Company directors to face heavier penalties if they fail to act in the best interest of firms

Directors who fail to manage companies in the best interest of the companies or do not act with reasonable diligence will soon face a fine of up to $20,000, up from the current maximum of $5,000.

This comes after Parliament on Nov 5 passed amendments to the Companies Act to strengthen the regulatory framework for companies. In addition to the fine, serious offenders can also face imprisonment of up to 12 months.

Currently, offenders may be fined up to $5,000 or jailed for up to 12 months, but not both.

“When compared to penalties for equivalent offences in other leading common law jurisdictions, we found that there was scope for an upward revision of the penalties,” said Second Minister for Finance Indranee Rajah in the House during the debate on the Corporate and Accounting Laws (Amendment) Bill. The move provides “stronger penalties to deter potential offenders”, she said.

In her speech, Ms Indranee outlined other changes also passed by the House, including increasing safeguards against the misuse of companies for unlawful purposes, protecting shareholders’ interests, lowering regulatory burden on companies, and promoting greater personal accountability for public accountants in the auditing profession.

One of the changes requires the public accountant who is primarily responsible for an audit engagement to be identified in the audit report itself. Currently, audit reports are usually signed off by accounting entities instead of the specific individuals.

The amendments came after the Accounting and Corporate Regulatory Authority (Acra) reviewed its regulatory functions.

Speaking at the debate, PAP MPs Edward Chia (Holland-Bukit Timah GRC) and Lee Hong Chuang (Jurong East-Bukit Batok GRC) highlighted the challenges that small and medium-sized enterprises (SMEs) may face in complying with the new amendments.

To ease regulatory burden, the public can soon inspect any company record by giving the company reasonable notice of their intent to do so. Companies must then make such records available for inspection for at least two hours during each of the relevant business days.

On this, Mr Chia asked whether replacing the right to inspect the registrar’s physical documents with electronic access would change the scope of personal and company data exposed to the public.

“This electronic register contains more detailed information, including share transfer dates and ownership history. By allowing anyone to easily obtain these details through Acra, the Bill could increase the exposure of personal and commercial data for smaller family firms and investment holding companies,” he noted.

In response, Ms Indranee clarified that the amendments do not expand the scope of access to personal or company data. “Members of the public can already inspect a private company’s electronic register of members upon payment of the prescribed fees. These amendments simply update the mode of access by replacing physical inspection with electronic access to the same information.”

She added that Acra is mindful of the need to balance corporate transparency with personal data protection.

The two MPs also asked whether financial reporting and auditing requirements could be simplified for SMEs. Mr Lee pointed out that adhering to the new amendments may increase the cost of compliance for smaller companies with limited resources. “The fund that could go into hiring, product development or market expansion may instead be channelled into paperwork, audits and consultancy fees.” He suggested a more SME-friendly implementation process by introducing tiered compliance requirements, based on company size, revenue or staff strength.

In reply, Ms Indranee noted that small companies can already prepare their financial statements using a simplified financial reporting framework. She added that the Companies Act also exempts companies from audit requirements if their revenue, assets and/or employees are below certain thresholds.

“Acra will continue to review these compliance requirements to see if more companies can benefit from these simplified frameworks or exemptions,” she said.

Source: The Straits Times © SPH Media Limited. Permission required for reproduction.

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