MAS consults on new regulations and amendments to regulations to support Phase 2 of implementation of Business Trusts (Amendment) Act 2022 and align governance-related provisions for registered business trusts with those for REITs

8 October 2024

On 17 September 2024, the Monetary Authority of Singapore (“MAS”) published a consultation paper to seek comments on proposed amendments to the Business Trusts Regulations 2005 (“BTR”) and the Securities and Futures (Licensing and Conduct of Business) Regulations 2018 (“SF(LCB)R”), and introduce new regulations, to support the implementation of the second phase of the Business Trusts (Amendment) Act 2022 (“Amendment Act”) and to align certain governance-related provisions for registered business trusts (“BTs”) with those imposed on real estate investment trusts (“REITs”). The consultation closes on 18 October 2024.

Background

The Amendment Act amends the Business Trusts Act 2004 (“BTA”) to align the provisions in the BTA with the relevant provisions in the Companies Act 1967, strengthen governance safeguards for registered BTs, and streamline certain regulatory requirements. These changes are aimed at improving the efficiency and robustness of the BT regulatory regime. For more about the Amendment Act, please see our article “Changes to Business Trusts Act 2004 to align with Companies Act 1967, strengthen governance safeguards, and streamline regulatory requirements partially in force”.

The Amendment Act is being implemented in two phases. Phase 1, which came into force on 12 March 2024, implemented provisions that did not require supporting subsidiary legislation to commence, including those relating to disclosure by chief executive officers (“CEOs”) of interests in transactions undertaken by the BT, the court’s power to order a buy-out remedy in lieu of liquidation, and removal of trustee-manager by majority of unitholders.

Phase 2 will implement provisions that will be brought into effect concurrently with supporting subsidiary legislation. MAS is now consulting on proposed amendments to the BTR and new regulations to, among others, support the Phase 2 implementation. The proposed amendments and new regulations are set out in Annexes A to F of the consultation paper.

The following are highlights of the key proposed amendments.

Regulations to support Amendment Act

Register of beneficial ownership

New Part 8A of the BTA will require trustee-managers (“TMs”) of unlisted registered BTs to obtain and maintain information on beneficial ownership of units in the unlisted registered BTs. MAS seeks comments on its proposal to prescribe particulars for this purpose in the proposed Business Trusts (Register of Controllers) Regulations, including:

particulars of a registered BT’s registrable individual controllers and corporate controllers to be kept in the register of controllers;
place where the register of controllers is to be kept; and
time periods within which to comply with the requirements in Part 8A of the BTA.

Electronic transmission of notices and documents

Section 93A of the BTA will allow for electronic transmission of notices and documents to unitholders with their express, implied, or deemed consent, in accordance with the trust deed of the registered BT. MAS seeks comments on the proposed safeguards it intends to introduce in the BTR for the use of such electronic communications, similar to those for companies in the Companies Regulations.

Requirement to publish declarations of distributions to unitholders

Section 33 of the BTA allows a TM to declare a distribution of profits, income, or other payments or returns to the unitholders of the registered BT out of the trust property of the registered BT, subject to certain conditions being satisfied. Section 33(2) of the BTA will be amended to allow MAS to prescribe the modes by which public notifications of a registered BT’s distributions must be made.

MAS seeks comments on its intention to prescribe that for listed registered BTs, notice must be given in such mode as is compliant with the Singapore Exchange Securities Trading Limited Listing Rules (“Listing Rules”), while for unlisted registered BTs, notice may be given via publication in newspapers or on the registered BT’s website.

Deregistration of defunct BTs

Section 52(1) of the BTA provides that where MAS has reasonable cause to believe that the TM of a registered BT is not managing or operating the business of the registered BT, MAS may deregister the defunct registered BT. Section 52(1A) will be added to allow MAS to prescribe the circumstances it may give regard to in determining whether there is reasonable ground to believe the TM is not managing or operating the business of the registered BT. MAS seeks comments on the circumstances it proposes to prescribe in the BTR that it may have regard to. These will be similar to those in regulation 89B of the Companies Regulations, e.g. failure to file annual returns, failure to respond to MAS’ correspondence, and local directors are uncontactable.

Requirement to adopt Singapore Financial Reporting Standards (International)

The Amendment Act will codify the requirement for registered BTs to adopt the Singapore Financial Reporting Standards (International) (“SFRS(I)s”) by including new provisions requiring registered BTs to prepare financial statements and consolidated financial statements in accordance with Accounting Standards made by the Accounting Standards Committee. MAS intends to prescribe in the BTR that registered BTs are to adopt the SFRS(I)s.

Amendments to governance-related requirements in BTR and SF(LCB)R

Board composition and directors’ independence requirements

BTs are structurally similar to REITs in that they are trusts constituted by a trust deed and are not separate legal entities but are managed by separate legal entities, namely a TM, or a REIT manager (“RM”). As such, MAS proposes to align the board composition and directors’ independence requirements for TMs with those imposed on RMs as follows:

independent directors (“IDs”) of a TM to be independent from management of, and from business relationships with, both the TM and the registered BT;
a director’s relationship to the related corporations (instead of just the subsidiaries) of the TM to be taken into account when determining whether the director is independent from management of the TM and the registered BT;
requiring IDs to be independent from any substantial unitholder of the registered BT, in addition to being independent from any substantial shareholder of the TM;
requiring at least half of the board to be IDs, where unitholders do not have the right to vote on the appointment of directors to the board of the TM, and at least one third of the board to be IDs, where they do have such right to vote; and
prohibiting the TM from having as the chairman of its board a person who is an executive director of the TM or an immediate family member of the CEO of the TM.

Restrictions on tenure of independent directors of trustee-managers and REIT managers

IDs of RMs are subject to a nine-year tenure limit under the SF(LCB)R, i.e. an ID will not be independent if he has been a director of the RM for a continuous period of nine years. To prevent circumvention of the tenure limit, MAS propose to change the basis for computing an ID’s years of service from a continuous basis to an aggregate basis. For example, if an ID serves for a continuous period of eight years, then steps down for a year, and is re-appointed as an ID for another continuous period of under nine years, the ID’s years of service will have to be aggregated, regardless of whether the ID had stepped down in between terms. This approach is consistent with the aggregate nine-year limit that applies to IDs of listed companies under the Listing Rules.

An ID of an RM will not be considered independent upon having served as an ID for nine years. Under the Listing Rules, IDs of listed companies who have served for more than nine years continue to be considered independent until the conclusion of the next annual general meeting (“AGM”) of the listed company. MAS proposes to align the point in time when IDs of RMs and IDs of listed companies will not be considered independent such that IDs of RMs continue to be considered independent until the conclusion of the next AGM of the REIT following the expiry of the tenure limit.

MAS proposes to amend the BTR to adopt the two changes outlined above.

MAS proposes for the aggregate nine-year tenure limit for directors of both TMs and RMs to come into effect six months from the date that these amendments are published, and for affected directors to be considered independent until the conclusion of the next AGM of the BT or REIT thereafter. The consultation paper provides examples to illustrate this.

Disclosure of distributions

MAS seeks comments on its proposal to require TMs of registered BTs to disclose its distributions declared for the financial year and its total operating expenses in both absolute terms and as a percentage of its net asset value (i.e. expense ratio) in the registered BT’s financial statements. This will allow investors to compare expense ratios and distributions across different BTs, and is consistent with the requirements imposed on REITs.

Amendments to streamline regulatory requirements

Exempting stapled BTs from certain BTA and BTR provisions

MAS seeks views on the proposal to amend the BTR to codify exemptions that are typically granted to stapled BTs from certain requirements.

Under a stapled trust structure (“Stapled Structure”), one unit of a BT is stapled to one unit of a REIT. Stapled Structures are usually seen in hospitality trusts, where the BT is dormant until it is activated as a master lessee of last resort, or if there is an acquisition of assets not suitable to be held by the REIT, such as real estate assets that are still under development.

Due to the nature of Stapled Structures where the TM and RM have the same board members and investors hold units in both the BT and REIT, TMs would normally be granted exemptions from certain requirements, e.g. exemption from the requirement under the BTA to act in the best interests of the BT's unitholders, on the condition that the TM acts in the best interests of the stapled unitholders of the Stapled Structure as a whole.

MAS will also align the approach for RMs of REITs in Stapled Structures by amending the relevant requirements in the SF(LCB)R and introducing new regulations for stapled REITs.

Other amendments

MAS also proposes to:

amend the Business Trusts (Summary Financial Statement) Regulations for alignment with the Companies (Summary Financial Statement) Regulations; and
introduce the Business Trusts (Revision of Defective Financial Statements, or Consolidated Financial Statements or Balance Sheet) Regulations to support the implementation of section 35 of the Amendment Act on the voluntary revision of defective financial statements.