"Business Trusts (Amendment) Bill" – Second Reading Speech by Mr Alvin Tan, Minister of State, Ministry of Culture, Community and Youth & Ministry of Trade and Industry, and Board Member of MAS, on behalf of Mr Tharman Shanmugaratnam, Senior Minister and Minister-in-charge of the Monetary Authority of Singapore, on 3 October 2022
1. Mr Speaker, Sir, on behalf of Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS, I beg to move, “That the Bill be now read a second time”.
2. The Business Trusts Act 2004 (or “BTA”) provides a framework for the governance of registered business trusts, which are enterprises that combine the characteristics of both a company and a trust. The BTA also facilitates the use of business trusts as listing vehicles and as a new asset class for investors.
3. Unlike a company that can only pay dividends out of its accounting profits, a key feature of a business trust is the ability to pay dividends out of its cash profits. This makes it particularly suited to businesses with stable growth and high cash flow, such as infrastructure businesses.
4. Many requirements in the BTA were adapted from the Companies Act. The Bill proposes updates to the BTA that are consistent with amendments that have been made to the Companies Act to enhance the regulatory framework for companies. In addition, MAS has also identified other legislative amendments that are needed to maintain the robustness and relevance of the regulatory regime for business trusts registered under the BTA.
5. Mr Speaker, I will now go through the key amendments in the Bill.
Improve alignment with regulatory regime for companies
6. Let me start with the amendments to better align the BTA with the regulatory regime for companies. These are mainly in three areas.
Enhance transparency and corporate governance
7. First, enhancing transparency and corporate governance.
8. The Bill introduces requirements for unlisted business trusts that are registered under the BTA to obtain and maintain information on their controllers, also commonly known as beneficial owners, and to provide such information to MAS and other public agencies on request. With these amendments, unlisted registered business trusts will be subject to the same transparency requirements as unlisted companies regarding their beneficial owners. These requirements will help to mitigate the risk of business vehicles being used for illicit purposes, regardless of whether they take the form of a company or a trust.
9. Currently, directors of trustee-managers of registered business trusts are required to disclose conflicts of interest in transactions, as well as their interests in the registered business trusts. The Bill will extend such requirements to CEOs of trustee-managers, in recognition of the influence that they have on the affairs of business trusts. The change is consistent with existing disclosure requirements that are applicable to CEOs of companies under the Companies Act.
10. The Bill further introduces requirements for auditors of listed registered business trusts and their subsidiaries to seek MAS’ consent if they wish to resign before the end of their term. It also sets out procedures for the appointment of a new auditor where the resigning auditor is the sole auditor, including a reserve power for MAS to make such appointment. These requirements will allow MAS to prevent a listed business trust or its subsidiary from being left without an auditor. Through the application process, MAS may also be alerted to any potential breaches of the BTA and the Accountants Act. This is in line with provisions in the Companies Act in relation to auditors of public-interest companies, which include listed companies, and their subsidiaries.
Strengthen unitholders’ rights
11. The second key area is to strengthen the rights of unitholders of registered business trusts.
12. Currently, unitholders holding at least 10% of the voting rights of unitholders present at a meeting have the power to call for a poll. The Bill lowers this threshold to 5%, making it easier for unitholders to call for a poll on issues they are concerned with.
13. The Bill also expands the scope of the statutory derivative action in the BTA to allow a unitholder to apply to the court for leave to commence arbitration on behalf of all unitholders of the business trust or to intervene in an arbitration to which the business trust is a party. This amendment will align unitholders’ rights to bring a derivative action with that of shareholders under the Companies Act.
14. In addition, where an application to wind up a registered business trust has been filed in court, the Bill expands the range of orders that the court may make, including an order to buy out the interests of one or more unitholders. Currently, a court hearing such an application can only make an order for the registered business trust to be wound up. The additional remedy helps to protect the rights of minority unitholders, as there may be cases where the company is still viable and it would be a more efficient solution for the majority to buy out the minority, or vice versa.
Improve the ease of doing business and reduce administrative burden
15. The third key area is to improve the ease of doing business and reduce administrative burden.
16. These include changes to simplify deadlines for annual general meetings, (or “AGMs”) and the filing of annual returns. Currently, registered business trusts are required to hold their AGMs once every calendar year and not more than 15 months after the preceding AGM, and are required to file annual returns within one month after the AGM. These requirements do not refer to the financial year end of the registered business trust. The Bill will align these timelines with the business trust’s financial year end.
17. The Bill will also mirror amendments to the Companies Act to reduce the number of documents accompanying a set of financial statements.
18. To facilitate electronic communications by registered business trusts, the Bill allows for electronic transmission of notices and documents with unitholders’ implied or deemed consent, in accordance with the trust deed of the registered business trust. Currently, a registered business trust wishing to publish notices and documents on a website, can only do so with its unitholders’ express consent. The amendment helps to increase efficiency.
Strengthen governance safeguards for registered business trusts
19. Mr Speaker, I will now cover the next set of amendments, which are to strengthen governance safeguards for registered business trusts, taking reference from the regulatory regime for Real Estate Investment Trusts, or REITs.
20. Business trusts are structurally similar to REITs in that both are trusts constituted by a trust deed and, unlike companies, are not legal persons. Both are also usually managed by an external manager – business trusts are managed by trustee-managers and REITs are managed by REIT managers.
21. This external management model introduces governance risks, such as potential conflicts of interest between the external manager and unitholders. Unitholders’ ability to vote to remove the external manager is a fundamental safeguard against such risks.
22. Currently, a trustee-manager can only be removed by unitholders by way of a resolution passed by not less than 75% of the voting rights of all unitholders present and voting at a general meeting. For REITs, a lower removal threshold of more than 50% applies.
23. The Bill will align the removal threshold for trustee-managers with that of REIT managers. This will help strengthen accountability to unitholders.
24. In conclusion, the amendments will enhance the transparency and governance of registered business trusts in Singapore. They will streamline regulatory requirements and reduce compliance costs. This will improve the efficiency and robustness of the business trust regulatory regime, benefiting the industry and investors.
25. Mr Speaker, I beg to move.