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(SINGAPORE) Companies here may be required to buy out minority investors who disagree with a fundamental change to the business, Minister in Prime Minister's Office and Second Minister for Finance and Transport Lim Hwee Hua said on Saturday.
A minority buy-out rights regime is being studied as part of the ongoing Companies Act review, which will also look to introducing multiple proxies for institutional investors to attend shareholders' meetings as well as permitting CPF investors to participate in such meetings.
'The objective of such a regime is to allow a minority shareholder who dissented from certain fundamental changes to the enterprise or certain alteration of shareholder rights, to require the company to buy out his shares at a fair value,' Mrs Lim said at an investment conference organised by Securities Investors Association (Singapore) (SIAS).
The review of such a regime - which has developed in places such as Canada, New Zealand and the US - is aimed at enhancing minority shareholders' rights, noted Mrs Lim.
In New Zealand, such fundamental changes would include a major shift in the business operation, altering the company's constitution, a major business transaction or a liquidation exercise.
Professor Mak Yuen Teen, co-Director of Corporate Governance and Financial Reporting Centre at the National University of Singapore, saw this as a 'very positive' change and one that could boost minority shareholders' rights.
But there will be debates over how fair value is determined, he pointed out.
'Valuation is not hard science - some cynics would say it's not even art but more like magic, because it seems that one can always find a valuer that gives you the value you want to see. There are therefore major practical issues that need to be addressed,' Prof Mak told BT.
'If a company is listed, there is generally a market price and minority shareholders can sell out so one could argue that there is a already a 'fair value' and a market for shareholders to sell,' he said.
'If the share is illiquid, then this may not be possible and requiring a buyout can be particularly useful. If the stock price is a distress price, like during a major financial crisis, then the current price may not represent fair value.'
Such criticisms are shared in overseas jurisdictions that have developed these regimes.
In New Zealand, for example, critics note that with companies and dissenting shareholders heading for legal arbitration to decide on a fair exit price, the exit process has not only become lengthy, but a costly one.
This has led to recent suggestions to refine the legislation. For example, if the company's share price has jumped in response to the major business transaction that the shareholder disapproves of, the dissenting shareholder should not benefit from that surge in share value.
Besides looking into the rights of minority investors, the review committee in Singapore will consider upping the number of proxies offered to institutional investors to attend companies' general meetings from the current limit of two votes.
The issue is 'close to the hearts of institutional investors in Singapore', Mrs Lim said.
At present, the nominee company or a custodian bank holding the company shares is the registered member and is able to attend and vote during a shareholders' meeting.
'In most other normal circumstances, having two proxies would already be sufficient and fair for individual shareholders who are also the registered members,' said Mrs Lim.
'Companies have the option to allow a greater number of proxies, and some do. However, this is not a prevalent practice in Singapore,' she added.
'As a result, fund managers and institutional investors who hold shares through a nominee company or custodian bank may not be able to attend shareholders' meetings due to the limit to the number of proxies.'
The third change could allow investors buying shares through their CPF to attend shareholders' meetings. Currently, they are not allowed to participate in such meetings because they are not registered members and have their shares held in the name of the CPF agent banks.
'All these are part of the initiative to enfranchise shareholders so as to allow them to have a greater say in the overall well-being of the company,' Mrs Lim said.
Chaired by Attorney-General Walter Woon, the steering committee to review the Companies Act was formed in 2007. The committee is now organising the collected feedback into a series of consultation documents.
Following more discussions, these inputs will be used in refining the draft Bill that will be made available for public consultations by next year.
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