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Monday, 11 May 2009
SGX’s hands tied by legal, practical constraints: lawyers
Amid a growing list of corporate debacles here - many of which are still in limbo - there are market rumblings over why SGX has fallen short of being more vocal and active in its intervention.
SGX’s hands tied by legal, practical constraints: lawyers
Lynette Khoo 11 May 2009
Amid a growing list of corporate debacles here - many of which are still in limbo - there are market rumblings over why SGX has fallen short of being more vocal and active in its intervention.
There appears to be an ‘expectation gap’ between what the public expects SGX to do versus what it can and should do.
Granted, SGX may have intervened behind closed doors but the media has pressed that SGX should make its dealings with companies public.
But exactly when and how should SGX step into a whole spectrum of corporate behaviour ranging from bad practices to blatant fraud?
SGX’s hands are tied when it comes to foreign listings, both from a legal and practical standpoint, lawyers say.
‘Being a frontline regulator has its difficulties,’ said Drew & Napier director Marcus Chow.
For one thing, SGX has no investigative powers as that power resides with the Monetary Authority of Singapore as a statutory regulator.
What SGX could do however, is appoint special auditors or prod companies to appoint special auditors to review or investigate their affairs and report the findings to the exchange or the companies’ audit committees.
But for practical reasons, market watchers note that SGX may prefer to leave the appointment of special auditors to companies to suit their needs and cost appetites because the cost of a special audit can run up to a few hundred thousand dollars.
SGX has not reverted with an official response by press time when approached by BT on the issue of when and how it deems appropriate to intervene.
But sources familiar with SGX’s modus operandi note that SGX typically steps in at a very early stage on a private basis as it cannot be seen to be jumping the gun or taking sides until there is clear evidence of breaches or misconduct.
Where there is a potential breach of laws, SGX will bring up the matter to the MAS and also to the Commercial Affairs Department if the offence is criminal.
‘It’s true that the exchange can be more engaged and share with the public its discussions with the listed company,’ said a senior partner from a law firm. But in many cases, certain details are uncertain and if made public too early, could be defamatory, he noted.
Legislative powers
Some lawyers felt that SGX should have more teeth by having broader legislative powers.
‘Maybe they should have investigative powers to send people into companies to audit, query and take statements,’ said the senior partner.
The SGX listing rules currently lack teeth, lawyers say. Only the disclosure rules, which fall under the Securities and Futures Act, are enforceable by law. Former directors of Chuan Soon Huat and AirOcean have, for instance, been charged for disclosure-related breaches.
But it gets tricky when recent corporate debacles go beyond disclosure issues, as seen in the case of China Sun Bio-Chem Technology group where independent directors (IDs) told of dubious events and a lack of cooperation from management, undermining the work of special auditors.
While market watchers applaud the IDs for going public early in their disagreements with management, they are less appreciative of the perceived silence at SGX.
Lawyers note that where corporate trouble escalates from a spat between directors, SGX should not be seen as taking sides, even when one side seems to possess more truth and honesty.
It appears that options for an SGX intervention at an early stage are limited. So are the remedial actions, lawyers say.
Punitive actions by SGX can include private reprimands, public censures, trading suspensions or delistings.
Stamford Law Corporation director Ng Joo Khin noted that trading suspensions and delistings have their flip sides, as shareholders get stuck. Moreover, a trading resumption in a scandal-hit company is quite likely to result in poor share price performance.
There also needs to be a strong case for delisting, added Mr. Chow, as it can also be seen as an easy escape route.
‘SGX should be given a broader arsenal of weapons to go against errant issuers,’ said a local lawyer.
This could include fines, moratoriums on fund-raising or even the power to remove directors.
As things stand, SGX can only disqualify directors at the IPO stage - and therein lies the rub.
In the case of NEL Group, for instance, the four newly appointed directors - who are facing law suits in Malaysia - cannot be barred from taking office as they have not been disqualified by the court. What SGX could have done was to push for greater disclosures of the background of these directors.
Enforcement issues
But even if it were to have more legislative powers, SGX would still be limited in its enforcement abilities, at least when it comes to foreign listings.
And if foreign companies have no assets in Singapore and no directors residing here, there is almost nothing that the court can seize here with a search warrant, lawyers say.
‘From a practical point of view, a frontline regulator may have limited or no enforcement powers over listed companies with foreign operations and foreign incorporations,’ said Mr. Chow.
‘Foreign cooperation in the investigation or prosecution of culpables is probably what is needed now,’ he added.
One practical solution may be to require foreign listings to have some funds parked here, with independent directors signing off on their usage, some lawyers suggested. The funds could be used to appoint professionals to conduct checks when something goes wrong.
Mr. Ng cautioned that over-legislation can also stifle the market and at the end of the day, it’s back to the old adage of buyers beware.
A local lawyer noted that the Singapore market is not ready for full caveat emptor yet, and that’s why ‘SGX needs to make a value judgment on when to intervene and also be judged for that’.
1 comment:
SGX’s hands tied by legal, practical constraints: lawyers
Lynette Khoo
11 May 2009
Amid a growing list of corporate debacles here - many of which are still in limbo - there are market rumblings over why SGX has fallen short of being more vocal and active in its intervention.
There appears to be an ‘expectation gap’ between what the public expects SGX to do versus what it can and should do.
Granted, SGX may have intervened behind closed doors but the media has pressed that SGX should make its dealings with companies public.
But exactly when and how should SGX step into a whole spectrum of corporate behaviour ranging from bad practices to blatant fraud?
SGX’s hands are tied when it comes to foreign listings, both from a legal and practical standpoint, lawyers say.
‘Being a frontline regulator has its difficulties,’ said Drew & Napier director Marcus Chow.
For one thing, SGX has no investigative powers as that power resides with the Monetary Authority of Singapore as a statutory regulator.
What SGX could do however, is appoint special auditors or prod companies to appoint special auditors to review or investigate their affairs and report the findings to the exchange or the companies’ audit committees.
But for practical reasons, market watchers note that SGX may prefer to leave the appointment of special auditors to companies to suit their needs and cost appetites because the cost of a special audit can run up to a few hundred thousand dollars.
SGX has not reverted with an official response by press time when approached by BT on the issue of when and how it deems appropriate to intervene.
But sources familiar with SGX’s modus operandi note that SGX typically steps in at a very early stage on a private basis as it cannot be seen to be jumping the gun or taking sides until there is clear evidence of breaches or misconduct.
Where there is a potential breach of laws, SGX will bring up the matter to the MAS and also to the Commercial Affairs Department if the offence is criminal.
‘It’s true that the exchange can be more engaged and share with the public its discussions with the listed company,’ said a senior partner from a law firm. But in many cases, certain details are uncertain and if made public too early, could be defamatory, he noted.
Legislative powers
Some lawyers felt that SGX should have more teeth by having broader legislative powers.
‘Maybe they should have investigative powers to send people into companies to audit, query and take statements,’ said the senior partner.
The SGX listing rules currently lack teeth, lawyers say. Only the disclosure rules, which fall under the Securities and Futures Act, are enforceable by law. Former directors of Chuan Soon Huat and AirOcean have, for instance, been charged for disclosure-related breaches.
But it gets tricky when recent corporate debacles go beyond disclosure issues, as seen in the case of China Sun Bio-Chem Technology group where independent directors (IDs) told of dubious events and a lack of cooperation from management, undermining the work of special auditors.
While market watchers applaud the IDs for going public early in their disagreements with management, they are less appreciative of the perceived silence at SGX.
Lawyers note that where corporate trouble escalates from a spat between directors, SGX should not be seen as taking sides, even when one side seems to possess more truth and honesty.
It appears that options for an SGX intervention at an early stage are limited. So are the remedial actions, lawyers say.
Punitive actions by SGX can include private reprimands, public censures, trading suspensions or delistings.
Stamford Law Corporation director Ng Joo Khin noted that trading suspensions and delistings have their flip sides, as shareholders get stuck. Moreover, a trading resumption in a scandal-hit company is quite likely to result in poor share price performance.
There also needs to be a strong case for delisting, added Mr. Chow, as it can also be seen as an easy escape route.
‘SGX should be given a broader arsenal of weapons to go against errant issuers,’ said a local lawyer.
This could include fines, moratoriums on fund-raising or even the power to remove directors.
As things stand, SGX can only disqualify directors at the IPO stage - and therein lies the rub.
In the case of NEL Group, for instance, the four newly appointed directors - who are facing law suits in Malaysia - cannot be barred from taking office as they have not been disqualified by the court. What SGX could have done was to push for greater disclosures of the background of these directors.
Enforcement issues
But even if it were to have more legislative powers, SGX would still be limited in its enforcement abilities, at least when it comes to foreign listings.
And if foreign companies have no assets in Singapore and no directors residing here, there is almost nothing that the court can seize here with a search warrant, lawyers say.
‘From a practical point of view, a frontline regulator may have limited or no enforcement powers over listed companies with foreign operations and foreign incorporations,’ said Mr. Chow.
‘Foreign cooperation in the investigation or prosecution of culpables is probably what is needed now,’ he added.
One practical solution may be to require foreign listings to have some funds parked here, with independent directors signing off on their usage, some lawyers suggested. The funds could be used to appoint professionals to conduct checks when something goes wrong.
Mr. Ng cautioned that over-legislation can also stifle the market and at the end of the day, it’s back to the old adage of buyers beware.
A local lawyer noted that the Singapore market is not ready for full caveat emptor yet, and that’s why ‘SGX needs to make a value judgment on when to intervene and also be judged for that’.
Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.
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