Singapore amends laws on business trusts for better governance, transparency

BUSINESS trusts in Singapore will need to provide more information about their beneficial owners, and unitholders will find it easier to vote to remove trustee-managers. These are some of the changes following an amendment bill passed in Parliament on Monday (Oct 3).

“The amendments will enhance the transparency and governance of registered business trusts in Singapore,” said Alvin Tan, Minister of State for Trade and Industry. By streamlining regulatory requirements and reducing compliance costs, the changes will make the regulatory regime more efficient and robust, he added.

Business trusts combine the characteristics of a company and a trust. Their regulatory regime was developed in 2004 by adapting the requirements of the Companies Act. As there have been changes to the Companies Act since then, Monday’s amendments seek to align these rules.

Governance requirements for real estate investment trusts (Reits) and related provisions under the Securities and Futures Act have also changed in ways that are relevant to the regulation of business trusts, so Monday’s Bill sought to align these too.

Monday’s amendments were of three sorts: promoting transparency and corporate governance; strengthening the rights of unitholders; and improving the ease of doing business.

One new requirement is for unlisted business trusts to obtain and maintain information on their controllers, commonly known as beneficial owners. They will also have to provide such information to the Monetary Authority of Singapore (MAS) and other public agencies upon request.

“These requirements will help to mitigate the risk of business vehicles being used for illicit purposes,” said Tan. He was speaking on behalf of Senior Minister Tharman Shanmugaratnam, who is also the minister-in-charge of MAS.

Another change is that auditors of listed business trusts and their subsidiaries will have to seek MAS’ consent if they wish to resign before the end of their term.

In line with rules for Reits, the threshold for unitholders to remove the trustee-manager of a business trust will be lowered. Such a resolution will have to be passed by at least 50 per cent of the voting rights of all unitholders present and voting at a general meeting, down from 75 per cent now.

This takes reference from the regulatory regime for Reits as both are managed by external managers, which entails risks such as potential conflicts of interest between the external manager and unitholders, said Tan. “Unitholders’ ability to vote to remove the external manager is a fundamental safeguard against such a risk.”

Other changes include aligning the timeline of business trusts’ deadlines to hold annual general meetings (AGMs) and file annual returns with the end of their financial year.

In the second reading debate on the bill, Workers’ Party Member of Parliament Jamus Lim noted that of 18 registered business trusts, eight deal in real estate while another three arguably have their fortunes tied to real estate assets.

“A business trust is not constrained in terms of the amount of leverage they are able to take on. In contrast, Reits are only able to be geared up to 50 per cent,” said Prof Lim. “This introduces a potential concern where what are essentially Reits are registering as business trusts to avoid the stipulations related in part to excess leverage.”

Tan replied that Reits are investment funds that are subject to investment guidelines and intended to specifically hold income producing properties. In contrast, business trusts are not investment funds and can hold a wide range of assets, not limited to real estate.

“The two regulatory regimes cannot, therefore, be equalised,” Tan said. “So what MAS has done is to draw the most appropriate provisions from both the Companies Act and the Reits regime to design a regulatory framework that addresses the needs of stakeholders in a business trust.”

“MAS will also regularly review the regulatory regime for business trusts and will make appropriate refinements to ensure the regime remains robust and also meet the market needs as and when required,” he added.