The Listings Advisory Committee Recommends that Dual Class Shares Companies Be Allowed to List

The Listings Advisory Committee (LAC) of the Singapore Exchange (SGX) has recommended that issuers with dual class shares be allowed to list, provided certain corporate governance safeguards are adopted by the issuer. The recommendation was set out in the Annual Report of the LAC issued on 29 August 2016.

As noted in the Annual Report, the Companies Act was amended on 3 January 2016 to allow for public companies to issue shares of different classes. Under the new section 64A, the different classes of shares may confer special, limited or conditional voting rights, or may not confer voting rights. A shareholders’ special resolution is required for the company to undertake any issue of such shares.

On 4 April 2016, the SGX referred to the LAC a possible listing framework for the listing of companies with a dual class share (DCS) structure, where shares in one class carry one vote each while shares in another class carry multiple votes each. As noted, the LAC voted to allow the listing of such DCS companies provided certain measures were adopted to reduce the risks associated with such structures:

• The one-share-one-vote would remain the default position for new listings, and DCS structures would only be permitted in exceptional cases where the applicant can show compelling reasons to adopt such a structure.

• The SGX should conduct a holistic assessment when determining the suitability of a listing applicant to list using a DCS structure. The assessment might take into account factors such as the applicant’s industry, size, operating track record and raising of funds from sophisticated investors.

• For an initial period after implementation of the listing framework for DCS companies, all listing applications of companies with a DCS structure should be referred to the LAC for its review and advice.

• To mitigate entrenchment risks, a DCS company would need to comply with the following requirements:

  • The maximum voting differential permitted would be 10:1;

  • After listing, no further multiple vote shares could be issued, unless the rights issue would not increase the shareholding proportion between the shares carrying one vote and the shares carrying multiple votes; and

  • An owner-manager’s multi-vote shares would be automatically converted to single vote shares upon the sale or transfer of his multi-vote shares to a third party (with an exception for certain permitted holders) or the owner-manager ceasing to hold his or her role as either executive chairman or chief executive officer of the company.

• To minimize expropriation risks, a DCS company would need to comply with the following requirements:

  • The composition of its board, Nominating Committee, Remuneration Committee and Audit Committee would need to comply with the Code of Corporate Governance on a mandatory basis; and

  • When voting on the election of independent directors, multi-vote shares would only carry one vote per share.

Companies listed on the SGX prior to the adoption of the DCS framework would not be permitted to move towards a DCS structure.

With the recommendation by the LAC, the SGX now needs to consider amendments to the Listing Rules to implement the suggested DCS framework.