NATIONAL UNIVERSITY OF SINGAPORE

FACULTY OF LAW

SECURITIES REGULATION 2022/2023

THE “GOING PUBLIC” PROCESS

PROSPECTUS REQUIREMENTS

1. PUBLIC FUNDRAISING AND THE PROSPECTUS REQUIREMENT

Fundraising from members of the public attracts the obligation to prepare and register
a prospectus. Shares, debentures, business trusts and units thereof ie “securities”:
SFA Part XIII Div 1(2) esp s 240. Contrast Collective Investment Schemes (formerly
"prescribed interest" under CA s 113): SFA Part XIII Div 2(3) esp s 296 which
requires a prospectus and more. Preparation of the prospectus is a time-consuming
and costly process. What policy justification(s) are there for imposing this
requirement? See “Prospectuses get a bad rep” The Age Dec 6 2003.

Analyse SFA s 239(3) and 240. Determine the circumstances in which a

prospectus is required. Look through SFA Part XIII Div 1(2). What further
obligations pertaining to disclosure are there apart from registering the
prospectus with the Authority? Also read Tjio, Chap 6. Listed issuers also have to
comply with SGX listing requirements (see the seminar sheet on Listings and
Disclosures) – note there are different requirements for different kinds of securities,
eg equity, debt, investment funds, warrants.

It is necessary to state at the outset the prospectus requirements are no longer

triggered by an offer of securities “to the public”, and this is true in Malaysia as well
in the case of offers of securities that require registration with the Securities
Commission (though not with those covered by the Companies Act, such as in the
case of shares and debentures of unlisted recreational clubs and other participatory
“interests”, where registration is still with the Companies Commission). In Singapore,
the Securities & Futures (Amendment) Act 2005 has also removed that concept, and
all offers of securities are prima facie subject to the prospectus requirements of the
Act unless the offer is an excluded or exempted one. However, it is still useful to
discuss the concept as it provides an understanding of the rationale for the exclusions
and exemptions that will be discussed below.

Read the following cases:

 Lee v Evans [1965] ALR 614 (Austlii)

 Corporate Affairs Commission (SA) v Australian Central Credit Union (1985) 10
ACLR 59 (Austlii)
 Khania Nominees Pty Ltd v Hamilton (1986) 10 ACLR 737
 Nicholas v Gan Realty Sdn Bhd [1970] 2 MLJ 89
 SEC v Ralston Purina Co (1953) 346 US 119, 125
(http://caselaw.findlaw.com/scripts/getcase.pl?court=us&vol=346&invol=119)
 See also Ex parte Lovell (1938) 38 SR (NSW) 153

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 See Report of Company Legislation and Regulatory Framework Committee
(CLRFC), Oct 2002, recommendation 2.1 and 2.10: http://www.mof.gov.sg

a. How did a conservative lawyer advise his clients previously?

b. Is the regime much better now?

Securities hawking. The provision in the CA prohibiting securities hawking - CA s

400 - has been updated: SFA s 309, which is similar but not identical to CA 2001 s
736. What were the elements of CA s 400? See Ex parte Lovell (1938) SR (NSW)
153. What are the ingredients to an offence under SFA s 309? Would an
unsolicited telephone call to purchase securities be covered by SFA s 309? How
about targeting of investors through mass emails? Compare SFA s 309 and the
Australian equivalent. In the UK, the close cousin may be the regulation of financial
promotion in Financial Services and Markets Act s 21.

THE CITY COUNTRY CLUB CASE

In PP v Huang Sheng Chang [1983] 2 MLJ xcvi, the accused were charged with
making a public offer of shares without a prospectus. They all pleaded quilty, so the
point was never authoritatively decided. However, in AG v Derrick Chong [1985] 1
MLJ 97 at 102, Sinnathuray J in the Court of Appeal said that “the letter of invitation
was without doubt an offer to the public to purchase shares in the company.” This
case was the sequel to the prosecution in PP v Huang Sheng Chang as the promoters
applied for leave under section 154 of the Companies Act, having been disqualified
from directorship and management of companies for five years. Further facts
regarding City Country Club can be gleaned from Winston Chen Chung Ying [1989] 1
MLJ 340.

Contrast the dicta of Needham J in Corporate Affairs Commission v David Jones

Finance Ltd [1975] 2 NSWLR 710, 717-720 and see also Andrew Hicks
“Commercial Candour and Integrity in Singapore: The City Country Club Case”
(1986) 28 Mal LR 288. See now Tan Chin Seng v Raffles Town Club Pte Ltd (No 2)
[2003] 3 SLR 307.

Should offers of membership interests in a club attract the prospectus

requirements? The Malaysian Companies (Amendment) Act 2000 has also altered
their regime so that Malaysia’s Companies Commission now only registers unlisted
interests in the case of recreational clubs and not public offers of securities intended
for listing. The latter comes under their Securities Commission and the Capital
Markets and Services Act 2007. See Tjio at [3.16] and [6.11].

2. EXEMPTIONS TO PROSPECTUS REQUIREMENTS

The Companies (Amendment) Act 1989 introduced CA Part IV Division 5A,

providing for exemptions from the application of Div 1 (Prospectus) and Div 5
(Debentures). In particular, it set out clearly delineated circumstances which are
exempted from the prospectus requirement. These are now found in SFA Part XIII
Division 1(4). These are:

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1. An issue or transfer of securities for no consideration.1

2. A small personal offer where the total amount raised from such offers within a 12
month period does not exceed $5 million or such amounts as may be prescribed by
the MAS.2

3. A private placement to no more than 50 persons within any period of 12 months

and under certain conditions.3

4. an underwriting agreement relating to securities;4

5. a rights issue of an entity that is not listed for quotation on a securities exchange or
which is not formed or constituted in Singapore, which does not have a primary
listing on a securities exchange in Singapore;5
6. a compromise or scheme of arrangement in a winding up or a takeover scheme;6

7. an offer to qualifying persons like employees of the corporation or its related

corporations under the specified conditions;7

8. an offer to institutional investors;8

9. an offer to sophisticated/accredited investors.9 There are three classes of

sophisticated/accredited investors:
(a) a person who acquires at least S$200,000 of securities for each transaction
(note that this was to have become S$100,000 once SFAA 2009 came into
effect – but the statute still says 200K);
(b) a person whose net personal assets exceed S$2 million (with financial assets at
least S$1 million) or whose income in the last 12 months was at least
S$300,000, or a company with net assets of at least S$10 million;

1
Section 272 of the Securities and Futures Act.
2
Section 272A of the Securities and Futures Act. SFAA 2009 new condition that there must
not be any prospectus registered in respect of the securities or, if a prospectus has been
registered, either the prospectus has expired or the person making the offer has informed
MAS of its intention to make the offer in reliance on the small offer exemption.
3
Section 272B of the Securities and Futures Act. SFAA 2009 new condition that if a
prospectus has been registered and has not expired, offeror must inform MAS of its intention
to make the offer in reliance on the private placement exemption and to inform prospective
investors of this.
4
Section 273(1)(cc) of the Securities and Futures Act.
5
Section 273(1)(cd) of the Securities and Futures Act.
6
Section 273(1)(a) to (cb) of the Securities and Futures Act.
7
Section 273(1)(f) of the Securities and Futures Act.
8
Section 274 of the Securities and Futures Act. “Institutional investors” are defined in section
4A(c) of the Securities and Futures Act. The institution to which the securities are issued is
restricted from dealing with them for a certain period: see s 276 of the Securities and Futures
Act.
9
Section 275 of the Securities and Futures Act. Such investors (“relevant persons”) are
defined in section 275(2). There is a restriction on dealing with the securities after issue: see s
276 of the Securities and Futures Act. This was amended by SFAA 2009 to clarify that the
restriction does not apply if the securities are listed within the six month period and offered
with a prospectus.

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 (c) an officer of the offeror or a member of such an officer’s family or of the
offeror’s family10 (if the offeror is a natural person);

10. an offer of securities of the same class as securities already listed for quotation,
whether by means of a rights issue or otherwise. 11 An offer information statement
in the form prescribed in the Sixteenth Schedule of the Securities and Futures
(Offers of Investment) (Shares and Debentures) Regulations has to be lodged with
the MAS. This statement is treated as a prospectus for the purposes of liability
under ss 253 and 254 of the Securities and Futures Act (though not for other
sections);

11. an offer of international debentures.12 The debentures must be issued by a

corporation incorporated outside Singapore whose shares are listed on a recognized
stock exchange. The debentures must be denominated in foreign currency with a
face value equivalent to US$5,000 or its equivalent in another currency – shows
that bonds used to be bought by institutional investors in Singapore. But in the past
5 years especially many have been bought by retail investors and that has created
default recovery and insolvency problems, see eg Hyflux, Swiber, Ezra:
https://www.businesstimes.com.sg/brunch/insolvency-limbo-the-sgd-bond-market

12. An offer of debentures by the government or an international financial institution

of which Singapore is a member.13

Note also SFA s 247, which was inserted into the CA in 1973: CA s 46 prior to
migration. See now section 239A, introduced by the Securities and Futures
(Amendment) Act 2003, permitting MAS to disapply prospectus requirements for any
offer or class of offers.

a. Why are there these exemptions to the requirement for a prospectus even in
the days where those requirements were only triggered by an “offer to the
public”? See Minister for Finance, 2nd Reading Speech, Companies
(Amendment) Bill, 7 April 1989.
b. How wide a discretion does SFA s 247 grant to the regulatory authority? See
AG v Derrick Chong, supra.
c. Should there be a general exemption for crowdfunding through a registered
equity crowdfunding platform which Malaysia introduced on 15 Sept 2015?
A short overview of the changes made to the securities law framework by the Capital
Markets and Services (Amendment) Act 2015 and Securities Commission
(Amendment) Act 2015, which came into force on 15 September 2015, has been
published by the Securities Commission of Malaysia: see here. With thanks to the
Corporate Law and Governance Website.
See also J Cheok, “Crowdlending sector seeks clearer rules” Business Times 31
Aug 2015 ..\..\newspaper clippings\crowdlending sector seeks clearer rules.pdf

The problems with these platforms is that they do not just channel funds to the
fundraising company as they really intend to be funds that manage those moneys
and decide how to channel them to equities and collect large fees in the process.
10
That is, a spouse, parent, sibling or child.
11
Section 277 read with section 273(1)(ce) of the Securities and Futures Act.
12
Section 278 of the Securities and Futures Act.
13
Section 279 of the Securities and Futures Act.

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 As such, they should hold a capital markets services licence to provide “fund
management” and provide a separate prospectus for that (aside from the need for
the issuer companies raising corporate finance to have a prospectus, which could
be exempted given the small sums an individual SME raises).

3. PROSPECTUS CONTENTS

The contents of a full prospectus are currently prescribed in SFA s 243 (previously
CA s 45) and Fifth Schedule, SF (Offers of Investments) (Shares and Debentures)
Regulations (where the shares will be listed on an exchange). For an issue of
securities to be listed on the SGX, note also Chapter 6 of the LM. In 2000, Act
36/2000 substantially amended the then CA s 45 to include a reasonable investor
standard of disclosure. Examine today’s SFA s 243.

In order to satisfy the requirement that the prospectus contain “information that
investors and their professional advisers would reasonably require to make an
informed assessment” of the securities being offered, the SFA provides that it should
contain information:-
(i) only to the extent to which it is reasonable for investors and their professional
advisers to expect to find in the prospectus (NB this is not found for medical informed
consent in s 37 of the Civil Law Act); and
(ii) only to the extent that a person whose knowledge is relevant (who are these
people and how do we ensure that their knowledge/constructive knowledge is
incorporated in the prospectus? See SFA section 243(5) and 255):
(a) actually knows the information; or
(b) in the circumstances ought reasonably to have obtained the information by
making enquiries.

Does SFA s 243 prescribe that the information must be presented in a manner
intelligible to ordinary investor? Can New Brunswick and Canada Railway and Land
Co v Muggeridge (1860) 1 DR & SM 363 lend any assistance via the common law?
See also Pancontinental Mining v Goldfields Ltd (1995) 16 ACSR 463

See now The University Court of the University of St Andrews v Headon Holdings
Ltd [2015] CSOH 113
http://www.bailii.org/scot/cases/ScotCS/2015/%5b2015%5dCSOH113.html
(No pre-contractual duty of disclosure as a starting point even in a joint venture)

Why did the judge in Exeter Group Ltd v ASC (1998) 16 ACLC 1382 come to the
conclusion that the disclosure was inadequate for the purposes of the Australian
equivalent? Note that the present Corporations Act 2001 (Aust) s 710 is amended
from Corporations Law s 1022. See CL s 1022 (as at 9/1/1998) and Corporations Act
2001 (Aust) s 710 for the slightly different formulations of the reasonable investor
standard: http://scaleplus.law.gov.au/ . See now National Exchange v ASIC (2004)
49 ACSR 469.

What about SPACs? See now SEC statement April 2021:

https://www.sec.gov/news/public-statement/spacs-ipos-liability-risk-under-securities-
laws Compare Michael Klausner, Ohlrogge and Ruan, “ A Sober Look at SPACs”:

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https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3720919 SPACs are now
reverting to historical values and investors are losing money on them. They are also
asking for redemptions where possible – can shares be redeemed or bought back so
easily? See also articles on SSRN on SPACs by Umakanth Varottil and Walter Wan.

4. INACCURACIES IN PROSPECTUS

What liabilities would arise if the prospectus contains misleading or inaccurate

statements? See SFA s 253, 254, 255, and Tjio at [6.32]. What changes have been
brought about by the Securities and Futures (Amendment) Act 2005? Would the
inclusion of an equivalent to CA s 4(3) in the SFA make a material difference? Make
brief notes of the following:

 Rex v Kylsant [1932] 1 KB 442

 Derry v Peek (1889) 14 App Cas 337
 Houldsworth v City of Glasgow Bank (188) 5 App Cas 317
While that position has been reversed by statute in the U.K. by s 111A of the Companies Act
1985, which was inserted by the U.K. Companies Act 1989, it is a rule which may still be
applicable in Singapore, given that no such similar provision has been introduced into the
Act. In Australia, it has been held that the rule does not apply to both purchasers on the open
market, and even perhaps subscribers for shares, who have statutory claims for deceptive and
misleading conduct against a company that has breached its continuous disclosure
obligations: Sons of Gwalia Ltd v Margaretic [2007] HCA 1 (High Court, Australia),
Cadence Asset Management Pty Ltd v Concept Stores Ltd [2005] FCAFC 265 (Full Federal
Court, Australia). See further E Boros, “Shareholder litigation after Sons of Gwalia v
Margaretic” (2008) 26 C&SLJ 235. See now section 247E of Australia’s Corporations Act
2001. Note that section 563A of the Australian Corporations Act 2001 was also amended in
March 2011 so that all claims by shareholders of an insolvent company are subordinated to
those of other creditors (see section 250(1)(g) of the Singapore Companies Act). See now
Song Jianbo v Sunmax Global Capital Fund 1 Pte Ltd [2021] SGHC 217 that maybe it only
applies to unlimited companies that were in effect partnerships in the 19 th century that were
registered as corporations

Further consider SFA s 200, 204 and Division 4 of Part XII (which we’ll come back
to in the seminar sheet on Insider Trading et al).

Realistically, what is the remedy most likely to be pursued by a disgruntled

investor? See now Auston International v PP [2007] SGHC 219 (state enforcement
against director rather than company?).

Are inaccuracies in a prospectus as bad a breach as not having a prospectus at

all? Public Prosecutor v Tan Seo Whatt Albert [2019] SGHC 156

Who else might owe a duty of care to investors in regard to misleading

statements in prospectuses? Tjio at [6.36]. Make brief notes of the following:

 Caparo v Dickman [1990] 1 All ER 568

 James McNaughten Papers Group Ltd v Hicks Anderson [1991] 1 All ER 124
 Morgan Crucible Co plc v Hill Samuel Bank Ltd [1991] 1 All ER 148
 Ikumene v Leong Chee Leng [1992] 2 SLR 890

6
 Al Nakib v Longcroft [1991] 1 WLR 1390
 Peek v Gurney (1873) LR 6 HL 377 (claimant buying on secondary market did not
rely on prospectus) Cf Possfund v Custodian Trustee v Diamond [1996] 2 All ER
774 (Lightman J that may not reflect present day use of prospectus).
 Barings Bank Plc (in liq) v Coopers and Lybrand (No 4) [2002] 2 BCLC 364
“purpose test”
 PlanAssure PAC v Gaelic Insurance [2007] 4 SLR 513 (statutory auditors had
duty to be alive to possible existence of fraud but not to be judged ex post facto)
 JSI Shipping v Teofoongwonglcloong [2007] 4 SLR 460 (standard of care)
 Spandeck Engineering (S) Pte Ltd v Defence Science and Technology Agency
[2007] SGCA 37, and KW Lum, “Spandeck and the Tortious Duty of Care in
Singapore” [2010] JBL 179.

What about lawyers? See Heydon v NRMA [2000] NSWCA 374, 36 ACSR 462.
Compare Tan & Au LLP v Goh [2012] SGHC 130 (with academic views taken into
account to show that position before CA decision on joint tenancy in the context of
the relevant Act was not clear). Although lawyers are not specifically mentioned in
section SFA s 253 and 254, can they be caught by s 253(4)(f) and s 254(3)(f)?
Contrast the older Australian provision in Corporations Law s 1006(2)(g) and specific
reference to ‘solicitor’. See now ASIC v Hellicar [2012] 12 HCA 17 at [281] per
Heydon J.

Defences?

The defences to liability in section 254 (as well as for criminal liability under section
253 of the Securities and Futures Act) may be conveniently classed as ‘non-consent
defences’, ‘fair reliance defences’ and ‘reasonable belief defences’.

Turning to the ‘non-consent’ defences first, the essence of the defence is the
withdrawal of the person’s consent to the prospectus. Thus if a proposed director 14 or
a person who is named in a prospectus as having made a statement included in the
prospectus15 withdraws his consent before the issue of the prospectus he cannot be
made liable.

The essence of the ‘fair reliance’ defences in section 255(3) of the Securities and
Futures Act is that the untrue statement was made in reasonable reliance upon a
competent source. The ‘reasonable belief’ defences in section 255(1) and (2) of the
Securities and Futures Act requires one to show that it had reasonable ground to
believe that the misrepresentation in the prospectus was in fact true and did so believe
up to the time of allotment or sale of securities under the prospectus.

The defences set out above constitute what can be called an informal or implicit due
diligence defence, which may be utilised by persons like directors and underwriters
who would otherwise by liable regardless of their actual involvement in the
preparation of a prospectus under section 253 (criminal liability) and 254 (civil
liability). These provisions taken together subject a person to liability when it is not
reasonable for that person to rely on another person or group of persons for the

14
Section 255(5)(a) of the Securities and Futures Act .
15
Section 255(5)(b) and (c) of the Securities and Futures Act.

7
accuracy of matters outside his sphere of responsibility; and where he himself did not
make reasonable inquiries for matters within his own purview. It appears that what is
considered the making of reasonable inquiries to establish the defence will be judged
in the light of established best practices. 16 Can a company rely on the due diligence
defence? See Auston International v v PP [2007] SGHC 219 (is the company or its
officers usually more culpable?) But see now.
Low Chee Keong and Tak Hay Low, "Forest for the Trees: Aren’t Directors Responsible
for Disclosures in Prospectuses?"
Capital Markets Law Journal, Forthcoming
As to how due diligence must be conducted for a company listing its shares, see the
ABS Listings Due Diligence Guidelines which will become part of SGX’s Mainboard
rules from 10 Jan 2020:
https://www.singaporelawwatch.sg/Headlines/Mainboard-listing-review-rules-
strengthened
MAS has recently signalled further guidance for corporate finance advisers:
https://www.businesstimes.com.sg/companies-markets/mas-proposes-to-introduce-
due-diligence-requirements-for-corporate-finance

5. PUBLICITY RESTRICTIONS

Restrictions on advertising. The restrictions are significant insofar as they

circumscribe what publicity material is permissible at the different stages of a public
offering. The operative provisions are now found in SFA s 251. How is this
different from CA s 48? Does section s 251(9)(f) work? What changes have been
brought about by the Securities and Futures Amendment Act 2005, in particular
the section 251(9)(f)? Tjio at [6.40]-[6.44]. See now SF Regulations.

What does s 251(4) do?

Exposure Period
All prospectuses lodged with the Authority will be given a minimum 2-week period
for public exposure before they are registered. The Authority may register the
prospectus between 14 and 21 days, but no later than 28 days following the date of
lodgement. Note that there is now a new accelerated system.

While the older procedure remains, this new optional procedure allows an issuer to
submit its draft prospectus to MAS for pre-lodgment review at the same time that they
file a listing application to the exchange. In addition, the exposure period has been
shortened to seven days where this alternative review process is used. In cases where
MAS has reviewed a prospectus prior to lodgment, they will not be subject to further
review during the public exposure period unless there are material developments or
comments that impact on the prospectus before registration. But the difference
between this newer procedure and the existing one is that the draft prospectus must
therefore be in a very advanced state of preparation before the whole initial public
offering (‘IPO’) timeline is kick-started with the listing application to SGX-ST and
lodgment of the preliminary prospectus with MAS being made simultaneously.

16
Baxt, Black and Hanrahan, Securities and Financial Services Law (6th ed, 2003) at para 542.

8
The lodged prospectus will be put on the Authority’s website for public scrutiny and
comment. Where the document is defective, the market may draw this to the attention
of the Authority which may refuse registration. As the purpose of the Exposure
Period is to invite comment on the prospectus and not applications for shares in the
Issuer, there will be a prominent disclosure on the web page that the lodged
prospectus has not been registered by the Authority and that investors should not
apply for shares on the basis of the lodged prospectus. Further, public comments will
remain confidential and will be channelled to an internal database.

Book-building
During the period between lodgment and registration, the following activities are
typically undertaken as part of the book-building process:-
(a) preparing and circulating the preliminary prospectus to selected prospective
investors;
(b) circulating a research report prepared by an investment research unit (typically
associated with the lead manager of the IPO) on the proposed issuer to
selected prospective investors; and
(c) conducting “roadshow” presentations or meetings with selected prospective
investors.

Upon registration, the web page will be updated with a copy of the registered
prospectus and the warning statement will be removed. The system, known as the
Offers and Prospectus Electronic Repository and Access (“OPERA”) will display
registered prospectuses for the duration of the validity period. The issuer can launch
an IPO after the prospectus has been registered by the MAS.

INDEPENDENCE OF RESEARCH REPORTS

 David Skeel, Icarus in the Boardroom (2005) Ch 6

 (Still) Pity the Poor Little Guy” Business Week 19 May 2003
 “US analysts required to swear by research” Straits Times 7 February 2003
 “SEC for principles-based accounting approach” Reuters 28 July 2003.
 “US stock research companies on cusp of boom” New York Times 28 July 2003
 SGX Press Release, SGX and MAS to introduce Research Incentive Scheme
September 29 2003 and SGX-MAS Scheme receives strong response – 115 Listed
Companies and Nine Research Firms to Participate November 5 2003 (SGX
website) – note that this was terminated in Oct 2009. See Tjio at [1.05].
 See s 45 FAA and 251(9)(f) SFA
 SGX Rules 15.4 and 15.8

RECENT CHANGES TO PROSPECTUS DISCLOSURE REGIME

• The SFAA 2012, which came into force in 2016, requires a Products
Highlights Sheet for almost all forms of securities, including plain vanilla
shares when previously it was for ‘debentures’ taking the form of asset-backed
securities and structured notes (which, along with unlisted collective
investment schemes and exchange traded funds were previously covered by
the Guidelines on the Product Highlights Sheet [SFA 13-G10]) and formalises
the obligations of issuers in respect of the classification of specified
investment products. Section 309C prohibits the use of the phrase

9
 “capital/principal protected” to reduce confusion in the marketplace.
Recognising though that disclosure is not the only thing issuers should have to
comply with, SFA section 265A also requires the borrowing entity to appoint
a trustee for the debenture holders for the entire tenure of the debenture. But is
the trustee obliged to do anything?..\..\newspaper clippings\company\
Bondholder seeks winding up.pdf
• PHS not subject to prospectus liability but cannot be false or misleading or
contain matters not in the prospectus.
• In July 2014, MAS Consultation Paper on Proposals to Enhance Regulatory
Safeguards for Investors in the Capital Markets proposed (i) extending to
investors in non-conventional investment products the current regulatory
safeguards available to investors in the capital markets (eg treating
investments in precious metals as a debt obligation and not requiring investors
contributions to be initially pooled to be considered a CIS) (ii) requiring
investment products to be rated for complexity and risks and for this to be
disclosed to investors and (iii) refining the investor classes under the SFA and
FAA (so that accredited investors must “opt” to be treated as sophisticated).
These came into force in October 2018 through the Securities and Futures
(Amendment) Act 2017.

Is the problem that there is in fact too much information now for investors to
process and that we should revert to the 80s when prospectuses were much
shorter?

COLLECTIVE INVESTMENT SCHEMES (CIS)

It is not surprising that the prospectus requirements extend beyond offers of just
shares, debentures and options. Indeed, the regulation of collective investment
schemes may be even more involved, as the perception is that smaller investors may
be more inclined to invest through such schemes (rather than directly in other
“securities”). See SFA s 285(1) (regulatory approval), s 296(1) (prospectus
requirement). See also the Code on Collective Investment Schemes (MAS website,
which was revised April 8, 2011), promulgated under SFA s 284, which amongst
other things, sets out investment restrictions and guidelines for a CIS (previously
Handbook on Unit Trusts). The SFA also significantly revises the manner for
regulating investment schemes. SFA Part XIII Division 2 replaces the concept of
"(prescribed) interest" defined in CA s 107(1) with the concept of "collective
investment scheme", defined in SFA s 2. The inspiration for the current scheme of
regulation is the UK Financial Services and Markets Act 2000. Compare definition of
collective investment scheme in FSMA s 235 (http://www.legislation.hmso.gov.uk/)
Compare also definition of managed investment scheme in CA 2001 (Aust) s 8. See
now Asset Land Investment Plc v The Financial Conduct Authority [2016] UKSC 17,
discussed Tjio: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3168295

What is a closed end-fund in our definition of CIS, and why were most Singapore
closed end funds excluded from the definition? What does it mean to be
excluded, is it that it cannot be offered to the public at all, or that it can be
offered to the public without complying with any regulatory requirements. If the
latter, is it safe? See Tjio, at [3.17], and now the Business Trusts Act (Act 30 of
2004), as well as section 282C of the SFA. See Tjio at [3.24].

10
But MAS prescribed the following criteria to determine whether a closed-end fund is deemed
to be a CIS (which operated prospectively from July 1 2013) and was then written into the
Act by the Securities and Futures Amendment Act 2017:

 all or most of the units issued under the arrangement cannot be redeemed at
the election of the holders of the units;

 the entity operates in accordance with an investment policy under which

investments are made for the purpose of giving participants in the arrangement
the benefit of the results of the investments, and not for the purpose of
operating a business; and

 the arrangement has certain prescribed characteristics.

In addition a retail closed end fund has to be listed on an approved securities

exchange. Is a listing a substitute for redemption? See now s2 SFA CIS definition
(o).

Consider the following cases and whether the change from participatory interest to
collective investment scheme affects the way the "products" offered will be regulated.

 Khania Nominees Pty Ltd v Hamilton, supra

 R v Commons (1986) 10 ACLR 873
 Brisbane Unit Development Corp v Deming No 456 Pty Ltd (1983) 7 ACLR 729
 Commissioner for Corporate Affairs v Lake Eildon Country Club Ltd (1980) 5
ACLR 522
 A Home Away Pty Ltd v Commissioner for Corporate Affairs (1980) 5 ACLR 299.
 Australian Softwoods Forests Pty Ltd v Attorney General for New South Wales
(1981) 148 CLR 121 (Austlii)
 ASIC v Enterprise Solutions 2000 Pty Ltd (2000) 18 ACLC 130 (Austlii)
 J Lim, “Tighter rules to protect timeshare buyers” Straits Times 29 Jan 2013
 L Hanqing, “200 lose $6 m in land deals” Straits Times May 14 2010

See now MAS Consultation Paper of July 2014 to address, amongst other things land
banking:

http://www.mas.gov.sg/~/media/MAS/News%20and%20Publications/Consultation
%20Papers/2014_07_21_final%20Enhance%20reg%20safeguards%20for
%20investors.pdf

Why? see K Lim, “MAS to tighten rules on gold buyback and landbanking schemes”
Business Times 23 Sept 2015: link..\..\newspaper clippings\MAS to tighten rules on
gold.pdf

What changes were made to the CIS definition to cover landbanking? But
tokens, coins, ICOs, cryptocurrency? Should they be covered and regulated? See
Tjio and Hu: https://law.nus.edu.sg/publications/collective-investment-land-crypto-
and-coin-schemes-regulatory-property/

11
Specific exemptions from the prospectus requirements, similar to that for shares,
debentures etc, are also found in Division 2(4). See s s 302 et al, 303, 304 and 305 et
al. Note that CLRFC recommendation 2.3 stated that unless there are clearly
identifiable public interests determining otherwise, the same exemptions for shares,
debentures etc, should also apply to collective investment schemes. Still, differences
remain even though the SFAA 2005 removed most of them (note that the info memo
has been mandated again for s 305 since July 2013 when it had been removed in
2009).

Peruse SFA Part XIII Division 2(2) and 2(3) to understand the manner of regulation.
Compare the previous provisions in the CA, especially s 112 (only public companies
may issue participatory interests to the public), s 114 (requirement for an approved
deed), s 108-111 (approval of deeds and contents), s 113 (issue of "statement" which
carries the same liabilities as a prospectus). Do the changes help develop the fund
or wealth management sector in Singapore? See Tjio “Regulation of Unit Trusts
and Trustees’ Powers to Invest in Them” (1999) SJLS 148 and Tjio at [3.21]. What is
the legal nature of the unit trust? Barclays v Equity [2014] JRC102D

What can we do with open ended investment companies? Are they and how
should they be regulated? Should the corporate structure be used for active
businesses and the trust structure for passive securities? Why have they both
crossed over?

Compare now Re Croesus Retail Asset Management Pte Ltd17, which concerned a
listed business trust being analogized with the corporate form for restructuring
purposes as the Business Trust Act did not provide for this (unlike liquidation), 18
where Aedit Abdullah J recognised that:
Croesus differs from an orthodox and traditional trust since the unit holders
are expressly stated not to have any equitable proprietary interest in the trust
property but only a right to compel due performance by the trustee …

Hypothetical for discussion

Your client is a Singapore private company that owns a resort in the Philippines.
They have come to you for advice regarding the following proposal. They wish to
attract "members" who will be granted a right to occupy a particular unit in the resort
for a specified period of time. To be eligible for membership, all one has to do is to
pay a membership entrance fee. Under the client's proposed scheme, "members" will
17
[2017] 5 SLR 811.
18
Ibid, drawing parallels with section 210 Companies Act (CAP. 50, 2006 REV. Ed.)
corporate schemes of arrangement. The court used its inherent jurisdiction under under Order
80 rule 2 of the Rules of Court after the Securities Industry Council indicated that the trust
scheme was exempt from various provisions of the Takeovers Code subject to unitholder and
court approvals being obtained that were similar to that required of shareholders in a
corporate scheme. This required, amongst other things, the approval, by a majority in number
representing three-fourths in value of Croesus unitholders, of the scheme and various
amendments to the trust deed (to implement the scheme). However, his Honour said that:
In an O 80 r 2 application, the main focus is on the interest of the beneficiaries and
the terms of the trust … uppermost in the court’s consideration would be adequate
protection in the circumstances for unit holders as putative beneficiaries in an
investment vehicle …

12
get back the membership entrance fee within 15 years pursuant to an arrangement
between the client and an "insurer". The "insurer" will issue individual certificates to
"members" to guarantee the said repayment. To keep the membership, the "member"
will have to pay an annual membership fee. Do the proposals offend any of the
provisions in SFA Part XIII Division 1 or 2? How would you structure the scheme so
as to avoid any infringement of the SFA? Note that tax considerations may affect the
answer: Pinetree v CIT [2000] 4 SLR 1, and now ABD v Comptroller of Income Tax
[2010] SGHC 107.

What is a debenture? Reves v Ernst and Young 494 US (1990) and the family
resemblance test: see the late Soderquist, Understanding Securities Laws (2001) at 8-
9. See also Culverdeen Retirement Villages Ltd v Registrar of Companies (1997) 8
NZCLC 261,301 (Privy Council from NZ). See the fuller meaning of debentures and
the changing treatment of such in Singapore: Tjio at [3.15] and [6.17]. See now Fons
HF v Corporal Ltd [2014] EWCA Civ 304:
http://www.bailii.org/ew/cases/EWCA/Civ/2014/304.html
Tjio, (2014) 73 Cambridge Law Journal 503.

See now Public Prosecutor v Tan Seo Whatt Albert [2018] SGDC 247 (gold buy-back
schemes) and on appeal above and the SFAA 2017 changes to definition of a
debenture.

Were Lehman mini-bonds debentures or collective investment schemes, neither

or both? See http://www.lioninvestor.com/code/uploads/minibond-limited-base-
prospectus.pdf

However, the absence of any disclosure failure cases brought against issuers of
debentures/derivatives during the Lehman Minibond saga in Singapore from 2007-
2009 may suggest that it is enough to warn investors of the risks involved in an
offering, even if those risks are not clearly specified. There was just one ‘class’ action
(which failed at first instance and on appeal) against a bank manufacturer of a note
based on the fact that the prospectus was insufficiently certain to create a valid
contract.19 The successful defence was that the alleged mistake in the prospectus was
so obvious that no one could have relied on it, and reference to extrinsic evidence in
the product reference notes made it clear which was the correct pricing formula, and
there was no conceptual uncertainty as such. What was not at issue was whether it is
enough for a prospectus to say that an instrument is risky without explicitly saying
why this was so, i.e., the adequacy of disclosure as measured by the reasonable
investor standard under the SFA s. 243. There was, however, an action filed in New
York by a group of investors, including Singapore’s oldest credit cooperative, against
a different bank manufacturer of a derivative product, where in a preliminary hearing,
U.S. District Judge Leonard Sand, said “[w]hile there is little doubt that the cautionary
language warned plaintiffs that (Pinnacle) Notes carried some risk, it is inadequate to
have put the reasonable investor on notice of the alleged fraud”. 20 This was recently
settled.21 A Singapore finance company that distributed some of these derivatives has
19
Soon Kok Tiang v. DBS Bank Ltd [2011] 2 S.L.R. 716 (H.C.), aff’d [2012] 1 S.L.R.
397 (C.A.).
20
Dandong v Pinnacle Performance Ltd 2011 WL 5170293 (SDNY Oct 31 2011).
21
G Leong, “S'pore investors settle Morgan Stanley suit” Straits Times 17 November,
2014.

13
also commenced an action in New York against the bank which created these
products alleging fraudulent misrepresentation and breach of contract. Attempts to
stay the action on the grounds that Singapore is the more appropriate forum failed in
respect of these actions.22 These have all been settled.

See the excellent review of the Minibond selling problem by the late Tan Sin Liang,
“MAS Investigation Report on the Sale and Marketing of Structured Notes” which is
more relevant for the later class on the Legal Position of Stockbrokers. Why?

See “Sale of complex hybrids to retail investors worries Aussie regulator” Business
Times 17 Sept 2014.

For the dangers of hybrids, and classification problems, look back to all the things we
examined in things on form and substance, see eg H Tjio “Form or Substance:
Construction or Characterisation” in Trends and Perspectives (SAL Conference
2011): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2951524

See also “Aussie hybrid investors shaken by S&P rule change” Business Times April
23 2013.

In Singapore, debentures with hybrid features are usually sold off exchange, as
opposed to equities or shares. Listing rules apply further regulatory protection, some
of which may cover gaps in legislation. See eg Chapter 3 of the LM. These are a
sample of some of the rules that would govern a convertible bond issue/listing:

313
If the debt securities are offered without a prospectus and primarily to specified investors, the
offering memorandum or introductory document must contain the information that such
investors would customarily expect to see in such documents.

323
An issuer shall immediately disclose to the Exchange via SGXNET any information which
may have a material effect on the price or value of its debt securities or on an investor's
decision whether to trade in such debt securities.

324
An issuer shall immediately announce the following:
(1) the redemption or cancellation of the debt securities, when every 5% of the total principal
amount of those securities (calculated based on the principal amount at the time of initial
listing) is redeemed or cancelled;
(2) the details of any interest payment(s) to be made (except for fixed rate debt securities to
which Rule 308 does not apply pursuant to Rule 308(2)); and
(3) any appointment of a replacement trustee.

810
(1) An issuer which intends to issue shares, company warrants or other convertible securities
for cash must announce the issue promptly, stating the terms of the issue and the purpose of
the issue including the following:—
(a) the identity of the placement agent appointed or to be appointed for the issue, where
applicable;

22
Hong Leong Finance Limited (Singapore) v Morgan Stanley (Index Number
653894/2013, Sept 12 2014). An earlier action based on the Larceny Act had failed for want
of subject matter jurisdiction: Hong Leong Finance Ltd (Singapore) v Pinnacle Performance
Ltd 2013 WL 5746126 (SDNY Oct 23 2013).

14
 (b) the amount of proceeds proposed to be raised from the issue; and
(c) the intended use of such proceeds on a percentage allocation basis (which could be
expressed as a range if the exact allocation has not been determined).

Note that the phrase “issuer” in the Listing Rules by default refers to an issuer of
shares. So the IPT rules in Chpt 9 do not apply to issuers who have only listed their
debt on the SGX. Why is there less regulation of debt? See Gullifer and Payne,
Corporate Finance Law ..\..\Materials Soft Copy\Debt Gullifer and Payne.pdf

In May 2016, MAS said that they had finalised regulations that will facilitate the issue
of retail bonds. The intention is to allow eligible corporate issuers to issue bonds to
retail investors at a lower cost and in minimum denominations of $1000, subject to
safeguards (this includes a seasoning framework in which the bonds are initially
offered to institutional and accredited investors and to investors in large
denominations of at least S$200,000 after a 6-month period). Also, MAS will also
allow an "exempt bond issuer" which satisfies stricter eligibility criteria than under
the seasoning framework to offer bonds directly to retail investors at the start of an
offer without a prospectus (although a simplified disclosure document and product
highlights sheet will be required). One criterion in each of the 3 tests must be met:

Test 1: Size
• Market cap of at least S$1 billion over the past 180 market days; or
• Net asset of at least S$500 million in the most recent audited financial year and
annual average net asset of at least S$500 million over the three most recent audited
financial years.
Test 2: Listing history
• Has equity securities listed on SGX or a recognised securities exchange for at least
five years; or
• Has listed or guaranteed the issuance of bonds listed on SGX for at least five years
Test 3: Track record
• Has a positive three-year average profit and a positive three-year average net
operating cash flow; or
• Has a credit rating of at least BBB for either the issuer or the bonds being offered; or
• Has listed, or guaranteed the issuance of, bonds listed on SGX of at least S$500
million over the previous five years.

With the collapse of the accredited investor bond market in September 2016, there
were calls by respected financial journalists to relook these rules and there is now a
committee to review them:..\..\newspaper clippings\company\Review of SGX's bond
framework needed.pdf

https://www2.sgx.com/media-centre/20200102-sgx-regco-forms-working-group-
review-retail-bonds-framework

See now Tjio, “Restructuring the Bond Market in Singapore” (2019) Capital Markets
Law Journal 16
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3132142

For bonds which simply make the investor who buys it a creditor of the company, ie
one who has bought securities but may or may not be secured as a creditor (usually
not):

15
 • Are they less risky than shares? Pricing?
• How and when are they redeemed?
• What are perpetual securities?
• What does the trustee do or have to do?
• How does bond restructuring occur?
• Should we have more listed bonds?
• Is Swiber problem one of listing? Who bought them? Is the problem over?

There were serious problems even before Covid-19 which are worse now: Insolvency
limbo: the SGD bond market, Features - THE BUSINESS TIMES

The same journalists were very much against the idea of dual class shares being
considered by the SGX. See CA s 64 (one share one vote) and MOF steering
committees’ recommendation to remove it. But what about listing rules? As of
September 2011, the official position of the SGX was that dual class shares with
different voting rights could not be listed on its exchanges. 23 But given the business
objectives of modern demutualised exchanges, however, many exchanges have
liberalized. The US exchanges permit this. 24 After some resistance, HK also permit it
subject to a minimum paid up capitalization of $500 million. Singapore now permits it
subject to certain safeguards:
http://rulebook.sgx.com/net_file_store/new_rulebooks/s/g/
SGX_Mainboard_Rules_June_26_2018.pdf

See the discussion in an SGX Roundtable captured by Michelle Dy:

https://law.nus.edu.sg/cbfl/pdfs/reports/CBFL-Rep-MD2.pdf

Hans Tjio
January 2023

23
SGX Release, Regulator’s Column, “The Capital Structure of Listed Companies in Singapore”, 20
September 2011.
24
In the US, the New York Stock Exchange ("NYSE") from 1926 to 1988 generally refused to
authorise the listing of nonvoting common stock. Due to competition from NASDAQ however the U.S.
Securities and Exchange Commission adopted a rule change (19c-4) which automatically became an
NYSE rule and a rule of the National Association of Securities Dealers, Inc ("NASD"). Under this
there were exceptions to the one share one vote rule. However, there were problems with the
federal/state jurisdictional divide and NYSE and NASD subsequently enacted their own rules, which
were similar in effect to rule 19c-4. See L Lim, January 15 Singapore Law Gazette 30-34.

16