With the recent legislative amendments to the Companies Act (Phase 2) to be implemented on 3 Jan 2016, you need to be aware of some of the key amendments which have implications in the discharge of your duties as a director or company secretary of the company. We bring you some key highlights in a series of newsletters on what has changed and what you can do to mitigate your risks.
Stepped up enforcement actions by ACRA for AGM and AR breaches with effect from 1 December 2015
Under the Companies Act, a company has to comply with the following three sections of the Act.
- S175 where it must hold its AGM every calendar year and not more than 15 months from the previous AGM. If the company is newly incorporated, it has to hold its AGM within 18 months from its date of incorporation;
- S197(4) where it has to file the Annual Return within 1 month online via Bizfile after a company has held its AGM; and
- S201(1) where the financial statements laid at the AGM must not be more than 6 months old for non-listed companies (4 months for listed companies).
ACRA has identified the above three statutory requirements as areas which companies and directors are prone to breaching. To further enhance compliance, with effect from 1 December 2015, ACRA will be implementing:
- a flat penalty of $300 for the late filing of AR regardless of the length of default;
- a composition sum of $300 for holding the AGM late (s175 of the Companies Act)
- a composition sum of $300 for layout out-of-date financial statements at the AGM (s201 of the Companies Act)
The above changes represent a stark increase in the penalties imposed on companies for failing to comply with the requirements of the Companies Act. Prior to these revisions, the penalty for late filing and the composition sums for each breach ranges from $60 to $350, depending on the length of default. With the revised penalty structure, companies and directors will now have more reason to beef up their efforts to ensure that they comply with the relevant sections.
Changes to the new enforcement actions do not stop here. On top of the above penalties, ACRA will consider prosecuting the directors in court in either of the following circumstances:
- they fail to register and attend the Directors Compliance Programme (“DCP”) when ACRA writes to them to offer them a chance to attend the DCP (only first time offenders are eligible); or
- if they fail to compound (when offered a chance to compound); or
if ACRA is not prepared to let the Directors compound due to the facts of the case.
What happens when the company and its directors continue to be non-compliant?
For this, ACRA has introduced a new 3-tier composition fee structure summarized below.
- Stage 1 – Before ACRA issues a summons to the directors of the company
What ACRA will do – ACRA has the discretion to offer a composition of $300 per breach.
What you can do – Accept and pay the composition sum for the breach(s).
- Stage 2 – After ACRA issues a summons to the directors of the company
What ACRA will do – Increase composition sum. ACRA has the discretion to offer a composition of $600 per breach. What you can do – Contact ACRA to compound the breaches at $600 per breach within 14 working days of the appointed court date. If payment is received at least 48 hours before court date, ACRA will apply to withdraw the charges and the director does not have to attend court.
- Stage 3 – If the director does not attend the court hearing or compound the breaches, ACRA may issue a warrant of arrest to the director.
What ACRA will do – Increase composition sum. ACRA has the discretion to offer a composition of $900 per breach.
What you can do – Contact ACRA to compound the breaches at $900 per breach. If the composition sum is fully paid up, ACRA will apply to withdraw the charges and cancel the warrant of arrest.
Debarment and disqualification to act as directors or company secretaries
Besides revisions to the penalty and composition sums, ACRA has legislative powers under a new section 155B of the Companies Act to debar a director or company secretary from taking additional appointments. Effective in 2016, a director or company secretary who is in default of a relevant requirement in the CA for a continuous period of 3 months or more may face a debarment order from the Registrar preventing him from taking on new appointments as director or company secretary in the current or other companies.
In addition, a director who has at least 3 of his companies struck off* within a period of 5 years will be disqualified from acting as director, or to take part in the management of any company for a period of 5 years commencing after the date on which the third company is struck off.
* This includes the striking off of three companies initiated by ACRA and does not include voluntary applications for striking off.
How to mitigate risks of enforcement actions from ACRA
In view of the hefty penalties that ACRA has put in place, it is important that directors be aware of the ways which are available to lower their company’s (and theirs too) exposure to enforcement actions from ACRA.
- Ensure that accounts are prepared on a timely basis.
As S201 stipulates that companies must not lay out-of-date accounts at the AGM, the director(s) must ensure that appropriate accounting systems and qualified accounting personnel are in place to prepare accurate and timely accounts for the company. For small companies and start-ups, we have affordable outsourced solutions to prepare your monthly or quarterly accounts and to submit quarterly GST returns on a timely basis. We are also capable of providing support to larger corporations if they need assistance in data entry, clearing backlog, temporary replacement of staff (for instance, staff who goes on maternity leave, reservist, staff replacement, etc). Contact us today for our various outsourced solutions!
- Engage a professional company secretary.
Very often, we encounter requests from companies to assist them urgently in filing the companies’ annual return as they were not aware of the annual filing deadlines and ACRA had imposed severe penalties for non-filing. Our experience tells us that many times, such penalties can be eliminated or significantly reduced if these companies had a competent company secretary to advise and remind them promptly of the statutory compliance requirements. At Origins, we use automated systems to track the filing status of companies and the relevant filing deadlines and issue timely reminders to all our clients whom we act as their company secretary. Contact us today to find out what secretarial packages we can provide to your company to maximize savings and minimize risks of non-compliance!
- Seek advice from your accountant or company secretary as soon as you are aware that you may breach S175, S197 or S201 of the Companies Act.
Despite our best efforts in complying with the relevant sections, we are aware that there may be extenuating circumstances whereby directors are unable to file up-to-date accounts or hold the AGM promptly. Speak with your accountant or company secretary as soon as possible as they are in a better position to advise you of the options available and clarify the steps you need to take to minimize penalties and enforcement actions.
- Attend the Directors Compliance Programme (“DCP”) when offered by ACRA to attend.
For first time offenders, ACRA will write to the company and its directors to give them an opportunity to attend the DCP. The DCP is a half day course conducted by the Singapore Institute of Directors focusing on the basic statutory obligations of being a director. Sessions are run on an average of twice a month. ACRA will waive off the penalties imposed on the company upon completion of the DCP and the annual return is filed by the new deadline given by ACRA. Note that the DCP is aimed at educating first-time offenders; repeat errant directors will be hit harder with the new penalty structure in place.
- Use of nominee services
We provide nominee director services for local and foreign directors who require our assistance in compliance with the relevant sections of the Companies Act. Contact us today for a no-obligation discussion on our nominee services!