Law passed to regulate Significant Investments in Singapore Entities

The Significant Investments Review Bill (the "Bill") was recently passed by Parliament on 9 January 2024, and is expected to take effect in the first half of the year.

The Bill was first introduced by the Ministry of Trade and Industry (the "MTI") as a tool to strengthen Singapore's security amidst a wide range of growing geopolitical and economic uncertainties. With the enactment of the Significant Investments Review Act (the "Act"), Singapore joins a growing number of nations that have shored up investment screening regulations for national security reasons since the 1990s.

The new Act will introduce an investment management regime applying to both foreign and local investors in certain designated entities. Under the Act, the Minister of Trade and Industry (the "Minister") will also be granted specific powers over entities that act against Singapore's national security interests, regardless of whether they have been designated under the Act or not.

Scope of the Significant Investments Review Act

Both foreign and local entities that meet the following criteria may be designated by the Minister ("Designated Entity") if it is considered necessary in the interest of Singapore's national security:

1. any entity incorporated, formed or established in Singapore;
2. any entity that carries out any activity in Singapore; or
3. any entity that provides any goods and services to any person in Singapore.

Notably, the Act does not define what constitutes "national security interests". The MTI explained that the rationale was to ensure that the Act remained relevant and effective to address new risks that may emerge over time in a fast-changing global landscape.

Despite the Act's potential broad application, the scope of the Act at this juncture has been assessed to be limited as it follows an entity-based approach with a specific list of Designated Entities to be published, as opposed to a sector-based approach seen in other jurisdictions such as the UK and China. The MTI has explained that only "a handful" of entities will be designated, and there are no plans to "significantly expand" the list in the near future.

The MTI has also clarified that the Act will be complementary to existing sectorial legislations that cover key sectors such as telecommunications, banking, and utilities. Entities that are regulated under such sectorial legislations would not be included on the list of Designated Entities.

Key implications for Designated Entities

A. Ownership and control requirements

Prospective buyers and sellers of Designated Entities are subject to notification or approval requirements:

1. Buyers of a Designated Entity will have to notify the Minister within 7 days of becoming (alone or together with its associates) a 5% controller.
2. Buyers of a Designated Entity are required to seek the Minister's prior approval before becoming (alone or together with its associates) a 12%, 25%, or 50% controller, becoming an indirect controller, or acquiring as a going concern (in whole or in part) the business or undertaking of the Designated Entity.
3. Sellers of a Designated Entity are required to seek the Minister's prior approval when they cease to be a 50% or 75% controller.

The Minister's approval may be subject to certain conditions which if not met, may result in remedial directions such as the transfer or disposal of equity interests in the Designated Entity or requiring the defaulter to take the necessary steps to re-acquire its equity interest in the Designated Entity.

Designated Entities must also notify the Minister of any changes in ownership or control that triggers any of the abovementioned thresholds within 7 days of becoming aware of the same.

Any transaction carried out without the requisite approval will be rendered void unless the Minister issues a validation notice.

B. Appointment and removal of key executives

The Minister's approval is required for key executives to be appointed in the Designated Entity. Key executives include the chief executive officer, directors, the chairperson of the board of directors, managers, and partners. There may or may not be conditions attached to the Minister's approval.

Such key executives of Designated Entities may be removed if:

1. the Minister's prior approval was not sought;
2. any condition of approval has been breached; or
3. the Minister considers the removal of such individual necessary in the interest of Singapore's national security.

C. Other requirements

Designated Entities will also be subject to other provisions to ensure the security and reliability of their critical functions. For example, the Minister's prior consent will be required for the voluntary winding up or dissolution of a Designated Entity. The Minister may also appoint a person to direct and manage the affairs, business and property of the Designated Entity should any issue of national security arise.

Key implications for non-designated entities

Under the Act, the MTI can still exercise certain powers over non-designated entities, if they have acted against Singapore's national security interests. Such entities may have their ownership or control transactions reviewed if the transaction occurred within the 2 years prior to the act that was against Singapore's national security interests.

Impact on stakeholders

The calibrated entity-based approach of the Act serves to underscore Singapore's commitment to maintaining a vibrant and open corporate landscape while reinforcing its national security interests. While the list of Designated Entities has yet to be published, all entities that are being considered for designation under the Act have already been contacted by the MTI.

Once the Act is enacted, investors will have to consider whether:

1. the target entity is a Designated Entity or is potentially critical to Singapore's national security interests;
2. various notification and/or approval requirements; and
3. timelines required to obtain the requite approvals.

Nonetheless, the various requirements imposed under the Act are similar to existing sectorial legislations, which many investors are already familiar with.

An Office of Significant Investments Review will be set up under the MTI to serve as a one-stop touchpoint to engage affected stakeholders and provide guidance and clarifications on the Act.