Introduction

On 7 October 2022, the Securities Industry Council ("SIC") issued the "Practice Statement on the Waiver of the Application of the Singapore Code on Take-overs and Mergers ("Code") to Unlisted Public Companies" ("Practice Statement"). The main purpose of the Code is to ensure fair and equal treatment of all shareholders in a take-over or merger situation, that shareholders are not denied an opportunity to decide on the merits of a take-over and that shareholders of the same class are afforded equivalent treatment by an offeror.

The Code applies to, among others, an unlisted public company incorporated in Singapore with more than 50 shareholders and net tangible assets of S$5 million or more ("Unlisted Public Company"). Unlisted Public Companies may now apply to SIC for a waiver from the application of the Code in accordance with the requirements set out in the Practice Statement ("Code Waiver"). For unlisted public companies which do not have more than 50 shareholders and net tangible assets of S$5 million or more, but if they would soon fall under the ambit of the Code, such unlisted public companies may also apply for a Code Waiver in advance.

This Update outlines how eligible Unlisted Public Companies can apply for a Code Waiver.

Conditions for Code Waiver

The conditions for the Code Waiver are as follows ("Waiver Conditions"):

  1. The number of shareholders in the Unlisted Public Company is 50 or fewer, after excluding the following persons (the "Excluded Persons"):
    1. institutional investors as defined in section 4A(1)(c) of the Securities and Futures Act 2001 ("SFA");
    2. accredited investors as defined in section 4A(1)(a) of the SFA;
    3. a bona fide director or equivalent person, former director or equivalent person, consultant, adviser, employee or former employee of the Unlisted Public Company or a related company of that Unlisted Public Company; and
    4. corporations, partnerships and trusts the sole purpose of which is to hold investments and whose shareholders, partners and/or beneficial owners comprise solely of persons set out in paragraphs 1(a)(i), (ii) and (iii).
  2. A written notification has been issued by the Unlisted Public Company to all its shareholders (including holders of convertibles) informing them of the Unlisted Public Company's intention to obtain the Code Waiver and the implications arising as a result thereof ("Shareholders Notification").
  3. The Unlisted Public Company must issue the Shareholders Notification at least 21 calendar days before the date of the Unlisted Public Company's application to SIC for the Code Waiver.
  4. The Shareholders Notification must include the following information: key protections that the Code gives, and the risks associated with the loss of such protection to shareholders if the Code Waiver is granted; and a point of contact for shareholders to object to or raise queries on the Code Waiver with the Unlisted Public Company during the 21-day notice period.
  5. The Unlisted Public Company has not received objections to the Code Waiver from shareholders representing more than 10% of the total voting rights of the Unlisted Public Company during the 21-day notice period (calculated with reference to the total voting rights of the Unlisted Public Company as at the end of the 21-day notice period).
  6. The Unlisted Public Company has taken or will take (in the event of subsequent rounds of fundraising) reasonable measures to verify whether a shareholder or an incoming shareholder is an Excluded Person. The Unlisted Public Company will be required to implement necessary controls and procedures to establish whether a shareholder continues to meet the definition of an Excluded Person in order to comply with the Waiver Condition set out in paragraph 1 above on an ongoing basis.
  7. When the Code Waiver takes effect, the Unlisted Public Company will be required to
    1. state its Code Waiver status prominently on its corporate website (if any);
    2. notify its shareholders (including holders of convertibles) that it has obtained the Code Waiver; and
    3. notify any new investors before they invest that the Unlisted Public Company is not subject to the Code and the implications arising from the Code Waiver. This notification may be through the subscription agreements or otherwise.

Applying for Code Waiver

The key steps to apply for the Code Waiver are outlined below.

  1. When at least 21 calendar days have lapsed after the Unlisted Public Company issued the Shareholders Notification, the Unlisted Public Company may make a written application to the SIC Secretariat for the Code Waiver, along with certain prescribed information. Required information includes: general details of the Unlisted Public Company such as net tangible assets, number of shareholders (both before and after excluding the Excluded Persons), date of the Shareholders Notification and whether there are objections to Code Waiver.
  2. The Unlisted Public Company must include in its application form a signed confirmation (in the prescribed form set out in the Practice Statement) from the Unlisted Public Company's board of directors that the Waiver Conditions have been or will be (as the case may be) complied with.

Grant of Code Waiver

The grant of the Code Waiver is at the discretion of SIC, and SIC reserves the right to impose further conditions for the grant of the Code Waiver, or not grant the waiver. Furthermore, SIC may, where circumstances warrant, revoke the grant of the Code Waiver.

The Code Waiver will take effect when the Unlisted Public Company is published on the Code Waiver List on the SIC's website, which is expected to take place 21 calendar days after the date of application to SIC or such other date as otherwise notified to the Unlisted Public Company by SIC.

In addition, if the Unlisted Public Company fails to comply with the Waiver Conditions at any point in time, the Code Waiver will cease to be in effect. The Unlisted Public Company must promptly notify SIC and all relevant parties (including its shareholders and holders of convertibles) of the cessation of the Code Waiver.

Practical Significance

This Practice Statement is expected to benefit start-ups and others seeking to raise equity capital from the venture capital and private equity space, especially those companies that have a significant number of investors arising from the various earlier rounds of successful series fundings. Technical compliance with the Code in instances where there are or will be more than 50 shareholders has been an existing issue and the Practice Statement is a welcome development to the Code regime, addressing concerns of triggering take-over obligations under the Code in respect of Unlisted Public Companies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.