The new Significant Investments Review Bill was introduced by Singapore’s Ministry of Trade and Industry (MTI) to regulate significant investments, whether local or international, in entities that are critical to Singapore’s national security interests.

The first reading of the Significant Investments Review Bill (the Bill) took place in the Singapore Parliament on November 6, 2023. The MTI-introduced Bill seeks to protect the national security interests of Singapore by regulating significant investments in and control of critical entities.

The Bill proposes to do so by, among other things,

• providing for control over the holding of equity interests in, control of voting power in, ownership of businesses and undertakings of, and indirect control of Designated Entities (as defined below);
• empowering the minister responsible for administering the Bill (the minister) to make special administration orders in respect of Designated Entities; and
• empowering the minister to review transactions relating to the holding of equity interests in, control of voting power in, ownership of businesses and undertakings of, and indirect control of any entity that has acted against the national security interests of Singapore.

Singapore currently relies on a range of sectoral legislation to monitor and manage entities in regulated sectors such as telecommunications, banking, and utilities. While speaking at the 39th Singapore Economic Roundtable, Minister for Trade and Industry Gan Kim Yong acknowledged that, while these tools have served Singapore well, it is important to take a broader view on how the country can more effectively manage the risks that may arise from some of the critical entities.

The Bill is therefore intended to complement existing sectoral legislation by setting out a new investment management framework for critical entities not adequately covered under existing sectoral legislation.

Nevertheless, Minister Gan added that, as the majority of critical entities are already covered by sectoral legislation, it is anticipated that only a handful of entities are expected to be designated and regulated under the Bill. Moreover, designation under the Bill applies to individual entities, rather than whole sectors.

Notably, the phrase “national security interests” is not presently defined in the Bill. We anticipate that there may be greater clarity on what “national security interests” entails in the context of the Bill when it is debated at the second reading.

DESIGNATED ENTITIES

The Bill will give the minister the power to designate any entity (a Designated Entity) that (1) is incorporated, formed, or established in Singapore; (2) carries out any activity in Singapore; or (3) provides any goods and services to any person in Singapore.

Becoming a Designated Entity triggers the application of various notification and approval requirements as detailed below.

Before the minister designates any entity, the minister must (unless it is not practicable or desirable to do so) give notice of their intention to designate the entity to the entity concerned and give the entity at least 14 days from the date of notice to make written representations on the proposed designation. The minister may also cancel a designation at any time.

PROVISIONS APPLICABLE TO DESIGNATED ENTITIES

Ownership and Control Requirements

Prospective buyers and sellers of Designated Entities, and the Designated Entity itself, will be subject to various ownership and control-related notification or approval requirements, including the following:

• A prospective buyer must, within seven days of becoming (alone or together with its associates) a 5% controller of a Designated Entity, notify the minister of that fact.
• A prospective buyer must seek the minister’s prior written approval before (1) becoming (alone or together with its associates) a 12%, 25%, 50%, or indirect controller of a Designated Entity or (2) acquiring as a going concern the business or undertaking (or any part thereof) of a Designated Entity.
• An existing owner of a Designated Entity must seek the minister’s prior written approval before ceasing to be a 50% or 75% controller of the Designated Entity.
• Designated Entities must also notify the minister of changes in ownership and control that trigger the abovementioned requirements within seven days of becoming aware of the same.

An “associate” of a buyer or seller is broadly defined in the Bill to include, among others,

• Any spouse, parent, stepparent, remoter lineal ancestor, son, stepson, daughter, stepdaughter, remoter issue, brother, or sister of the buyer or seller;
• A related corporation of the buyer or seller (being any holding company, subsidiary, or subsidiary of the holding company of such buyer or seller);
• Any person who is, or any corporation whose directors are, accustomed or under an obligation (whether formal or informal) to act in accordance with the directions, instructions, or wishes of such buyer or seller;
• Any officer and employee of the buyer or seller;
• Any corporation in which such buyer or seller (alone or together with its associates) is in a position to control at least 20% of the voting power of such corporation; and
• Any person with whom such buyer or seller enters, or proposes to enter, into an agreement or arrangement that relates to, among other things, (1) both parties being in a position, by acting together, to control any of the voting power in an entity, or (2) both parties acting together with respect to the acquisition, holding, or disposal of equity interests or other interests in an entity.

An approval granted by the minister may be subject to any conditions that the minister considers appropriate to impose. In terms of the review and approval process, the Bill does not specify any time period within which the review must be completed or when the minister’s approval must be granted.

Transactions that are completed without the necessary approvals will be rendered void. However, any person materially affected by the fact that a transaction is void may apply to the minister for a “validation notice” in relation to the transaction. The minister may issue a validation notice on an application or on the minister’s own initiative if they are satisfied that it is in the interest of Singapore’s national security to validate the transaction.

Further, the minister may impose remedial directions under certain circumstances. For example, the minister may direct the transfer or disposal (whether generally or to a specified person) of all or any of the equity interests in a Designated Entity held by a person or its associates if, for example, any condition of approval has not been complied with.

Appointment and Removal of Key Officers

The minister’s approval is required for the appointment of key officers such as a chief executive officer, director, or chairperson of the board of directors of a Designated Entity. Such approval may be granted with or without conditions. Such appointees may also be removed by the minister if (1) they were appointed without approval, (2) any approval condition is breached, or (3) the minister considers it necessary in the interest of national security.

Other Requirements and Restrictions

Designated Entities will also be subject to other provisions under the Bill to ensure the security and reliability of their critical functions. For instance, a Designated Entity cannot be wound up voluntarily or dissolved without the minister’s consent. Moreover, the minister may make orders relating to the assumption of control over the Designated Entity’s affairs, business, and property to avoid disruptions in the delivery of essential services or in light of other national security interests.

GENERAL POWERS TO REVIEW TRANSACTIONS AGAINST SINGAPORE’S NATIONAL SECURITY INTERESTS

Notably, the Bill does not apply solely in respect of Designated Entities. The minister will also have broad powers to review certain transactions involving any entity (i.e., including non–Designated Entities) that has acted against Singapore’s national security interests within a period of two years after the relevant transaction.

These broad powers apply to any entity that (1) is incorporated, formed, or established in Singapore; (2) carries out any activity in Singapore; and (3) provides any goods and services to any person in Singapore.

The Bill provides the following exhaustive list of the relevant transactions that may be subject to review:

• An acquisition of any equity interest in the entity
• An acquisition of control of any voting power in the entity
• A disposal of any equity interest in the entity
• A disposal of control of any voting power in the entity
• Becoming an indirect controller of the entity
• An acquisition of the business or undertaking (or any part thereof) of the entity

A certificate issued by the minister charged with the responsibility for internal security that states that such minister is satisfied that the entity mentioned in the certificate has acted against Singapore’s national security interests is conclusive evidence that the entity has so acted.

The minister may thereafter, and within a period of two years and 30 days after the relevant transaction, publish a notice in the Gazette (referred to as a “review notice”) describing the relevant transaction, stating the names of the transacting parties and entity, and the fact that the minister is reviewing the relevant transaction.

The minister has the power to, among other things, direct the transacting party to transfer or dispose of all or any of its equity interests in the entity, direct the entity to restrict the disclosure of any information relating to the entity’s affairs to any person, or make any other direction that the minister considers appropriate.

NEXT STEPS

The second reading of the Bill is expected in January 2024. If the Bill is passed, the Significant Investments Review Act is set to come into effect a few months later. In addition, an Office of Significant Investments Review will be set up under the MTI to implement the legislation and closely engage businesses and investors.

CONCLUSION

While the final form of the act remains to be seen, businesses that operate in strategic areas and/or industries, particularly those that are not currently subject to sectoral legislation, as well as investors in such businesses should monitor further developments in this area closely.

Nevertheless, businesses and investors alike may perhaps take comfort in the fact that MTI has indicated that the Bill has been designed to be business-friendly, and the designation regime is aimed at individual entities rather than whole sectors.

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