The Bill will be administered by a Minister appointed by the Prime Minister. The Minister will also have power to review transactions involving any entities (including non-designated entities) that have acted against Singapore's national security interests. The scope of "entities" has been broadly defined in the Bill to refer to any entity incorporated, formed or established in Singapore and any entity (whether local or foreign) which carries out any activity in Singapore or provides any goods and services to any person in Singapore.

The phrase "national security interests" is not defined in the Bill. We anticipate that there may be more clarity on what "national security interests" would entail in the context of the Bill when it is debated at the second reading.

An Office of Significant Investments Review will be set up under the MTI as a dedicated one-stop touchpoint for stakeholders. The second reading of the Significant Investments Review Bill, where there will be a debate on the general principles and merits of the Bill, will take place at the next available sitting of the Singapore Parliament, which is currently expected to be in January 2024. 

For further information and to discuss what this development might mean for you and how it might affect you, please get in touch with your usual Baker McKenzie contact or any of the persons whose contacts are provided in this client alert.

Comments

The purpose of the Bill is to protect the national security interests of Singapore by regulating significant investments in, and control of, critical entities that are not already covered by existing sectoral legislation.

Entities that can be designated

The Minister can designate the following types of entities:

• Any entity incorporated, formed or established in Singapore
• Any entity which carries out any activity in Singapore
• Any entity that provides any goods and services to any person in Singapore, if the Minister considers that the designation is necessary in the interest of Singapore's national security

The MTI clarified that the Bill will complement Singapore's existing sectoral legislation that has ownership and control safeguards to monitor and manage entities in the following regulated sectors – telecommunications, banking and utilities. Minister Gan Kim Yong (Minister for Trade and Industry) stated that "[a]s most critical entities in Singapore are already adequately covered by existing sectoral legislation, we expect only a handful of critical entities to be designated under this Bill."

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 after the date of the notice to make written representations on the proposed designation. Such designation may be made at any time, as long as the 14 days' notice is given. The Minister may also cancel the designation at any time.

Provisions applicable to designated entities

Ownership and control requirements

Notification or approval requirements for specific changes in ownership or control of designated entities will be imposed on buyers, sellers and the designated entities:

• A buyer into a designated entity is required to notify the Minister within seven days after becoming (alone or together with its associates) a 5% controller.
• A buyer into a designated entity is required to seek the Minister's approval prior to becoming (alone or together with its associates) a 12%, 25% or 50% controller, an indirect controller, or acquiring as a going concern (parts of) the business or undertaking of the designated entity. The Minister may approve an application if the buyer, and every associate of the buyer that the Minister knows is an associate, is a "fit and proper person".
• A seller is required to seek the Minister's approval when ceasing to be (alone or together with its associates) a 50% or 75% controller.

An "associate" of a buyer or seller is broadly defined in the Bill to include:

• Any 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 such 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
• Any person with whom such buyer or seller enters, or proposes to enter, into an agreement or arrangement, that relates to, amongst others: (i) both parties being in a position, by acting together, to control any of the voting power in an entity; or (ii) both parties acting together with respect to the acquisition, holding or disposal of equity interests or other interests in an entity

Where the Minister’s approval is required, an approval may be granted 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 has to be completed, or when the approval by the Minister has to be granted.

Transactions that occur 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 the Minister is satisfied that it is in the interest of Singapore's national security to validate the transaction.

The Minister may impose remedial directions under certain circumstances. For example, the Minister may order a party to transfer or dispose of all or any of the equity interests in the designated entity, if any of the conditions of approval have not been complied with.

Appointment of key officers

The Minister's approval is required for the appointment of key officers such as the chief executive officer, director or chairperson of the board of directors in designated entities. The Minister's approval is also required for the removal of such officers. The Minister also has the power to remove key officers in the interest of national security.

Other requirements

Designated entities cannot be wound up voluntarily without the consent of the Minister to ensure the security and reliability of their critical functions. Likewise, the Minister can give orders to direct the assumption of control of the designated entity's affairs, business, and property to ensure their continuity should national security issues arise or the delivery of essential services be disrupted.

General powers to review transactions involving entities that have acted against Singapore's national security interests

The Minister will also have very broad powers to review certain transactions involving any entity (i.e., designated entities and non-designated entities) that has acted against Singapore's national security interests within a period of two years after the relevant transaction.

This broad power applies to the following entities:

• Any entity incorporated, formed or established in Singapore
• Any entity which carries out any activity in Singapore
• Any entity that provides any goods and services to any person in Singapore

The Bill provides an exhaustive list of the relevant transactions which are as follows:

• A person acquires any equity interest in the entity
• A person acquires control of any voting power in the entity
• A person disposes of any equity interest in the entity
• A person disposes of control of any voting power in the entity
• A person becomes an indirect controller of the entity
• A person acquires the business or undertaking or any part of the business or undertaking of the entity

A certificate issued by the Minister charged with the responsibility for internal security, stating that that 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. Following this, the Minister will need to publish a notice in the Gazette within a period of two years and 30 days after the transaction describing the relevant transaction, stating the name of the transacting party and entity, and the fact that the Minister is reviewing the relevant transaction. The Minister has the power to direct the transacting party to transfer or dispose of its equity interest 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, where there will be a debate on the general principles and merits of the Bill, will take place at the next available sitting of the Singapore Parliament, which is currently expected to be in January 2024. All bills must go through three readings in the Singapore Parliament and receive the President's assent to become law. Thereafter, the Significant Investments Review Act ("Act") will come into operation on a date that the Minister appoints by notification in the Gazette.

Considerations for transactions

A risk assessment should be conducted by investors as early as possible to determine if their proposed transaction may concern issues of national security in Singapore

The phrase "national security interests" is not defined in the Bill. This is likely due to the fact that issues of national security are multi-faceted and constantly evolving. We anticipate that there may be more clarity on what "national security interests" would entail in the context of the Bill when it is debated at the second reading. For example, former Minister for Communications and Information (Assoc Dr Yaacob Ibrahim) previously elaborated on what “against national security” entails in the context of the Films (Amendment) Bill in 2018. He explained then that “considerations of national security include what would be detrimental to the continued existence of the country, its ability to exercise its sovereign rights, and the safety and security of its citizens and their way of life”. He also added that “given the complex nature of national security matters, the prudent approach would be to avoid binding this in legislation”.

Investors should understand the process and timeframe for screening transactions and consider early engagement

The MTI announced that it will set up an Office of Significant Investments Review (OSIR) as a dedicated one-stop touchpoint for stakeholders. The MTI has yet to specify the roles and responsibilities of the OSIR but we anticipate that potentially affected parties to a transaction will likely be able to raise queries and seek guidance from the OSIR on the application of the Act.

In the case where Minister's approval is required under the ownership and control requirements applicable to designated entities, it appears from a plain reading of the Bill that written approval from the Minister may be required prior to parties' entry into the definitive agreements (e.g. a sale and purchase agreement to purchase equity interest in a designated entity).

Investors should be prepared to provide comprehensive information to the OSIR when applying for written approval from the Minister. For example, the Minister has wide powers to request for information on the associates of the buyer into a designated entity when assessing the "fit and proper" person criterion, and considering whether it is against Singapore's national security interests to approve the application.

We anticipate that MTI will provide further clarity on the application process, the approval requirements and the expected review timeline. We also anticipate that the OSIR will provide further practical guidance on the same. The Minister will also be issuing the Guidelines on Fit and Proper Criteria for the purposes of determining whether a person is a fit and proper person in due course.

For further information and to discuss what this development might mean for you and how it might affect you, please get in touch with your usual Baker McKenzie contact or any of the persons whose contacts are provided in this client alert.

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