Securities and Financial Services Regulation

• Author: Hans TJIO LLM (Harvard), MA (Cambridge); Advocate and Solicitor (Singapore); Barrister (Middle Temple); Professor, Faculty of Law, National University of Singapore.
• Date: 01 December 2020
• Publication year: 2020
• Published date: 01 December 2020

I. Introduction

27.1 COVID-19 clearly dominated many of the pressing issues in the world in 2020 and necessitated changes such as the suspension of wrongful trading provisions to help financially distressed firms1 and the restriction on share buybacks in the case of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act2 in the US for government bail-outs and by the Monetary Authority of Singapore (“MAS”) for financial institutions given capital adequacy relief in Singapore.3 It also brought greater focus back on the real economy as opposed to the over-financialised one that was described in the introduction to this chapter in the previous Annual Review.4 One positive thing to come out of a pandemic is that it may reduce the inequalities seen in the world since the 1990s, in particular, without the even greater upheaval that has been thought necessary to level society.5

II. Jurisdiction and Securities and Futures Act

27.2 In last year's Annual Review, we examined the decision of Aedit Abdullah J in Goldilocks Investment Co Ltd v Noble Group Ltd.6 There, it was held that the Securities and Futures Act7 (“SFA”) was arguably a “forum mandatory statute”. That was in the context of the deemed membership provisions for listed companies where s 81SJ of the SFA states that companies (including foreign companies) whose shares are immobilised or deposited (in the case of dematerialised securities) in the Central Depository Pte Ltd (“CDP”), a subsidiary of the Singapore Exchange (“SGX”), must recognise as members those shareholders whose interests are captured on the CDP register. This was so even if the law at its place of incorporation only recognised as members those whose names appeared on the company register, which in such cases would have been the CDP itself. That decision was not, however, one on its merits but only to determine that there was a serious triable issue. It may be that even if the SFA were a “forum mandatory statute”, it is not so entirely but only with respect to certain specific provisions.

27.3 Given that, what is in fact covered by the SFA becomes critically important. In CA Investment (Brazil) SA v Joesley Mendonca Batista,8 the Singapore Court of Appeal and High Court issued a series of decisions relating to service out of Singapore and the jurisdiction of the court in the context of claims under the SFA. For service out of jurisdiction, there must be a good arguable case of a sufficient connection between the dispute and Singapore, which has been described as a service-out “gateway”.9

27.4 In this case, a minority shareholder in a Brazil-incorporated pulp-producing company brought a common law derivative action in the Singapore courts against certain directors and shareholders of the company. The minority shareholder alleged that those directors and shareholders had breached various duties to the company, by causing it to contravene provisions of the SFA relating to a proposed bond listing by an associated Austrian company on the SGX. The allegation

was that there had been false or misleading statements in the offering memorandum that had been prepared for the listing, which would have contravened s 199 or 200 of the SFA, and the company would have been liable for the breach. As all the defendants were domiciled or had their place of business in Brazil, the shareholder had to obtain leave to serve the writs out of Singapore. If this case were heard on its merits, it would likely have involved claims similar to that of “stepping stone liability” in Australia where directors are sued, usually for breaches of the duty of care and to act in the best interests of the company in relation to the breach or non-compliance with other statutes, often involving securities disclosure.10

27.5 The defendants successfully set aside the service out of jurisdiction in various actions, as the High Court ruled that it did not have jurisdiction over the dispute. Vinodh Coomaraswamy J held that the plaintiff minority shareholder failed to establish that its claims fell within one of the grounds in O 11 r 1 of the Rules of Court11 (“ROC”). This was because the claim was more closely connected to Brazil, and any connection with Singapore was only through the fact that the bonds were to be listed here. In any case, the bond issue had been aborted and so there had only been a threatened breach of the SFA, not an actual one. Further, that threat did not raise any public interest or policy concerns in the context of Singapore that displaced the fact that Brazil was the more appropriate forum. Consequently, the entire SFA is not a “forum mandatory statute” (which in any case has not been fully decided), so that the requirements for a derivative action should be determined by the law of incorporation of the company. Leave to appeal was denied by both the High Court and the Court of Appeal.

27.6 The issue of jurisdiction here is that of the court over a person which has been referred to as personal jurisdiction.12 This is to be contrasted with prescriptive jurisdiction, or subject matter jurisdiction, something that was expressly recognised by Sundaresh Menon CJ in Burgundy Global Exploration Corp v Transocean Offshore International Ventures Ltd.13

27.7 In Re PT MNC Investama TBK,14 it was held that an Indonesian-listed company with its bonds listed on SGX could access Singapore's insolvency regime, and obtain a moratorium to facilitate a scheme of arrangement under s 210 of the Companies Act.15 The issue is complex as scheme or insolvency jurisdiction likely includes both personal and prescriptive jurisdiction.16 The Companies (Amendment) Act 201717 introduced provisions widening the reach of the Singapore courts by introducing a set of factors to be considered by the court in determining whether a foreign company has a “substantial connection to Singapore” for the purposes of winding up, judicial management and schemes of arrangement. Section 351(2A) (now s 246(3) of the Insolvency, Restructuring and Dissolution Act 2018),18 which came into effect on 23 May 2017, provided that the court may rely on the presence of one or more of the following matters, whether:19

(a) Singapore is the centre of main interests of the company;

(b) the company is carrying on business in Singapore or has a place of business in Singapore;

(c) the company is a foreign company that is registered [as such in Singapore];

(d) the company has substantial assets in Singapore;

(e) the company has chosen Singapore law as the law governing a loan or other transaction, or the law governing the resolution of one or more disputes arising out of or in connection with a loan or other transaction;

(f) the company has submitted to the jurisdiction of the court for the resolution of one or more disputes relating to the loan or transaction.

27.8 This case did not fall under those new provisions as, amongst other reasons, the bonds were not governed by Singapore law and all of its business was carried out in Indonesia. Aedit Abdullah J found, however, that the relevant Companies Act provision on scheme jurisdiction, the then s 351(2A), was not exhaustive and definitive. The fact that the bonds were listed and traded in SGX was a sufficient connection to Singapore as “it is akin to substantial business activity that is not merely transient”.20

27.9 As to the reason why the SGX bond listing did not proceed in the first place in the Brazilian/Austrian case discussed above, details can be gleaned from the decision in CA Investment (Brazil) SA v Eldorado Brasil Celulose SA.21 There, Vinodh Coomaraswamy J refused to grant a stay of those proceedings which had enjoined the bond listing under s 326 of the SFA in favour of arbitration under s 6(1) of the International Arbitration Act.22 The proposed issuer's by-laws and shareholders' agreement between the only two shareholders contained an arbitration clause, as did the sale and purchase agreement for shares between them. The judge found, however, that the subject matter covered by s 326 (which gives the court powers to grant injunctions for breaches of the SFA) in relation to the interim injunction was not arbitrable due to the public interest in the dispute. This was a specific statutory action that involved more just than the interest of the parties. The judge held that the public needed to be protected from breaches of the SFA and so the court's jurisdiction over the matter could not be ousted in favour of arbitration. This was also seen in an earlier case involving a fraudulent conveyance claim which necessarily involved insolvency, as the “claim against [the defendant would be] in fact an insolvency claim that is non-arbitrable”.23

III. Prospectus and continuous disclosure

27.10 The importance of the disclosure rules in the SFA, as seen above in the various unreported CA Investment cases,24 cannot be overemphasised. This is because the whole statutory structure is premised on a disclosure-based philosophy, which replaced what had been seen as one involving more merit-regulation prior to the coming into force of the SFA in 2002. This is true not just of prospectus disclosure, which is statutorily mandated, but also the continuous disclosure rules, which the

statute tags onto the listing rules of a securities exchange under s 203 of the SFA.

27.11 In relation to prospectus disclosure, in Public Prosecutor v Tay Chee Ming25 (“Tay Chee Ming”), the accused, the chairman and majority shareholder of a private limited company that was planning for a listing, was found guilty of making an offer of securities without a prospectus under s 240(1), read with s 331 of the SFA. While the issuer was primarily liable for a breach of s 240, the accused was also liable for consenting to or conniving in a breach of the SFA by a body corporate under s 331, a criminal form of “stepping stone” liability. He was sentenced to 15 months' imprisonment. This case involved 33 convertible...