As a result of the novel coronavirus (COVID-19) outbreak, various safe distancing, stop work orders, lockdowns and quarantine measures have spread across the globe. Many businesses have been adversely and severely impacted, including experiencing disruptions to operations, supply chain disruptions, lost revenue and increased costs.
In this article, we examine some of the considerations for companies listed on the Singapore Exchange Securities Trading Limited ("SGX") in light of the COVID-19 situation.
Impact on Contracts
We have previously discussed the impact of COVID-19 on any force majeure clause in contracts, as well as the possibility of invoking the doctrine of frustration in our article published on 4 February 2020, accessible here.
The other key contractual provision that may be relevant in light of COVID-19 is the material adverse change ("MAC") clause. Such clauses are commonly put in place to allow a party a right to terminate the agreement, or to provide a basis for renegotiating the agreement, if events occur that are detrimental and affect the operations or financial position of its counterparty. MAC clauses tend to be negotiated and as such, vary greatly for different contracts. Whether a party can invoke an MAC clause on the basis of COVID-19 largely depends on the form and content of the relevant provision and the extent of the effect of COVID-19 on its counterparty.
As a general rule, the more specific the MAC clause, in particular to the triggers which will allow a party to invoke the provision (for example, where there is a defined loss of revenue, a defined reduction in the net asset value, or the loss of specific contracts), the more likely it is to be enforceable and parties will have a greater degree of certainty as to their rights and obligations under the MAC clause during the COVID-19 outbreak. Whether a party can rely on a more generic MAC clause in light of COVID-19 to avoid completion of a transaction remains unclear and there is no guidance available from the Singapore courts to date. Some of the points that courts may consider include (i) the information available to the parties at the time of signing the agreement; (ii) the likely duration of the material adverse change and (iii) any disproportionate impact as compared with other businesses in the industry. Due to the uncertain outcome of litigation and potential consequential costs and delays, parties may instead consider a renegotiation of the terms of the contract to share the impact of COVID-19. Otherwise, the party that wrongfully invokes an MAC clause may end up being liable for a breach of contract instead.
For SGX-listed companies, other than contracts entered into in the ordinary course of business, the MAC clause may also be of particular importance in any proposed acquisitions/disposals where the situation due to COVID-19 may have caused the target's operations to be so materially affected such that either party may wish to terminate the agreement. The ability of a party to terminate the agreement based on COVID-19 will depend on the exact scope of the MAC clause in question and the factors above. In the context of an acquisition, a purchaser company may also face funding issues, whether due to a shortage of cashflow arising from disruptions to its business operations, or financing issues from lenders to fund the acquisition. In such situations, the purchaser is less likely to be able to rely on the MAC clause to terminate the agreement and may face contractual breach issues if it is otherwise unable to terminate the agreement or to source for alternative funds to satisfy its consideration payment obligations.
In the context of a public takeover, it should be noted that the Singapore Code on Take-overs and Mergers does not allow an offeror to withdraw an offer without the consent of the Securities Industry Council where the offeror has announced a firm intention to make an offer, unless the posting of the offer was expressed as being subject to the prior fulfilment of a specific condition and that condition has not been met. The Securities Industry Council has further stated that the fulfilment of the condition cannot depend on an unacceptable degree on the subject judgement of the offeror as such conditions can create uncertainty. Where, however, there are reasonable grounds for an offer to be conditional on specific statements, facts or estimates relating to the offeree company's business being satisfactorily confirmed, such conditions will normally be allowed to be included provided that the test is sufficiently objective and depends on the judgement of parties other than the offeror or persons acting in concert with it. Whether COVID-19 will trigger a material adverse change clause in the context of a public takeover will depend on the exact wording of the clause relied upon.
It is also common for a MAC clause to be in a placement agreement or an underwriting agreement for companies conducting fundraising exercises. Practically, the timing of the signing of such an agreement and the fundraising exercise tends to be short and the likelihood of triggering an MAC clause is low. However, given the volatility in the markets in recent weeks, depending on the language of the MAC clause, a steep decline in the stock markets between the period of signing of a placement agreement for a secondary fundraising and completion (which typically may take about two weeks) may well constitute a MAC.
In the context of loans, loan agreements often contain MAC clauses which may allow the lenders to terminate the loan arrangements. However, such a clause is unlikely to be invoked if the borrower is able to meet its repayment obligations. Notwithstanding this, companies should still consider other contractual provisions that could be triggered as a result of COVID-19's impact on their businesses which may allow the lenders to accelerate the loan, such as a breach of a financial covenant.
Companies should consider assessing how the COVID-19 virus may impact the parties’ obligations when negotiating new contracts during this period and include the relevant language or carve-out to deal with this.
Obligations of Employers
For a snapshot of employers' legal obligations in respect of COVID-19 and the measures to be taken in the workplace to reduce physical interactions amongst employees, please refer to our previously published articles as listed below:
Annual General Meetings and Filing of Annual Returns
Waiver for any company whose principal place of business is in the People's Republic of China ("PRC") or have significant operations in the PRC with financial year ended 31 December 2019.
Following feedback received from audit professionals of their practical difficulties in performing the statutory audits for companies with financial year ended 31 December 2019 due to measures put in place by the authorities in response to COVID-19, SGX RegCo announced on 7 February 2020 that it will grant a time extension of up to two months (i.e. till 30 June 2020) to certain issuers holding annual general meetings to approve their 31 December 2019 financial results (the "7 February Waiver"). Issuers must issue their annual reports to shareholders and the Singapore Exchange at least 14 days before the date of its annual general meeting.
The 7 February Waiver will be granted to issuers who fulfil the following criteria: (i) their financial year end is 31 December 2019; (ii) their principal place of business is in the PRC or they have business with significant operations in the PRC; (iii) their statutory audits for the financial year ended 31 December 2019 were affected due to the travel restrictions and/or other measures imposed by the authorities in response to COVID-19; and (iv) approval of a similar application for extension of time by the Accounting and Regulatory Authority of Singapore ("ACRA") or other relevant regulatory authorities where applicable.
ACRA will process and allow these applications for extension of time through Bizfile if issuers fulfil criteria (i) to (iii) and will waive the fees for these applications.
Issuers seeking the 7 February Waiver must notify the SGX RegCo (a) that they wish to be granted the 7 February Waiver; (b) how they met the criteria above, including obtaining confirmation from their auditors on criteria (ii) and (iii); and (c) the indicative timeline to convene their annual general meeting. For further information on the 7 February Waiver, please refer to the news release here.
Waiver for any company with financial year ended 31 December 2019
To allow time for issuers to address concerns of shareholders about attending large group meetings amidst the COVID-19 situation, the SGX RegCo had on 27 February 2020 announced that it will allow issuers listed on the Singapore Exchange with a 31 December financial year-end, up to 30 June 2020 to hold annual general meetings to approve their 31 December 2019 financial results (the "27 February Waiver"). This is in addition to the 7 February Waiver and is intended to provide flexibility for issuers to consider the best way to conduct their annual general meetings.
Issuers who wish to utilise the 27 February 2020 Waiver must continue to issue their annual reports to shareholders and the Singapore Exchange by 15 April 2020, consistent with the current requirement, and must subsequently provide the requisite notice of at least 14 days prior to the holding of the annual general meeting. Issuers are still required to release their unaudited financial results for the financial year ended 31 December 2019 by 29 February 2020.
The 27 February Waiver will be granted to issuers who fulfil the following criteria: (i) their financial year end is 31 December 2019; and (ii) approval of a similar application for extension of time by the ACRA or other relevant regulatory authorities having been obtained, where applicable.
ACRA will process and allow these applications for extension of time through Bizfile for these companies with financial year ended 31 December 2019. Upon approval, ACRA will waive the fees for the extension of time applications by Singapore listed companies, by way of a refund.
Issuers seeking the 27 February Waiver must notify the SGX RegCo (a) that they wish to be granted the 27 February Waiver; (b) how they met the criteria above; and (c) the indicative timeline to convene their annual general meeting. For further information on the 27 February Waiver, please refer to the news release here.
Safe distancing measures when conducting meetings
On 24 March 2020, the Ministry of Health of Singapore ("MOH") implemented further safe distancing measures in light of the spike in imported COVID-19 cases and all events and mass gatherings must be deferred or cancelled, regardless of size and gatherings of groups must not exceed 10 people. This is a tightening of the previous requirement where all events and gatherings will be limited to fewer than 250 participants. The new measures have impacted companies which had intended to hold their annual general meetings and issuers, including DBS Bank Ltd., have announced postponement of their annual general meetings to put in place measures to abide by the latest safe distancing measures. These latest safe distancing measures were subsequently codified in the Infectious Diseases (Measures To Prevent Spread Of COVID-19) Regulations 2020 ("Safe Distancing Regulations"), which was first published in the Government Gazette, Electronic Edition, on 26 March 2020 at 11pm.
SGX RegCo, ACRA and the Monetary Authority of Singapore ("MAS") issued a joint statement on 25 March 2020 stating that issuers are to comply with all relevant safe distancing measures mandated by the MOH, including in the conduct of their meetings. The joint statement is available here ("Joint Statement"). It was also announced that ACRA and MAS were working with other relevant government agencies to propose legislative amendments with a view to introducing the amendments for the Parliament sitting in April 2020, in relation to the conduct of meetings.
The legislation will allow issuers the flexibility to limit the number of participants in a physical meeting and for other participants to participate by virtual means, or hold meetings solely by virtual means (i.e. without a physical meeting), notwithstanding any contrary provisions in their constitutive documents. Issuers are to put in place arrangements for participants to cast their votes remotely in writing or through electronic means.
Investors are also encouraged to use alternative ways available to participate in meetings, including virtual means and to consider appointing the chairperson of the general meeting to act as proxy and direct the vote at the general meeting in order to exercise their voting rights.
As the situation is developing, ACRA, MAS and SGX RegCo will continue to monitor the impact of COVID-19 on the capital markets, and will put in place additional measures and advisories as necessary. We will also await the upcoming legislative amendments which are intended to provide more clarity and certainty to issuers in the conduct of their meetings to implement safe distancing measures imposed by MOH, which we hope will be introduced in the next parliamentary session scheduled for 6 April 2020.
In advance of the proposed legislative amendments, the Securities Investors Association (Singapore) has also issued guidelines to shareholders to help them to monitor their investments. These guidelines broadly include (i) avoiding attending annual general meetings in person; (ii) sending questions at least one week ahead for the company to address; (iii) exercising voting rights by submitting proxy forms; and (iv) following proceedings of meetings via webcast instead. The detailed guidelines can be found here.
Where issuers with a financial year end of 31 December do not rely on the 7 February Waiver or 27 February Waiver and will continue to hold their annual general meetings in April 2020, such companies must ensure that clear statements are made in its notice of meeting so that shareholders are aware that the arrangements for the annual general meetings may change in view of the fluid situation given the COVID-19 outbreak. These companies should also ensure that the requirements set out in Joint Statement (and all other guidance or regulations issued by any relevant authorities) are adhered to, and clearly set out the precautionary measures that will be put in place at the meetings. Where information may not be available as at the date of the notice of meeting, given that notice for such meetings will have to be despatched shortly, the legislative amendments may not be in place by the date of such notice, and further that these companies will have to make alternative arrangements following the introduction of the Safe Distancing Regulations, prompt announcements on the meetings (including, amongst others, how to participate, how to vote, any restrictions imposed, and the precautionary measures undertaken) must be made on SGXNET once available.
Notwithstanding the COVID-19 outbreak, issuers are still subject to continuous disclosure obligations under the Listing Rules. This means that all material information, whether price-sensitive or trade sensitive information, must be disclosed on a timely basis. Where the issuers’ operations are materially affected by the COVID-19 situation, timely disclosure on the financial impact or any other material aspects should be made immediately via SGXNet.
Other support by the Singapore Exchange
Additionally, Singapore Exchange announced on 16 March 2020 that it has also rolled out a S$5 million care package ("SGX Care Package") to provide support and relief measures amid the COVID-19 outbreak, out of which S$3.5 million will be used to support Singapore-listed companies as well as SGX employees and contract staff, in particular frontline staff such as cleaning and security crew. For further information, please refer to the news release here. Further details on the SGX Care Package are expected to be released at a later date.
Update on 31 March 2020
On 31 March 2020, ACRA, MAS and SGX RegCo provided an updated guidance for issuers on safe distancing measures when conducting general meetings. They reiterated that issuers can choose to defer their annual general meetings to after 30 April 2020 by obtaining the 7 February Waiver or the 27 February Waiver if the specified criteria and conditions are fulfilled. Any issuer who chooses to proceed with meetings before 30 April 2020 must conduct the meeting in a manner that (a) provides opportunity for shareholders to ask questions, (b) provides for the meeting to be shown by "live" webcast and (c) allow for proxy voting. At these meetings, any quorum requirements will be satisfied through the attendance of the attendance of the minimum number of shareholders specified in the issuer's constitution (which may be satisfied through the attendance of any director or senior management of the issuer who holds shares), or up to the number of individuals permitted under the Safe Distancing Regulations, whichever is lower.
Issuers must allow shareholders an opportunity to ask questions in the following ways: (i) by inviting their shareholders to submit any questions they may have in advance and should then publicly address substantial queries received from shareholders at the general meeting via its website, through "live" webcast, and on SGXNet and (ii) other arrangements such as organising virtual information sessions before the general meetings and the close of proxy voting to provide shareholders with a forum to ask questions and engage with management and the board of directors.
In terms of proxy voting, shareholders are to appoint the chairperson of the general meeting to act as proxy and direct the vote at the general meeting. CPF or SRS Investors who wish to appoint the chairperson as their proxy should approach their respective CPF Agent Banks or SRS Operators to submit their votes at least seven working days prior to the general meeting. The proxy forms are to be submitted by mail or electronically.
Issuers are encouraged to provide at least 21 days' notice to shareholders on the general meetings to allow shareholders to consider the matters, to pose questions if necessary and to vote via proxy. Issuers are to publish minutes of the general meetings on its website, including its responses from management and the board of directors to substantial queries and relevant comments from shareholders.
For further information on the updated guidance, please refer to the news release here.
As the COVID-19 situation is still developing rapidly around the world and governments are introducing different measures as the situation changes, companies are encouraged to keep up-to-date on the various measures that may impact their business and operations. Updates on the COVID-19 situation in Singapore can be found on the Ministry of Health Singapore website and the Gov.sg website.
This article is produced by our Singapore office, Bird & Bird ATMD LLP, and does not constitute legal advice. It is intended to provide general information only. Please contact our lawyers if you have any specific queries. Please note that the information in this article is accurate as at 30 March 2020. Although further measures may be imposed by the various authorities depending on the development of COVID-19, both within and outside of Singapore, we are under no obligation to update this article.
Last reviewed: 31 March 2020