By Joshua Ng
The National Trade Unions Congress Income (“Income”) recently announced its decision to corporatise. A primary reason cited for the change is that the organisation will “gain access to strategic growth options” in order to contend with “increased capital needs”. [1] How then, is the problem solved from a legal and regulatory perspective?
Co-operative Societies Act 1979
As a (former) co-operative, Income was primarily governed by the Co-operative Societies Act 1979. Notably, Part 6 of the Act imposes significant restrictions on the fund-raising ability of registered co-operatives. For one, the co-operative is largely only capable of raising funds from issuing shares to ordinary and institutional members, as well as donations per s.66(1) of the Act. [2] Although the Act does allow for receipt of “deposits or loans from non-members”, these are “only to such extent and under such conditions as may be prescribed by its by-laws and in the Rules.” [3] A significant hurdle to cross with regard to loans is that the society must determine at a general meeting from time to time, the “maximum liability which it may incur in loans from non-members”. [4] Finally, if the cooperative wishes to issue debentures (unsecured bonds), it must first seek approval from the Registrar. [5] It is clear that governance by the Co-operative Societies Act 1979 creates significant difficulty in raising capital, the need for which is only going to increase as Income expands the scale of its operations.
Companies Act 1967
Corporatisation will shift Income to governance under the Companies Act 1967 instead. Broadly, the Companies Act allows companies to raise capital by issuing shares - even to non-members - as long as a prospectus is provided beforehand. [6] Moreover, the company need not seek approval before issuing debentures, [7] and there are no broad restrictions on the loans it can take on.
Problem solved?
Thus, we can see that incorporation gets rid of much of the regulatory red tape surrounding Income’s ability to raise capital. This will allow Income to more easily raise capital to support its expanding operations. That said, it remains to be seen as to whether Income can succeed in actually raising the capital it needs to compete.
References
[1] Tang See Kit, ‘NTUC Income co-op to become corporate entity amid 'intensifying headwinds' in insurance sector’, Channel News Asia, at https://www.channelnewsasia.com/singapore/ntuc-income-corporatisation-company-co-op-existing-policies-coverage-benefits-2418561, accessed 8 Jan 2021
[2] Co-operative Societies Act 1979 (Singapore), s.66(1)
[3] Ibid, s.66(1)(e)
[4] Ibid, s.68(3)
[5] Ibid, s.66(2)
[6] Companies Act 1967, Div. 3
[7] Companies Act 1967, s.93
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