According to a Bloomberg report, Drew & Napier plans to sue on behalf of Japanese bondholders first, followed by investors in Hong Kong and Singapore. In February, Drew & Napier said around 300 Singaporean AT1 investors were among those claiming losses.
On a smaller scale, Singapore’s financial regulator is looking to empower investors who may suffer financial losses due to acts of market misconduct by local listed companies.
The Monetary Authority of Singapore (MAS) announced in July that it will consult on proposals to strengthen investor protection across three areas: allowing investors to “ride on” a court action or civil penalty to seek compensation, enabling not-for-profit representative actions on behalf of investors, and introducing a grant to defray the costs of legal cases involving market misconduct.
The financial regulator noted feedback that retail investors “face friction” in bringing errant firms to court, including difficulty in self-organising and securing sufficient funds for legal advice.
See also: MAS to consult on ways to enhance investor recourse
That said, MAS also acknowledged concerns of “frivolous” legal actions that would “unduly burden the market”.
Local lawyers say investors are likely to benefit from the coming measures to enhance avenues for recourse, but they urge regulators to clearly define the scope of each scheme to prevent “vexatious” lawsuits.
To avoid “US-style class action culture”, any new measures must be “carefully calibrated”, says P. Sivakumar, director at BR Law Corporation. “While investor protection is paramount, Singapore’s attractiveness as a pro-business financial hub depends on avoiding excessive bureaucracy or compliance burdens that could stifle the market.”
See also: Investor recourse ideas from US, UK and Taiwan
While MAS has not shared a timeline for the coming measures, MAS deputy chairman and National Development Minister Chee Hong Tat said on Oct 22 that the regulator will consult on the proposals “soon”.
A phased or pilot rollout may be preferable, says Clare Lee, director at boutique law firm Ascendant Legal. “This will avoid overwhelming the system with new cases or creating an unintended chilling effect on capital-raising.”
Also important is the order that the schemes are introduced, adds Lee. “While ride-on rights and representative actions may be more immediately implementable, grant schemes — which may directly incentivise litigation — should follow only after safeguards are tested.”
The grant scheme should primarily target retail and minority investors to “level the playing field” against larger institutional players, says Sivakumar, who has been in practice for more than 30 years. He believes capping the grant amount or requiring co-funding from plaintiffs will deter frivolous claims while providing meaningful support.
This “skin-in-the-game” principle discourages “opportunistic lawsuits”, says Robson Lee, partner at Kennedys and a director of Legal Solutions LLC.
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Not every dispute must be brought to trial. MAS could encourage resolution at the early stages by launching co-funding grants for mediation or arbitration, says Sivakumar. “[These] encourage early and efficient settlement of disputes and, where in the event of a successful account, the grants can be recouped from the settlement sums.”
Likewise, Lee thinks claimants should first be required to attempt resolution through established mediation platforms such as the Singapore Mediation Centre (SMC) or the Singapore International Mediation Centre (SIMC).
Both organisations are non-profits that provide mediation services for commercial disputes. SMC, established in 1997, focuses on domestic commercial disputes; while SIMC, established in 2014, focuses on resolving cross-border disputes.
Lee adds: “Mediation offers a faster, less costly and less adversarial route to resolution. Litigation should be allowed only if all reasonable efforts to mediate have failed.”
The Edge Singapore has contacted MAS for an update on its consultation.
‘Held hostage’
MAS’s equities market review group announced in February its first set of measures to revitalise the local stock market. One recommendation was a shift towards a more disclosure-based regime, which gave rise to the set of proposals to strengthen investor protection.
This requires that investors have the ability, where appropriate, to hold the board and management of a listed company accountable for material failures or inadequacies of disclosure, says Stefanie Yuen Thio, joint managing partner at TSMP Law Corporation.
“Currently, the universe of information that a company must make available to minority investors is extremely narrow. Without such information, it is impossible for a reasonable lawsuit to be started,” says Thio. “I hope to see what statutory changes will be implemented that will pave the way for investors to have easier access to company information that would inform their lawsuits… Legislative changes will need to balance this against protecting the company’s confidential data.”
Echoing Sivakumar and Lee, Thio says there must be a “clearly defined scope” of what offences will fall within MAS’s coming regime. “Otherwise, management may be held hostage to threats of litigation wherever there is disagreement or discontent with how the company is being managed; that might paralyse business or make management so risk-averse that they are not thinking about value creation.”
‘Tricky’ to choose reps
MAS’s second focus area on allowing representatives to organise and carry out legal action on behalf of investors also throws up a number of variables.
Lawyers who spoke to The Edge Singapore agree that “strong safeguards” must be in place to prevent abuse, and representatives must be “independent, transparent and subject to strong governance standards” to prevent opportunistic claims.
According to Sivakumar, this could be a licensing or accreditation regime, similar to how insolvency practitioners or Capital Markets Services Licence holders are regulated.
This will ensure representatives are “qualified and conflict-free”, he adds.
But Thio thinks MAS’s proposal remains “tricky”. “What criteria will be used to accredit such organisations on an ongoing basis to ensure that they remain ‘fit for purpose’? There needs to be good governance in place for this and not have someone making a business model of encouraging vexatious securities litigation,” she adds.
Independent body
Interestingly, MAS named the Securities Investors Association Singapore (Sias) as an example of a not-for-profit body that could bring lawsuits on behalf of investors.
However, NUS Business School accounting professor Mak Yuen Teen disagrees with the example.
“I don’t think Sias is the right body as it is perceived to be very close to issuers,” adds Mak, a vocal corporate governance advocate who is also director of the Centre for Investor Protection at NUS Business School. “Sias has also publicly taken the position that it prefers to resolve disputes in the boardroom rather than the courtroom; I think it may lack the credibility to sue issuers and directors.”
Sias was founded in June 1999 to contest the Malaysian government’s decision to freeze the shares of some 172,000 Singapore investors in companies across the Causeway.
Led by founder, president and CEO David Gerald, Sias is a charity and Institution of Public Character (IPC) that styles itself as “the voice for retail investors in Singapore”.
Following MAS’s July announcement, Sias released a statement saying it “stands ready to act if appointed to assist shareholders with litigation”. “However, Sias will first continue to resolve shareholder issues with listed companies’ boards without litigation in the boardroom and not the courtroom. If this time-tested approach should fail, Sias will then seek mediation at the Singapore Mediation Centre.”
Gerald, himself a former magistrate and prosecutor, declined to comment for this story as he is a member of the regulatory workstream of the equities market review group.
Mak emphasises that the appointed representative body for this role must be “totally independent”, and regulators could reference Taiwan’s Securities and Futures Investor Protection Centre (SFIPC).
“They form a small panel of independent professionals which uses a very structured approach to assess whether action should proceed against individual directors,” says Mak. “This panel may include corporate governance experts and directors of high standing; but care must be taken that this panel is not conflicted in making such recommendations.”
Who foots the bill?
Suppose a case goes to trial. Claimants may be surprised by how long it takes to reach a settlement or a verdict. “Issuers and directors — who generally have directors’ and officers’ liability insurance — may have considerable resources to fight a protracted lawsuit and there may be appeals,” warns Mak. “To what extent would the grant scheme cover all or most of the costs?” This calls into question the extent to which costs will be defrayed, adds Mak. “Such legal actions can be very costly.”
Not all civil lawsuits will be successful, notes Lee from Kennedys and Legal Solutions LLC. “In cases where the defendant prevails, the issue arises: who pays the legal costs awarded by the court?”
Lee says retail investors who seek legal assistance through the scheme should be required to contribute to litigation costs if mediation fails.
In addition, Lee adds that there must be strong safeguards to prevent abuse, given that any financial assistance under MAS’s grant scheme “will ultimately be funded by taxpayers”. “The criteria for funding support — including any co-funding requirements — must be carefully designed to balance investor protection with fiscal responsibility.”
Implementation challenges
The ball is now in MAS’s court to announce the details of the grant scheme, along with its implementation.
Mak says: “I see implementation challenges in terms of the way our laws are written or interpreted, how long it would take to make the necessary changes to make them happen and resistance to changes when these proposals go for consultation.”
Even with a successful rollout of the grant scheme, investors may still run into cultural or legal obstacles.
“Till now, we have rarely seen cases of directors of listed companies being held accountable for a breach of duties or false or misleading statements. We have had statutory derivative action for listed companies available in the law for a long time now but I don’t recall any successful actions using this provision,” says Mak.
“Even if the cost issue is addressed, there are still big hurdles for shareholders to overcome,” Mak adds.
The statutory derivative action was first introduced in Singapore in 1984 to provide what an amendment committee later called “a more effective remedy to minority shareholders”.
Listed companies were initially excluded from this provision as shareholders were said to be able to sell their shares in the open market. This position was amended in 2014 to include companies listed in Singapore as well as Singapore companies listed abroad.
However, there has not been a single successful derivative action in a listed company. In fact, it was not until 2020 that there was even an attempt at derivative action in a listed company — when Serene Tiong Sze Yin, a shareholder of Catalist-listed HC Surgical Specialists, brought a case against the listed company and its CEO in relation to an acquisition.
Both the Singapore High Court and the Court of Appeal dismissed the action. The latter ruled in 2021 that Tiong’s application was “wholly unmeritorious” and ordered her to pay costs of $15,000 to the company and $30,000 to CEO Heah Sieu Min.
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