main avenue for remuneration – coys paid directors mostly using stock options (don’t have to
pay large remuneration to directors – cheaper) – Hard to reflect such payments on coys balance
sheets since don’t know whether will exercise the option and thus it will make it difficult for
investors to track the exposures of an institution [i.e. what happened at Enron – practice of off-
balance sheet accounting served to obsfuscate what was already a very complex business involving
the trading of financial derivatives]
o [notional losses if share prices rise] If coy earns huge profits and share prices go up and directors
call in their options (which were issued at a very low strike price) – notional loss suffered because
coy cld have sold shares at a higher price
o [Dilution of shares]: Giving the directors stock options will dilute the stakes of other shareholders at
the same time, as it has been estimated that 200 of the largest US coys distributed more than 16% of
their outstanding shares as options
o [made directors more focused on raising share prices rather than monitoring corp
governance]: Because stock options only rewarded the holders when the underlying stock was high
(at the point when it came to exercising the options and selling the shares) this provided the holders
with an incentive to do whatever it took to pump up stock prices, even if this had nothing to do with
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the real performance and profits of the coy [e.g. leaking false info to prompt transient short-term
stock price increases]
o [Holder of stock options will manipulate coy accounts]: Directors who know when their stock
options will be issued and exercised have incentives to disclose negative corporate news just
before the issuing (to make strike price low) and positive news just before the exercise date
while delaying disclosure of negative news. Aboody and Kazniack studied 572 US coys that made
stock options with predictable schedules during 1992-1996 and found that immediately prior to the
issuance of the options, the earnings forecasts for those coys were substantially less optimistic than
those of the same firms issued in months when no options were forthcoming (see Yablon & Hill
“Timing Corporate Disclosures to Maximise Performance Based Remuneration”).
 After analyzing the problems above, should stock options be given to independent directors?
o The UK Higgs Report states that non-executive directors should be remunerated largely through
annual fees rather than incentive-based measures such as options, and the same point has been made
in Australia. This reinforces the perception that independent directors are monitors of management
rather than persons that improve performance.
Lynette Khoo – Timing of Hyflux Option Grants Questioned (4 Apr 2011)
 Hyflux’s granting of options were called into question. The day after it announced that it granted options with
a strike price of $1.892, it announced that it had clinched the bid to build Singapore’s largest sweater
desalination plant. This caused the share price to rise to $2.05, resulting in an immediate 12% gain for the
options recipients.
 The author notes that stock options are usually used to retain and incentivize key management. But there
have been calls to impose limits on the timing of grants, and the vesting and selling of option shares.
 Prof. Mak Yuen Teen feels that without such limitations, options and other share incentives do not necessarily
align the executives’ interests with long-term shareholders’ interests. He recommends that companies grant
their stock options at fixed times each year.
Yablon & Hill – Timing Corporate Disclosures to Maximize Performance Based Remuneration (2000)
 CEOs who receive a substantial portion of their compensation in stock options or similar forms of
compensation have an incentive to manipulate the market price of their companies’ stock.
 A CEO who knows he will receive stock options on a fixed date, which will become exercisable on another,
later fixed date, can increase the value of that option if he can cause the company’s stock price to drop shortly
before the date of issuance.
o Accordingly, CEOs who know when their options will be issued and become exercisable have
incentives to disclose negative corporate news shortly before the issuance of such options and to
disclose positive news shortly before their exercise date while delaying disclosure of negative news.
Richard Nolan – The Legal Control of Director’s Conflicts of Interest in the UK (2005)
 The author argues that independent non-executive directors should be used exclusively as monitors and
regulators of manager.
o Particularly, they should regulate (and be given powers to waive) executive directors’ conflicts of
interest, rather than as participants in management who also have a control function.
o Such an exclusive role would free them from any conflicting pressures they might experience if they
were managers of a company’s business as well as monitors of the company’s other directors.
 The traditional model of having independent directors that are involved in management is not ideal.
o Directors who are together involved in the management of a business are unlikely to constitute the
best people to regulate each other’ conflicts of duty and interest.
o Considerations of collegiality and the incentives towards mutually supportive behavior at board
meetings and elsewhere all make it unlikely that executive directors will adequately regulate each
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others’ conflicts of duty and interest.
UK Higgs Report
12.24 Remuneration for directors needs to be sufficient to attract and retain high calibre candidates but no more
than is necessary for this purpose. The level of remuneration appropriate for any particular non-executive
director role should reflect the likely workload, the scale and complexity of the business and the responsibility
involved. … The risk of high levels of remuneration (or a large shareholding) prejudicing independence of thought
is real and should be avoided. Where
12.26 Some responses to consultation opposed the holding of shares by nonexecutive directors. The more general
view was that shares could be helpful in aligning the interests of the director with the long-term interests of
shareholders. It is undesirable, however, for any shareholdings to represent a large proportion of the individual
non-executive director’s financial wealth. I conclude that there is merit in the current practice of some companies
giving their non-executive directors the opportunity to take part of their remuneration in the form of shares in
lieu of cash.
12.27 Most responses to consultation opposed the use of options in non-executive director remuneration because
of the risk of undesirable focus on share price rather than underlying company performance. Similarly,
participation by nonexecutive directors in incentive or pension schemes was felt to be undesirable. I conclude that
non-executive directors should not hold options over the shares of their company (suggested Code provision
B.1.7). If, exceptionally some payment is made by means of options, shareholder approval should be sought in
advance and any shares acquired by exercise of the options should be held until one year after the non-executive
director leaves the board.
6 ENFORCING DUTY OF DISCLOSURE
Who should be able to enforce

A self-enforcing corporate law system requires a mechanism for proper enforcement, particularly with disclosure
problems prevailing in capital markets. While public enforcement of continuous disclosure rules remains the
primary means of enforcement in Singapore, HT argues that this should be supplemented by private enforcement.
 Argument for public enforcement: In a small economy like Singapore’s, it may be that MAS, through the use
of civil penalties, is the most cost efficient and effective enforcer of securities laws rather than the
investors themselves. This is in line with Singapore’s securities framework of promoting good corp
governance and not investor protection.
 Argument for private enforcement: Why should wealth always be shifted from shareholders to
regulators which is the case particularly in a treble civil penalties regime such as exists in s.232 of the SFA.
How about the individual investor who suffers loss as a result of the director’s intentional failure to disclose?
 Note: some jurisdictions like Taiwan allow for regulator (MAS) to enforce for the benefit of the aggrieved
shareholders
Standard of liability
 The chances of insider trading is reduced if information is disclosed accurately and on a timely basis by the
company. But controlling false and misleading corporate disclosures is even more important. As Prof. Davies
have noted, poor disclosure is usually the result of directors trying to do what they believe is in the company’s
interest, i.e., to keep the company afloat by not disclosing bad news (e.g. the Neptune Orient Lines debacle).
o Prof. Davies has also argued that fraud should be the standard of liability if there is improper
disclosure. It is thought that there would be a chilling effect on directors and officers if negligence is
the standard of liability in actions that are brought by their companies against them. Tjio believes
that it is for this reason that s. 463 of the UK Companies Act 2006 makes a director liable to the
company for misstatements only in the case of fraud (knowledge or recklessness).
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o Tjio argues that a disclosure founded on negligence liability is not appropriate if the goal is to
generate useful corporate information. There are many instances in practice where officers have to
take a good faith business decision not to disclose information for reasons such as its incipient
nature. However, s. 203 creates liability for corporate issuer even if the disclosure is just negligent.
6.1 ENFORCEMENT MEASURES IN SINGAPORE UNDER SFA

Under the SFA, the company may be liable under s 203 for breach of CDR and s 199 for making false/misleading
statements. S 204 provides for criminal penalties, while s 232 provides for civil penalties to MAS, and s 234
provides for civil compensation to aggrieved (ex-)shareholders.
Directors may be liable through s 331 if the offence was committed with his consent, or connivance of, or
attributable to his neglect. They may also be liable under s 199 if they were the ones who made the
false/misleading statements.
 Why should we enforce against directors instead of companies? HT argues that the Df should be the
directors and not the company as there are situations where it is difficult to conceive the corporation as a
separate entity that ought to be liable. The company may have acted under a Board that is backed by the
majority shareholders, in which case the proper Dfs should be the majority shareholders/directors acting
under them. By making the company the Df, the minority shareholders who are the victims will suffer a
second time (see below for more).
o HT: “hard to envision the corporation as a separate entity when it comes to liability in insider type
structures given the structural bias that exists in that directors often act in the interests of the major
shareholder rather than the shareholders as a whole”
 Issuer as the Pf: The situation is further complicated by taking into account the future shareholders who may
have been prejudiced. HT opines that their interests are best protected where the corporation is the Pf as they
are unable to enforce their sometimes putative rights, particularly if reliance has to be shown. On the other
hand, the Coy can sue the Df for reputational damage (see below as well)
6.1.1 S 203 SFA – OFFENCE TO INTENT IONALLY/RECKLESSLY/NEGLIGENTLY BREACH CDR

Section 203 creates what in Singapore is the main regulatory offence for breaching the continuous disclosure
rules of a securities exchange. Liability is triggered by intentional, reckless or (in the case of civil penalties and
compensatory claims only) negligent behaviour. S 204 provides for criminal penalties while s 232 provides for
civil penalties (see below)
S 203 SFA
Continuous disclosure
(1) This section shall apply to —
(a) [a listed coy] an entity the securities of which are listed for quotation on a securities exchange;
(b) a trustee of a business trust, where the securities of the business trust are listed for quotation on a
securities exchange; or
(c) (c) a responsible person of a collective investment scheme, where the units of the collective investment
scheme are listed for quotation on a securities exchange, if the entity, trustee or responsible person is
required by the securities exchange under the listing rules or any other requirement of the securities
exchange to notify the securities exchange of information on specified events or matters as they occur or
arise for the purpose of the securities exchange making that information available to a securities market
operated by the securities exchange.
(2) The persons specified in subsection (1)(a), (b) or (c) shall not intentionally, recklessly or negligently fail to
notify the securities exchange of such information as is required to be disclosed by the securities exchange under
the listing rules or any other requirement of the securities exchange.
(3) Notwithstanding section 204, a contravention of subsection (2) shall not be an offence unless the failure to
notify is intentional or reckless.
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[non-compliance may result in civil fines or criminal prosecution]
6.1.2 S 199 – OFFENCE TO MAKE FALSE STATEMENTS LEADING SOMEONE TO BUY

SECURITIES
S 199, which prohibits a person from making false statements that are likely to affect the trading of securities or
their market price, however, attributes liability to the maker of the statement, which could be the
corporation in cases of periodic financial statements, or an individual officer or director making a specific
disclosure on behalf of the entity. In the former case, any claim under section 234 by investors would face the
same concomitant problems as above.
 There have been instances where an individual has clearly made misstatements on behalf of the company, or
has had a corporate misstatement attributed to it under s 331.
 Here, the nature of the action is perhaps less focused on continuous disclosure and more on preventing fraud
but s 234 would again limit investor compensation to the wrongdoer’s gain or loss avoidance, of which there
may still be none.
 Section 199 breaches in Singapore have so far been prosecuted through criminal actions.
S 199 SFA
False or misleading statements, etc.

199. No person shall make a statement, or disseminate information, that is false or misleading in a material
particular and is likely —
(a) to induce other persons to subscribe for securities;
(b) to induce the sale or purchase of securities by other persons; or
(c) to have the effect of raising, lowering, maintaining or stabilising the market price of securities,
if, when he makes the statement or disseminates the information —
(i) he does not care whether the statement or information is true or false; or
(ii) he knows or ought reasonably to have known that the statement or information is false or misleading
in a material particular.
6.1.3 S 331 – CORPORATE OFFENDERS

As the continuous disclosure obligation under s 203 is not imposed directly on officers of the coy, directors may
themselves only be liable under s 331 SFA.
S 331 SFA
Corporate offenders and unincorporated associations

331.—(1) Where an offence under this Act committed by a body corporate is proved to have been committed with
the consent or connivance of, or to be attributable to any neglect on the part of an officer of the body corporate,
the officer as well as the body corporate shall be guilty of that offence and shall be liable to be proceeded against
and punished accordingly.
6.1.4 SS 204 AND 232 – CRIMINAL AND CIVIL PENA LTIES

 S. 204 provides that any person contravening any provision in Division 1 of Part XII (which includes ss 199
and 203) shall be liable on conviction to a fine not exceeding $250,000 or to imprisonment for a term not
exceeding 7 years or to both.
 S. 232 enables MAS to bring an action against a person contravening any provision in Part XII (Market
Conduct) to seek an order for a civil penalty in respect of that contravention.
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o The civil penalty shall be a sum (a) not exceeding 3 times the profit gained or loss avoided as a result
of that contravention or (b) equal to $50,000 for a non-corporation or $100,000 for a corporation.
S 204, 232 SFA

Penalties under this Division
204.—(1) Any person who contravenes any of the provisions of this Division shall be guilty of an offence and shall
be liable on conviction to a fine not exceeding $250,000 or to imprisonment for a term not exceeding 7 years or to
both.
(2) No proceedings shall be instituted against a person for an offence in respect of a contravention of any of the
provisions of this Division after —
(a) a court has made an order against him for the payment of a civil penalty under section 232; or
(b) the person has entered into an agreement with the Authority to pay, with or without admission of liability, a
civil penalty under section 232(5),
in respect of that contravention.
Civil penalty
232.—(1) Whenever it appears to the Authority that any person has contravened any provision in this Part, the
Authority may, with the consent of the Public Prosecutor, bring an action in a court against him to seek an order
for a civil penalty in respect of that contravention.
(2) If the court is satisfied on a balance of probabilities that the person has contravened a provision in this Part
which resulted in his gaining a profit or avoiding a loss, the court may make an order against him for the payment
of a civil penalty of a sum —
(a) not exceeding 3 times —
(i) the amount of the profit that the person gained; or
(ii) the amount of the loss that he avoided,
as a result of the contravention; or
(b) equal to $50,000 if the person is not a corporation, or $100,000 if the person is a corporation,
whichever is the greater.
(3) If the court is satisfied on a balance of probabilities that the person has contravened a provision in this Part
which did not result in his gaining a profit or avoiding a loss, the court may make an order against him for the
payment of a civil penalty of a sum not less than $50,000 and not more than $2 million.
Are heavy penalties that are imposed on the issuer appropriate? As mentioned by the Australian court, “penalties
imposed on the corporation may affect shareholders including those who have become shareholders on a set of
assumptions induced by the very non-disclosure complained of” (see ASIC v Chemeq below, and also SEC v Bank of
America [8.36])
 Since s 331 SFA
Name ASIC v Chemeq Ltd (2006) 58 ACSR 169

Facts S. 647 of the Corporations Act provided that a listed disclosing entity (Chemeq) must notify the
market operator (ASX) pursuant to the listing rules that bound Chemeq. Chemeq broke these rules,
and ASIC sought to impose civil penalties on Chemeq. The two parties agreed on the level of
penalty to be imposed, and sought an order from the court to recognize the agreed level. However,
the court refused to simply accept the agreed penalties, and proceeded to calculate the appropriate
levels. In the end, it was held that the agreed penalties were appropriate.
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Held “98 It may also be relevant to consider the impact, if any, on shareholders when a penalty is sought
against a corporation. Penalties imposed on officers of the corporation for their part in such
contraventions affect those officers alone. Penalties imposed on the corporation may affect
shareholders including those who have become shareholders on a set of assumptions induced by
the very non-disclosure complained of. In some cases it is possible also that creditors may be
affected. Who then is being deterred when only the corporation is penalised? I am not sure that
there is a satisfactory answer to this concern within the present statutory scheme. One might
imagine that if a penalty is to be significant to a corporation it will also be significant to its
shareholders in its impact on the capital which backs their shares. In a company with capitalisation
as high as that of Chemeq, the impact on individual shareholders may be insignificant. The
penalties that count most are likely to be those imposed on the responsible individuals.
Nevertheless the law as presently framed requires the assumption that the contravening
corporation is a person distinct from its shareholders and that it can be deterred by the imposition
of appropriate penalties.”
6.1.5 S 234 SFA – CIVIL COMPENSATION FOR BREACHES OF PART XII SFA
 S. 234 renders a contravener liable to pay compensation for contravening any provision in Part XII (Market
Conduct) to any person who contemporaneously traded the securities at the time of contravention.
o S 234(1) provides that if the contravener gained a profit or avoided a loss, the compensation would
be the difference between the price at which the securities were traded at, and the price at which the
securities would have been likely to have traded at had the contravention not occurred.
o S. 234(1A) provides that the contravening person would be liable to pay compensation even if the
contravener had not gained a profit or avoided a loss if he contravened s. 199 (false or misleading
statements); s. 200 (fraudulently inducing persons to deal in securities; s. 201 (employment of
information about illegal transactions); s. 209 (fraudulently inducing persons to trade in futures
contracts); s. 210 (employment of fraudulent or deceptive devices). If he disseminated misleading
information or concealed material facts and if the claimant relied on that information (or lack thereof)
thereby suffering loss, the contravener has to pay compensation.
S 234 SFA
Civil liability
234.—(1) A person who has acted in contravention of any of the provisions in this Part (referred to in this section
and sections 235 and 236 as the contravening person) shall, if he had gained a profit or avoided a loss as a result
of that contravention, whether or not he had been convicted or had a civil penalty imposed on him in respect of
that contravention, be liable to pay compensation to any person (referred to in this section and sections 235 and
236 as the claimant) who —
(a) contemporaneously with the contravention, had subscribed for, purchased or sold securities, or entered into
futures contract, or contracts or arrangements in connection with leveraged foreign exchange trading, of the same
description; and
(b) had suffered loss by reason of the difference between —
(i) the price at which the securities, futures contracts, or contracts or arrangements in connection with
leveraged foreign exchange trading were dealt in or traded contemporaneously with the contravention;
and
(ii) the price at which the securities, futures contracts, or contracts or arrangements in connection with
leveraged foreign exchange trading would have been likely to have been so dealt in or traded at the time
of the contemporaneous dealing or trading if —
(A) in any case where the contravening person had acted in contravention of section 218 or 219, the
information referred to in section 218(1) or 219(1), as the case may be, had been generally
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available; or
(B) in any other case, the contravention had not occurred.
(1A) Without prejudice to subsection (1), the contravening person shall, whether or not he had gained a profit or
avoided a loss as a result of that contravention, and whether or not he had been convicted or had a civil penalty
imposed on him in respect of that contravention, be liable to pay compensation to the claimant, if —
(a) the contravening person has contravened section 199, 200, 201, 209 or 210, in connection with any
subscription, purchase or sale of securities, any trading in futures contracts or any leveraged foreign
exchange trading, by —
(i) making, disseminating or publishing any false, misleading or deceptive statement,
information, promise or forecast; or
(ii) concealing or omitting to state any material fact; and
(b) the claimant —
(i) in reliance on that statement, information, promise or forecast or in ignorance of that
concealed or omitted material fact, had (whether contemporaneously with the contravention or
otherwise) subscribed for, purchased or sold any securities, or entered into any futures contract,
or contracts or arrangements in connection with leveraged foreign exchange trading, of the same
description; and
(ii) had suffered loss.
HT (‘Enforcing Corporate Disclosure’): S .234 is not useful in helping investors.
 For investors, section 234 permits all persons suffering a loss while trading contemporaneously with a
contravening person to recover a ‘maximum recoverable amount’ from the contravening person, which is the
amount of profit made or loss avoided by the contravening person.
 But in any case, it is very hard for the applicant to succeed
o The contravening person is the issuer company itself, which would not likely have made a profit or
avoided a loss from failure to disclose material information unless it was also issuing new shares at
the same time, investors will usually be unable to recover anything at all.
o Also see 199 – misleading statements made can increase the share price, not decrease – so no losses
recoverable
o Further, in the context of insider trading, the likely price had there been no contravention would
have been the same or even less favourable to the claim..
 This has been criticised by a number of academics in Singapore, as has the fact that there is no presumption
of reliance or fraud on the market concept to help with the formation of securities class actions
(discussed below). But it is consistent with a weak investor protection philosophy in Singapore.
 From slides:
o Public policy seems to require high standard of proof for damage in securities transactions.
o Court will ask if loss can be quantified and how much is due to the information that was wrongly
disclosed (by the company) or used (by an insider trader).
o Linked to gain or loss avoided by issuer (but see now s 234(1A), (2A) and s 199 (reliance based)
6.2 CLASS ACTION SUITS TO S EEK COMPENSATION FROM ISSUERS

Under class action litigation, shareholders can seek compensation from issuers and their insurers. However, class
action litigation may be a suboptimal solution since any damages suffered by the issuer is actually borne by the
existing shareholders.
6.2.1 SECTION 90A IN THE U K

In the UK, section 90A of the Financial Services and Markets Act 2000 allows purchasers of shares statutory
civil claims against issuers for fraudulent periodic misstatements, but reliance on the statement must be shown.
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However it is difficult to organise class actions under s. 90A. This is because it is very difficult for large groups
of shareholders to actually use the provision, since there is the need to show reasonable reliance – i.e. that the
claimants were induced to act by the deceit or misrepresentation of the issuer. Not everyone actually relied on the
bad information, some might have bought the shares because they liked the name, while others bought because it
hit a certain price.
In the US (where class action suits are provided by r 10b-5 securities actions), this problem is overcome by the
fraud on the market theory from Basic Inc v Levinson where the US SC thought that there was a rebuttable
presumption of reliance (where materially misleading statements have been disseminated into an
impersonal, well-developed market for securities) so that reliance does not have to be proved by the
shareholders, but it is up to the issuer to rebut the presumption.
 But must be publicly listed company where shares are publicly exchanged based on released information
 There is some doubt about this as it has led to too many class actions forcing companies to settle.
6.2.2 CLASS ACTION NOT AVAILABLE IN SINGAPORE

 Neither s.199 nor 203 creates any presumption of reliance, nor are there any formal class action procedures
in place
 S.234 specifically creates a civil claim but as discussed above it is hard for the investors to prove loss
 Academics have criticised the fact that there is no presumption of reliance or fraud on the market concept to
help with the formation of securities class actions (see A Loke, “The Efficacy of Securities Investors’ Rights in
Singapore)
6.2.3 PROBLEM WITH CLASS ACTION SUIT AGAINST ISSUER – LOSS FALLS ON
SHAREHOLDERS
There are structural problems created if the remedy for disclosure violations is targeted at the fictional separate
entity (issuer) and consequently its shareholders. In ASIC v Chemeq [2006] FCA 936 French J held –
“It may also be relevant to consider the impact...on shareholders when a penalty is sought against a
corporation. Penalties imposed on officers of the corporation for their part in such contraventions
affect those officers alone. Penalties imposed on the corporation may affect shareholders
including those who have become shareholders on a set of assumptions induced by the very non-
disclosure complained of.... The penalties that count most are likely to be those imposed on the
responsible individuals. Nevertheless the law as presently framed requires the assumption that the
contravening corporation is a person distinct from its shareholders and that it can be deterred by the
imposition of appropriate penalties”
Thus class actions prejudice the existing long-term shareholders since the company has to pay out to the ex-
shareholders. Immediately it’s the insurance company that pays out, but this will affect the company as it has to
pay higher premiums.
 HT: True that company can then claim against the directors if its loss is due to breach of directors’ duty.. But
company’s loss may be much greater than what directors can repay. So courts have made it harder for
investors to claim against companies for damages as they ask for proof of damage (if investors are still
holding on to the shares, then arguably the damage is not realised yet), alongside materiality and causation.
6.3 OTHER ENFORCEMENT ME ASURES

Given that s 216A CA has been amended to allow shareholders of a listed company to bring a statutory derivative
action against directors, it is possible for shareholders to hold directors accountable for their wrongdoings.
However, in such a case, what is the loss that the company has suffered?
 HT: the loss suffered by the company is not what they pay to the shareholders but reputational damage;
harder for them to issue shares (at a higher price). However, when it comes to misstatements, Vita Health
Laboratories Pte Ltd v Pang Seng Meng [2004] provided an interesting remedial solution. VK Rajah held that
the corporate misstatements by the Df MD was a form of fraud against the company, and that in assessing
Page 58 of 59
damage for fraud, a mechanical approach should be eschewed in favour of flexibility. He then determined that
the damages that the company was entitled to was the amount that was falsified in the accounts by the MD.
Vita Health Laboratories v Pang Seng Meng [2004] 4 SLR(R) 162 (H.C.)
In this case, the MD misstated the accounts of the coy to fraudulently induce outside investors to buy his shares.
The court held that the coy itself was entitled to the amount based on what was falsified in the accounts by the MD
even though that amount was not in fact the quantum of damage suffered by the coy. *Novel way of determining
the amount of damage
Reasoning: With fraud, the deterrence principle and not only the compensatory principles comes into play. In
claims involving fraud, damages were not restrained by foreseeability per se. A claimant could recover all the
direct losses flowing from a fraudulently induced transaction, including consequential losses. In assessing
damages, a mechanical approach was to be eschewed in favour of flexibility in fashioning the appropriate remedy.
The true principle was to justly compensate the claimant for all financial losses and/or damages flowing directly
from the fraud.
Page 59 of 59

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Listing and Disclosures | Hyrum

2. LISTING & DISCLOSURE REQUIREMENTS

2 LISTING APPLICATION ........................................................................................................................ 6

3 CONTINUING LISTING REQUIREMENTS ............................................................................................. 11

5 CORPORATE GOVERNANCE .............................................................................................................. 25

5.5 NOMINATION COMMITTEE................................................................................................................... 43

6 ENFORCING DUTY OF DISCLOSURE ................................................................................................... 52

1 LISTING AND DISCLOSU RE REQUIREMENTS

1.1.1 WHAT IS LISTING?

1.1.2 ARE PROCEEDS FROM LISTING PUT TO GOOD USE?

1.2 SECONDARY LISTINGS AND FOREIGN COYS LISTINGS

1.2.1 DIFFERENCE BETWEEN SECONDARY MARKETS AND A QUOTATION ON CLOB

Listing Manual r 217

1.2.2 PROBLEM WITH FOREIGN LISTINGS

2.1 GENERAL REQUIREMENTS FOR LIS TING

operator NagaCorp and chip recycler EC-Asia.

“MAS Refuses Registration of Nagacorp Limited's Prospectus”

2.1.1 DISTRIBUTION AND FREE FLOAT REQUIREMENTS (R 210(1))

2.1.2 QUANTITATIVE CRITERIA (R 210(2))

R 210, Listing Manual

2.1.3 FINANCIAL POSITION O F COMPANY (R 210(4))

R 210, Listing Manual

(4) Financial Position And Liquidity

2.1.4 DISCLOSURE OF INTEREST IN SECURI TIES

 lead broker and connected clients

2.2 IS SGX IN THE BEST POSITION TO JUDGE MERITS OF A LISTING?

HK Regulator said to face conflicts of Interest – Business Times June 13 2002

3 CONTINUING LISTING REQUIREMENTS

3.1 REPORTING AND DISCLOSURE REQUIREMENTS [AFTER LISTING]

R 209, Listing Manual

R 703, Listing Manual

 The CLR are set out in Cap 7-11 of the LM

3.1.1 INFORMATION TO BE DISCLOSED BY ISSUER

R 703, Listing Manual

Appendix 7.1, Listing Manual

Part II Issuers' Obligations Under Rule 703

Part VI Clarification or Confirmation of Rumours or Reports

 Information that need not be disclosed (r 703(3)):

o (2) the information is confidential; and

Appendix 7.1, Listing Manual

Corporate Disclosure Policy

3.1.2 FAIR DISCLOSURE

Appendix 7.1, Listing Manual

Corporate Disclosure Policy

3.1.3 OBLIGATION TO REPORT FINANCIAL STATEMENTS

R 705, Listing Manual

Council on Corporate Disclosure and Governance Recommendation

Arguments for QR:

Kay – Review of UK Equity Markets and Long-Term Decision Making (2012)

UK Implementation of the Kay Review: Progress Report (2014)

3.2 WHY WE NEED CLR

4 JUDICIAL CONTROL AND ENFORCEMENT OF LISTING AND CONTINUING DISCLOSURE

4.1.1 CONTRACTUAL NATURE OF LISTING RULES

4.1.2 ENFORCEMENT VIA S 25 SFA?

R 101, Listing Manual

Name Kwikasair Industries v Sydney Stock Exchange (1968) ASLR 30,701

4. SGX can grant waivers of particular rules

4.1.3 ENFORCEMENT VIA S 325 SFA?

Power of court to make certain orders

4.1.4 POSITION IN AUSTRALIA

 Should FAI be applicable in Singapore?