Explanatory Brief for Business Trusts (Amendment) Bill 2022
1 Minister of State , Ministry of Culture, Community and Youth and Ministry of Trade and Industry, Mr Alvin Tan, on behalf of Senior Minister and Minister-in-charge of the Monetary Authority of Singapore (“MAS”), Mr Tharman Shanmugaratnam, today moved the Business Trusts (Amendment) Bill 2022 (“BT(A) Bill”) for First Reading in Parliament.
2 The business trust (“BT”) regime was developed in 2004 to establish a new type of business structure for business enterprises. It was envisaged that BTs would be a new asset class for investors and would add depth and vibrancy to Singapore’s capital markets. The Business Trusts Act 2004 (“BTA”) provides a framework for the governance of BTs registered under the BTA.
3 A key advantage of a BT structure is the ability of a trust to pay dividends to unitholders out of its cash profits. In contrast, a company can only pay dividends out of its accounting profits (i.e. after deducting non-cash expenses such as depreciation). The BT structure is thus particularly suited to businesses with stable growth and high cash flow. There are currently 18 registered BTs – 14 are listed on SGX-ST and the remaining four are privately-held. The assets held by the listed BTs range from real estate assets, infrastructure assets (e.g. power plants and telecommunications network), shipping assets and hospitality assets.
4 BTs combine the elements of a company and a trust. Like companies, BTs operate and run business enterprises. Thus, the BT regime was developed by adapting the requirements of the Companies Act 1967 (“CA”) as much as possible.
5 Since the BTA came into operation, there have been amendments made to the CA. There have also been changes made to the governance requirements in respect of real estate investment trusts (“REITs”) and to provisions under the Securities and Futures Act 2001 (“SFA”) that are relevant to the regulation of BTs.
6 In view of these amendments, as well as feedback from the industry and MAS’ experience in administering the BT regime, the BT(A) Bill will amend the BTA to:
a) align the provisions under the BTA with the relevant provisions under the CA where appropriate, taking into account the Companies (Amendment) Act 2014 and the Companies (Amendment) Act 2017 (collectively, “CAAs”);
b) strengthen governance safeguards for BTs by taking reference from the REIT regime; and
c) streamline certain regulatory requirements.
7 MAS conducted a public consultation on the proposed BT(A) Bill in November 2021. Respondents were generally supportive of the proposals, and MAS has incorporated the feedback into the BT(A) Bill where appropriate.
KEY ASPECTS OF THE BT(A) BILL
(A) Re-alignment with the Companies Act
8 Since the enactment of the BTA in 2004, substantive changes were made to the CA. The BT(A) Bill will make similar changes to the BTA to provide a more efficient and transparent regulatory framework for businesses and investors, reduce compliance costs, and improve Singapore’s business competitiveness. The main changes are as follows:
a) Disclosures and trust administration. This includes requiring chief executive officers to disclose interests in transactions; requiring unlisted BTs to obtain and maintain information on beneficial ownership of their units; and simplifying the process for adopting electronic transmission of notices and documents to unitholders;
b) Unitholders’ rights and general meetings. This includes expanding the scope of statutory derivative actions to include arbitration (in addition to court proceedings); adding an option for a court to order a buy-out of a BT in addition to winding up the BT; lowering thresholds for the minimum share of unitholders that are required to demand a poll; and simplifying deadlines for annual general meetings and filing of annual returns;
c) Auditors and financial statements. This includes replacing the requirement for a separate directors’ report with a directors’ statement in the financial statements; removing duplication of legislation relating to independence of auditors in the BTA and the Accountants Act 2004 by deleting the relevant provisions from the BTA; requiring compliance with accounting standards formulated by the Accounting Standards Council; and requiring an auditor of a listed BT to seek MAS’ consent if the auditor wishes to resign from its position; and
d) Governance and right of compulsory acquisitions. This includes prohibiting the improper use of position by an officer or agent of the trustee-manager (“TM”); clarifying that individuals (and not only corporations) are entitled to exercise the right to compulsorily acquire units held by dissenting unitholders in a takeover situation; and providing new provisions to deal with joint offers.(B) Strengthening governance safeguards for BTs
9 Taking reference from the REIT regime, the BT(A) Bill will strengthen the governance requirements of the BT regime by reducing the percentage of voting rights required to remove a TM from not less than three fourths to a simple majority of the voting rights of all the unitholders. This will instil greater market discipline by facilitating investors in holding TMs accountable for their performance.
(C) Miscellaneous amendments
10 Other amendments include clarificatory amendments, amendments to align with Securities and Futures Act 2001 provisions, miscellaneous amendments consequential to the CAAs, and amendments to reduce administrative requirements, for example, providing for:
a) passing resolutions by written means;
b) delegation of MAS Managing Director’s powers to approve exemptions under the BTA to the relevant MAS group or department head;
c) deregistration of a BT upon MAS’ receipt of the notification of completion of winding up from the TM without the need for a separate application for voluntary deregistration; and
d) a trust that has received approval-in-principle to be listed on an approved exchange to be considered a BT for the purposes of the BTA, even if each of the unitholders is a related corporation of the trustee.