News and developments
Significant Investments Review Bill: Singapore’s Approach to Scrutinize Investment Activity and comparison to prior reforms in Australia
a 10% increase from the previous year and maintaining a consistent upward trajectory[1]. With a favourable tax regime, the availability of government incentives, and a stable political and legal environment, there is no surprise that Singapore continues to enjoy high levels of foreign direct investment (“FDI”) activity.
Whilst the inbound investment numbers bode well for Singapore and business confidence generally, a resultant consequence is that direct investment exposure (as opposed to conduit financing into the region), can lead to foreign investors having interests in key sectors of the economy. The current FDI regime in Singapore only goes so far as to “police” certain key industries such as real estate, financial services, telecommunications and media without broader protectionist concepts such as ‘national interest’, ‘national security’ or ‘strategic assets / entities’. The Ministry of Trade and Industry of Singapore is now seeking to take a more holistic view on FDI regulation through the passing of the Significant Investments Review Bill (“Bill”) on 9 January 2024 which will introduce a new investment management regime so as to ensure there are adequate and effective investment management measures to safeguard Singapore’s national security, and to ensure that Singapore’s economy remains resilient.
The new regime in Singapore is conceptually similar to reforms in other countries in the region in recent years aimed at regulating foreign investments in the interests of protecting national security. In 2021, Australia introduced significant changes to Australia’s foreign investment policy framework as part of a broader national security reform.[2] The Australian reforms included the introduction of a national security test to sit alongside an existing national interest test. The national security test covers acquisitions of “national security land” and “national security businesses”. Further changes to the Australian regulatory regime included streamlining the process in relation to less sensitive investments to reduce red tape for investors, and to also provide for stronger penalties, compliance and enforcement powers.
Notable provisions proposed under the Bill
Some notable provisions that are proposed under the Bill are as follows.
“Designated entities”
The Bill introduces a new concept of a “designated entity”, i.e. an entity that is so designated by the Minister of Trade and Industry (the “Minister”) if:
Authors: Toby Grainger - Managing Partner/ Head of Corporate and Indonesian Desk, CMS Singapore Sam Ng - Of Counsel - CMS Holborn Asia*, Singapore Leslie Tay – Associate CMS Holborn Asia*, Singapore Jeremie Witt – Partner – Brisbane Michelle Hall – Counsel - Brisbane
- there is a prescribed nexus to Singapore – where such entity is:
- incorporated, formed or established in Singapore;
- carries out any activity in Singapore; or
- provides any goods and services to any person in Singapore; and
- the Minister considers such designation necessary in the interests of Singapore’s national security.
- whether the entity provides a critical function in relation to Singapore’s national security interests (e.g. where it is a key provider of security-related functions and there are few / no alternatives); and
- whether it is adequately covered by existing sectoral legislation.
- Notification and Approval Requirements –
- Buyers, sellers and “designated entities” are required to notify the Minister or obtain the Minister’s prior approval where there are any changes in the ownership or control (including indirect control) of “designated entities”.[3]
- Parties are also required to seek the Minister’s approval if they are becoming an indirect controller or acquiring parts of the business or undertaking as a going concern.
- Where a transaction is completed in contravention of the relevant approval requirements, it would be deemed void under the Bill. However, the Minister may validate a transaction by notice upon the application of materially affected parties or where the Minister is satisfied that it is in the interest of Singapore’s national security to do so.
- Appointment and Removal of Key Management –
- The appointment of the key management personnel of a “designated entity”, such as its chief executive officer, directors, or chairperson of the board, is subject to the Minister’s approval. Such approval requirements have also been observed under existing sectoral legislation, such as those regulated by the Monetary Authority of Singapore.
- The Minister would consider relevant factors in determining whether approval for such appointments should be granted, for example, the appointment may be rejected by the Minister if such individual has a track record of engaging in conduct / activities that could undermine Singapore’s national security interests.
- Restrictions on Winding up – The consent of the Minister is required for the voluntary winding up, voluntary dissolution or termination and the making of judicial management orders of a “designated entity”.
- powers to remove a “designated entity’s” chief executive officer, director, or chairperson of the board if prior approval has not been obtained, and/or if it is necessary in the interest of Singapore’s national security;
- powers to issue remedial directions, such as directions for a buyer to cease to be a controller of a “designated entity” or directions for a transfer / disposal of equity interests held in a “designated entity”; and
- powers to review, and issue remedial directions, in relation to, certain transactions after those transactions have taken place, if the relevant entity to which the transaction relates has acted against the national security interests of Singapore.
- Buyers are required to notify the Minister within 7 days after becoming a “Level A controller” (i.e. a person who, alone or together with its associates, holds 5% or more but less than 12% of the total equity interests in the designated entity, or is in a position to control 5% or more but less than 12% of its voting power).
- Buyers are required to seek the Minister’s approval before becoming a “Level B controller” (i.e. a person who, alone or together with its associates, holds 12% or more but less than 25% of the total equity interests in the designated entity, or is in a position to control 12% or more but less than 25% of its voting power), “Level C controller” (i.e. a person who, alone or together with its associates, holds 25% or more but less than 50% of the total equity interests in the designated entity, or is in a position to control 25% or more but less than 50% of its voting power), or “Level D controller” (i.e. a person who, alone or together with its associates, holds 50% or more of the total equity interests in the designated entity, or is in a position to control 50% or more of its voting power).
- Sellers are required to seek the Minister’s approval before ceasing to be a “Level Y controller” (i.e. a person who, alone or together with its associates, holds 50% or more but less than 75% of the total equity interests in the designated entity, or is in a position to control 50% or more but less than 75% of its voting power) or “Level Z controller” (i.e. a person who, alone or together with its associates, holds 75% or more of the total equity interests in the designated entity, or is in a position to control 75% or more of its voting power).
Authors: Toby Grainger - Managing Partner/ Head of Corporate and Indonesian Desk, CMS Singapore Sam Ng - Of Counsel - CMS Holborn Asia*, Singapore Leslie Tay – Associate CMS Holborn Asia*, Singapore Jeremie Witt – Partner – Brisbane Michelle Hall – Counsel - Brisbane