Can bankrupts hold directorships?

Apparently yes as almost anyone can sign up to be directors of companies.

There is no independent check by ACRA. At least this is the situation when Justice Steven Chong, a High Court judged criticised ACRA in a case reported in Straits Times, Dec 9, 2010 page B10.

It is thus apparent that there is no database linkage between ACRA and IPTO (Insolvency and Public Trustee’s Office.

The implication is that an undischarged bankrupt may continue to operate companies for years.

Not sure whether the gap between ACRA and IPTO has since been rectified. Anyone any info on this front?

In similar vein, should there a database linkage between ACRA, IRAS, CPF, Ministry of Manpower and Immigration and Checkpoints Authority?

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Cloud computing costs are now PIC-able

On Deepavali Day, I received a very pleasant surprise.

I just read that Cloud Computing Costs are not only tax-deductible (which we know) as business expenses, they now qualify for additional deduction under Productivity & Innovation Credit.

An example cited in ST’s news article – “word processing that exist online rather than on individual computers”. A $100 expense would qualify for up to $400 deduction against your income (subject to meeting other terms and conditions.)

Christmas present?

Important terms and conditions to note before we jump for joy are:-
1. spent on qualifying expenditure and are entitled to PIC during the time period concerned
2. active business operations in Singapore
3. at least 3 local employees at the VERY last month of the qualifying time period

(Who are the 3 employees? INCLUDING Singaporeans & PRs but EXCLUDING sole proprietors, partners under contract for service and shareholders who are directors of company)

Monetary Authority of Singapore (MAS) posted a record net loss of $10.9 billion for the year ended March 31, 2011

I am naturally curious to read on for the cause of the massive loss and that being the 2nd loss in the last 40 years. Here are the info that I reaped STRICTLY from the articles from Business Times and Straits Times on Friday last.

Numbers as published:-

  • Total loss – $10.9 billions
  • Investment gains before adjusting for exchange rate revaluation – $12.3 billions.
  • SGD up against USD by 10% for year ended March 31, 2011.
  • SGD up against Euro by 5%.
  • Given the stronger SGD, domestic oil prices up by only 10% as compared to 20% on a global basis.
  • MAS manages $299.8 billions in assets as at year ended March 31, 2011 with foreign financial assets representing $287.7 billions ie. 96%!!!!

Here are the various key points discussed:-

  1. Headline in BT attributed the massive loss to strong SGD(Edgar – Thus exchange rate is said to be responsible for $23.2 billions reversal upon valuation of various balance sheet items.)
  2. ‘With recovery in asset markets over the past two years, MAS’ portfolio, excluding exchange rate effects, has more than recovered from effects of the global financial crisis,’ Mr Menon said. The loss is hence the result of ‘a reporting convention’ as per Mr Menon. If MAS reported its financial results in foreign currencies such as the US dollar or SDRs, as some central banks do, it would reflect a ‘healthy profit’, he noted. (Edgar – I presume he is trying to assure us that the loss is mainly due to a valuation exercise as there is no actual cashflow involved. Are you also telling us that if our reference currency is based on any other weaker currency other than SGD, we would be happy with our performance?) 
  3. But is it not a fact that Singapore’s purchasing power has declined by $10.9 billions? Mr Menon said no as the INTERNATIONAL purchasing power of our reserves is unaffected by the strength of Singapore dollars. I guess he is trying to say the $287 billions worth of foreign currencies would still buy Singapore the same amount of goods and services.
  4. So what have the stronger SGD and $10.9 billions loss bought for Singapore? MAS has essentially shielded the domestic economy from even higher inflationary pressures as the stronger SGD effectively halved the impact of higher oil and food prices.

Zero GST for basic goods?

food n price to be paid

On Jul 8, 2011, Dr Mukul Asher, my ex-lecturer of welfare economics in NUS back in 1980s, was asked to answer the questions as follows.

  1. What would be the effect of implementing a zero percent Goods and Services tax for basic commodities?
  2. Would it help to lower the cost of living for lower income families in Singapore?

Firstly, he uniquely used the term “basic commodities” while the article is entitled “… basic goods”. I generally interpreted “basic commodities” as totally unprocessed or barely prossessed raw materials. Consequently, he said GST’s orientation would change to tax on value added at manufacturing, wholesale and retail levels. Example – No GST is to be applied on $5 of carrot and $4 of flour imported. When the carrot and flour became a $25 carrot cake, GST is to be applied on $16 value added. He opined that this system would increase cost of administering the tax by authority and compliance costs by businesses. He didn’t elaborate as to how it could be so. Alternatively we could consider the Australian’s where its GST free supplies include health, education, childcare, religious services, certain foods etc.

Secondly, he concluded that GST revenue would drop due to exemption of basic commodities and prompting higher GST rate. Currently we apply GST on almost on goods and services with government sending cheques with GST rebates to selected individuals to offset regressive tax burdens (a system I am in favour with). So when we compare the two methods in totality, will there be a significant change in collection? Which is more efficient and effective?

Thirdly, Dr Asher applied the basic economic concepts of substitution effect on demand and price when he said households would switch demand from “GSTed” items to “non-GSTed” basic commodities leading to an increase in prices of the latter. This also assume supply of basic commodities would generally be unresponsive. Too simplistic an assumption?

As Dr Asher is a professor of public policy at Lee Kuan Yew School of Public Policy, I am sure he has done much more in depth studies and thinking on the issues but the article is too simplistic with conclusions only given cursory elaboration.

Reference – ASHER, Mukul, “Zero GST for basic goods? Bad idea.”, The Straits Times, July 8, 2011.

New Corporate Governance PROPOSED (Part B)

Dear friends,

My focus for this posting is the composition of the Board and other specified criteria for directors.

Proposal – Board Composition
Half the board to be made up of independent directors under the following circumstances where:-
a) the chairman and CEO is the same person;
b) the chairman and CEO are immediate family members;
c) the chairman and CEO are both part of the management team;
d) the chairman is not an independent director.

Mak Yuen Teen said the whole long-winded recommendation “can be simplified to just recommending that there should be at least half the directors independent if the chairman is not an independent director” (full stop).

Based on data from the 2010 Governance and Transparency Index, it is estimated that only 14 per cent of SGX-listed companies have an independent chairman and with more than 50 per cent of all SGX-listed companies currently have less than half the board independent. The Council views that a director be deemed non-independent if he has served on the board for more than nine years. The average tenure for all independent directors is 6 years.

Given the statistics presented in paragraph above, I wish to raise again the issue of whether the Council’s proposals can be effectively carried out given our limited pool of qualified and experienced directors.

Proposal – Director with multiple directorships
The Council has decided (ie. chicken out, don’t know or just being flexible?) not to spell out an ‘ideal’ number of directorships any one director should have. (Hong Kong has suggested a limit.) But Council has chosen to delegate that responsibility to the nominating committee “to decide if a director can carry out his duties, bearing in mind his commitments”.

In my opinion, Mak Yuen Teen opines that this proposal would be inconsequential as board with directors. with many directorships. would have its nominating committee setting higher limit, vice versa. Anyway by the time we do the next review, the next Council would be able to harvest the experience of last few years in determining the ideal limit.

Proposal – Appointment of alternate director
The Council suggests that directors should avoid appointing alternate directors – except for limited periods in exceptional cases. Why? Alternate directors may not be as well-prepared nor able to perform as well as full-time directors.

This suggestion could be attributed to Mak Yuen Teen’s vigorous exchanges with Christopher Chong in Sep 2010 on Xpress Holdings’ the nominating committee endorsing the appointment of an alternate director for one of its independent directors.

Reference
Michelle Quah, “Cracking the code of Corporate Governance”, Business Times, June 15, 2011.
Michelle Quah, “Will bold proposals survive the fate of 2005?”, Business Times, June 16, 2011.
Mak Yuen Teen, “Now let’s see the practical impact”, Business Times, June 16, 2011.
Mak Yuen Teen, “Unticking the box”, Business Times, September 6, 2010.

New Corporate Governance Guidelines PROPOSED (Part A)

Dear friends,

My intention here is to bring together key ideas and comments I can gather so far on each of the proposal.

Background
Singapore’s Corporate Governance Council (CGC) was appointed by the Monetary Authority of Singapore (MAS) in February 2010 to review the 2005’s version of corporate governance guidelines accepted by Ministry of Finance (MOF). On June 14, 2011, CGC has proposed bold changes to existing corporate best practice guides for MAS acceptance by end 2011.

Proposal – Independence of independent directors
Stricter definition of independence for independent directors (to now include independence from substantial shareholders)

The Council seeks to define “independence” by defining when a director is not independent. How?

  • The council suggests that a director be deemed non-independent if he is or has been directly associated with a substantial shareholder of the company in the current or any of the past three financial years.
  • The CGC also suggests that a director be deemed non-independent if he has served on the board for more than nine years (the first time a tenure for an independent director has been mentioned.)

The CGC intends to put the respective board, on the spot, by recommending that they should identify, in the company’s annual report, each director it considers to be independent.

Comments
Michelle Quah of BT reminded us that the definition of an ‘independent’ director (to include independence from substantial shareholders) was proposed and rejected by MOF in the last review of the Code in 2005 on the basis that firstly, there was insufficient ground to assume association with substantial shareholders could impair independence as compared to principal-agent relationship for executive directors. Secondly, MOF further assume that there would be an alignment of interest between the substantial shareholders and the REST of shareholders. (I strongly beg to differ. CH Offshore – substantial shareholders sold but the remaining shareholders get nothing. May I also cite the case with Pacific Century.) Michelle recognised that as possible ‘expropriation of minority investors’ interests by large investors’.

MOF could not take that more stringent definition of independence then possibly due to the fact Singapore’s pool of qualified and quality directors is very limited and that possibly almost every one of them, in one way or another, has or had dealings with one another.

But HK and Malaysia have adopted (but is it enforced?) the more stringent definition by making it mandatory ie. as part of listing rules, instead of Singapore’s more flexible approach as “guidelines”.

Mak Yuen Teen said you can come out with the guidelines and talk about independence but he suggested the following approaches to ensure “independence”.

  • We allow minority shareholders greater say in the election or re-election of independent directors.
  • We must extend the range of sanctions against independent directors who fail to properly discharge their duties and to be more active in taking action against such directors. 

But he concedes that these approaches are beyond the scope of current discussion.

Proposal – Greater disclosure of board and executive remuneration
The CGC suggests that companies disclose the exact remuneration earned by each individual director and the CEO on a named basis, instead of within bands of $250,000 in the current Code.

Michelle again reminded us that the same was proposed and rejected in 2005. The main reason offered by MOF then was to prevent poaching of good directors and consequent escalation of directors’ fees. Huh.. are we still living in stone age? Whether a talent would stay on course would depend on many factors beside money. Furthermore, some of the largest listed companies in Singapore have actually been disclosing the exact remuneration of directors and senior management.

For minority shareholders like myself, we need the information to determine value for money paid. I always find it disturbing to see the substantial shareholders, acting as directors and senior managers, paying themselves more than the profit the company made in a financial year. Another example of expropriation of minority investors by large investors?

Reference
Michelle Quah, “Cracking the code of Corporate Governance”, Business Times, June 15, 2011.
Michelle Quah, “Will bold proposals survive the fate of 2005?”, Business Times, June 16, 2011.
Mak Yuen Teen, “Now let’s see the practical impact”, Business Times, June 16, 2011.
Mak Yuen Teen, “Unticking the box”, Business Times, September 6, 2010.

Forecasting and budgeting

Question – Are government officials in the budgeting department poor in forecasting?

The following are Hong Kong government’s experiences:-

  1. In 2009-10 budget, Financial Secretary John Tsang Chun-wah predicted a HK$39.9 billion deficit. But strong growth in income from stamp duty on property and stock transactions, the government may end up with a surplus of more than HK$10 billion.
  2. In 2006, then finance chief Henry Tang Ying-yen predicted a surplus of HK$5.6 billion for the 2006-07 financial year but recorded a HK$58.6 billion surplus.
  3. In 2001-02 budget, the then financial secretary Donald Tsang Yam-kuen predicted a HK$3 billion deficit. The government eventually recorded a HK$63.3 billion deficit.
  4. The best forecast was made by Donald Tsang in 2000. He predicted a HK$6.2 billion deficit for the 2000-01 financial year. The administration ended up with a deficit of HK$7.8 billion.

With another forecast of a budget deficit set to be proved wrong, a senior accountant has suggested the government carry out more frequent reviews of its financial position.