Singapore Exchange Regulation called for the resignation of two top executives of a Singapore Exchange–listed company, and imposed a ban on the individuals barring them from holding executive posts for three years. This is the latest in a series of Singapore Exchange Regulation compliance orders issued in 2018 that signal a stricter approach to the enforcement of rules governing Singapore-listed companies, which carries significant implications for how listed companies and their top executives should consider handling corporate governance issues going forward.
In the case above, the company at issue had announced several unauthorised loans taken out by the company’s subsidiaries in another country, as well as the provision of unauthorised corporate guarantees, and there had been litigation in another country over these loans. The company’s executives guaranteed the loans on behalf of the company’s subsidiaries without reporting the loans or the subsequent litigation to the company’s board of directors. Singapore Exchange Regulation (SGX RegCo), the body responsible for regulating companies listed on the Singapore Exchange, determined that the company had breached Rule 210(5) of the SGX-ST Mainboard Listing Rules (Listing Rules), which requires directors and executive officers to have the appropriate experience and expertise to manage a company’s business, and issued a notice to the company to comply with its order to remove the executives from office.
Failure to comply with SGX RegCo’s order can attract further sanctions ranging from suspension from trading to delisting. The rule considered by SGX RegCo to have been infringed takes into account executive officers’ “character and integrity” in determining their suitability for managerial roles. By reaching a determination on the executives’ integrity at an early stage of the investigation, SGX RegCo has signalled that it is adopting a strict approach to enforcing the Listing Rules pertaining to directors.
SGX RegCo has significantly ratcheted up its compliance orders for listed companies in 2018 in a range of areas under its purview, including audit, conflicts of interest, and restructuring supervision.
In one case, SGX RegCo exercised its power to ensure a “fair, orderly and transparent” market under Listing Rule 1405(1)(b) by issuing a notice requiring a company to conduct an independent audit of its financial results. Separately, SGX RegCo issued a notice requiring the release of an interim version of a previous independent audit of the company, after SGX RegCo determined that the company had restricted access to the auditors.
In another case illustrating the scope and flexibility of SGX RegCo’s powers of review and enforcement over companies’ corporate governance appointments, SGX RegCo found that an acquisition by a listed company, where one of the directors and shareholders had a prior relationship with the vendor, necessitated the appointment of independent reviewers to examine the acquiror’s internal controls and corporate governance practices. SGX RegCo subsequently issued an additional compliance order to the company requiring it to discharge the independent professionals appointed for the review given a prior undisclosed relationship with the company’s chairman.
In the cases discussed above, SGX RegCo has exhibited a pattern of broadly interpreting its discretionary power under the rules to carry out regulatory actions—and to take preemptive action if necessary. This is in keeping with what SGX RegCo CEO Tan Boon Gin described in late 2017 as the regulatory body’s “preemptive approach”. As part of this approach, any breaches in corporate governance rules are likely to be dealt with strictly in order to reduce the likelihood of corporate malfeasance. A recalibrated disclosure regime also is being considered, under which additional disclosures may be required for significant transactions, “interested person transactions”, and secondary fundraisings.
In such an environment, companies will need to consider carefully their compliance with the Listing Rules and the Code of Corporate Governance. SGX RegCo’s approach suggests that companies will need to more fully comply with the spirit—not just the plain letter—of these rules in the future. Understanding these developments, deploying investigators and lawyers to assess potential issues, and engaging early with SGX RegCo when issues arise are likely to be key components of proactive compliance going forward.
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