SEARCHHome>Laws of Singapore>Reference to Singapore Laws>Banking and Finance

CHAPTER 22BANKING AND FINANCE Section 1Introduction to Banking Law in Singapore Section 2Banker-customer Relationship Section 3Banking Secrecy Section 4Lending and Security Section 5Charges Section 6Mortgages Section 7Pledges Section 8Liens Section 9Guarantees and Indemnities Section 10Security over Book-entry Securities

Section 11Islamic Banking

SECTION 1 INTRODUCTION TO BANKING LAW IN SINGAPORE

22.1.1InSingapore,thelawsregulatingbankingarefoundintherelevantActspassedbyParliament(and their related subsidiary legislation), the common law and principles and rules of equity. 22.1.2 The commonlaw andprinciples and rulesof equityare derivedfrom case law.The mainsource ofcommon law in Singapore is the common law of England,first received into Singapore in1826 by the SecondCharterofJustice.TheApplicationofEnglishLawAct(Cap7A,1994RevEd)providesforthecontinuedapplicationin Singaporeof Englishcommon law(including theprinciples andrules ofequity) sofar asit waspartofSingaporelawimmediatelybefore12November1993,subjecttosuchmodificationsasthecircumstances in Singapore require. 22.1.3 While a substantial body of 'home-grown' case law has been built up in Singapore, judges can, anddo,continuetorefertoEnglishcourtdecisionsand,increasingly,Australianjudgmentsand,toalesserextent,judgmentsfromCanada,NewZealand,SouthAfricaandotherCommonwealthjurisdictions,forguidance. 22.1.4Thosedecisions,whichareofpersuasivevalue,aswellasthewritingsofacademicsandlegalexperts,togetherwiththerelevant Acts (principallytheBanking Act(Cap19,2008 RevEd),theMonetaryA h i fSi A (C 186 1999R Ed)dh Bill fE hA (C 23 2004R Ed))Banking and Finance Chi nese Bahasa Indonesi a

AuthorityofSingaporeAct(Cap186,1999RevEd)andtheBillsofExchange Act(Cap23,2004RevEd)),thatarecontinuallyreviewed,havegreatlyhelpedtoensurethatthelegalframeworkforbankinginSingaporekeepspacewiththelatestdevelopmentsinthefinancialworldandhaveplayedalargepartinthe evolution of banking in Singapore.Return to the top SECTION 2 BANKER-CUSTOMER RELATIONSHIP 22.2.1InSingapore,therelationshipbetweenbankerandcustomerislargelygovernedbythecommonlaw.However,incertainmatters,themostnotableofwhichisbankingsecrecy,theBankingAct(Cap19,2008RevEd)applies.AbanksdutyofsecrecyinSingaporeismoreextensivelydiscussedlaterinthispaper. 22.2.2The establishmentof a banker andcustomer relationship is significantas it gives riseto the rightsandduties ofabanker, e.g.thebankers dutyofcarein carryingoutthe customersmandate.In themostcommonscenario,thebankerandcustomerrelationshipisestablishedupontheopeningofanaccount bythe customer with the bank. Nature of Relationship 22.2.3Whether the customer isdepositing money with the bank,or the bank is extending aloan or otherbanking facilities tothe customer, the nature ofthe relationship between banker andcustomer is essentiallyoneofcontract.However,where thebankisholdingthe customersdeposits,itis aspecialfeatureofthecontractualrelationship thatthebankisabletousethemoneyreceivedfromthecustomerforthebankspurposes,subjecttoitsundertakingtorepaythemoneytothecustomer(with orwithoutinterest) eitheron demand or at a pre-determined time. Age of Contractual Capacity 22.2.4On1 March2009, theageof contractualcapacity inSingapore wasloweredfrom 21 years to 18yearsasaresultofamendmentstotheCivilLawAct(Cap43,1999RevEd).Consequently,acontractenteredintobyaminorwhohasattainedtheageof18years(the'specifiedminor')willbegiventhesame effect as if the contract had been entered intoby a person of full age and will, accordingly, be bindingonandenforceableagainsthimassuch.Aspecifiedminormay alsobringcertainlegalproceedingsinhisown name, without a litigation representative, as if he were of full age. 22.2.5The Billsof ExchangeAct wasalso amendedon1 March2009 toallow fora billof exchangethatis drawn or indorsed by a specified minor to be enforced against him.

22.2.6However,theseamendmentstotheCivilLawAct(Cap43,1999RevEd)didnotchangethepositionwithrespecttothefollowingcontracts(i.e.theageofcontractualcapacityforthesecontractscontinues to be 21 years):contractsforthesale,purchase,mortgage,assignmentorsettlementofanyland,otherthanacontract for a lease of land not exceeding three years;contracts for a lease of land for more than three years;contractswherebytheminor'sbeneficialinterestunderatrustissoldorotherwisetransferredtoanother person, or pledged as a collateral for any purpose;contractsforthe settlementof(i)anylegalproceedingsoractioninrespectofwhichtheminoris,pursuantto anywrittenlaw, consideredtobeapersonunderdisabilityonaccount ofhisage,or(ii)any claim from which any such legal proceedings or action may arise; andcontracts whereby a trust is extinguished or the terms of the trust are varied.Duty of Care 22.2.7Abankerowesadutyofcaretoitscustomertocarryoutthecustomersinstructionswithreasonablecare.Forinstance,abankermustnotmakepaymentfromthecustomersaccountexceptinaccordancewiththecustomersmandateandmusttakereasonable careto ensure thatthepersonpaidisentitled toreceive thepayment. A bankeris also undera dutyto make reasonableattempts tocontact thecustomer to obtain his instructions, for example,whether to renew a fixed deposit (Bank ofAmerica NationalTrust and Savings Association v Herman Iskandar & Anor [1998] 1 SLR(R) 848; [1998] SGCA 22).Return to the top SECTION 3 BANKING SECRECY 22.3.1LicensedbanksinSingaporearesubjecttostatutoryobligationsofsecrecywithrespecttoinformationrelating toitscustomersand theiraccounts.This is dealtwithin section47ofthe BankingAct(Cap 19, 2008 Rev Ed). 22.3.2In 2001,the Banking (Amendment) Act2001 (the Amendment Act) repealedsection 47and re-enacteditinasubstantiallydifferentform.ThelegislativemovemarkedapolicychangeinSingaporesregulatory approach to banking secrecy, the Monetary Authority of Singapore (the MAS)having recognisedthatthepreviousprovisionhadimpededbanksseekingtotakeadvantageofpotentialoperationalbenefitsandsavings.Forinstance,underthepreviousregime,bankshadencountereddifficultyinsecuritisingmortgageloansoroutsourcingdataprocessingtothirdparties.Thecurrentsection47extendsthecircumstances under which banks may disclose customer information. General Prohibition Against Disclosure 22.3.3Section47 providesthatcustomer informationshall not,inany way,bedisclosed by a bank ((asdefined in theBanking Act (Cap 19, 2008 Rev Ed), that is,a bank incorporated in Singapore or the branchesand offices located within Singapore of a bank incorporatedoutside Singapore), or any of its officers, to anyother person except asexpresslyprovided intheBankingAct (Cap19,2008RevEd) (andelaboratedonintheThirdSchedulethereof).Consequently,theconfidentialityobligationundersection47extendstothebankas wellasitsofficers. An officeris definedinsection2(1) oftheBanking Act(Cap 19,2008 RevEd)to include a director, secretary, employee, receiver, manager and liquidator. 22.3.4Thetermcustomerinformationisdefinedin section40AoftheBankingAct(Cap19,2008RevEd) to mean: any information relating to, orany particulars of,an accountof a customerof thebank, whethertheaccountisin respectofaloan,investmentor anyothertypeoftransaction,but doesnotincludeanyinformation that is not referable to any named customer or group of named customers; or depositinformation, whichis, inturn, defined tomean anyinformation relatingto any deposit ofacustomerofthebank,fundsofacustomerundermanagementbythebank,oranysafedepositboxmaintained by,or any safecustody arrangements madeby, a customer withthe bank, but,again, excludingany information that is not referable to any named person or group of named persons. 22.3.5Section47andtheThirdScheduletotheBankingAct(Cap19,2008Rev Ed) applynotonlytobanksbutalsotomerchantbanksapprovedasfinancialinstitutionsinSingaporeundertheMonetaryAuthorityofSingaporeAct(Cap186,1999RevEd).Forthispurpose,themodifiedsection47andThirdSchedule, which apply to merchant banks, are set out in the Banking Regulations (Rg 5, 2004 Rev Ed). Exceptions to Banking Secrecy 22.3.6The exceptions to bankingsecrecy are divided into two categories,set out in Part I andPart II oftheThirdScheduletotheBankingAct(Cap19, 2008RevEd). WheredisclosureofcustomerinformationismadepursuanttoanexceptioninPartIoftheThirdSchedule,therecipientoftheinformationisnotprohibitedfromfurtherdisclosingtheinformationtoanyotherperson.Incontrast,therecipientofinformationdisclosedunderanexceptionenumeratedinPartIIoftheThirdScheduleisprohibitedfromfurtherdisclosingthecustomerinformationtoanyotherperson,exceptasauthorisedundertheThirdScheduleor ifrequiredtodo soby anorder ofthecourt.This obligationcontinuesaftertermination oftherecipients appointment, employment or other office in which the information was received. Exceptions in Part Iof the Third Schedule 22.3.7The purposes forwhich disclosure of customerinformation is allowed (and furtherdisclosure is notprohibited), as provided in Part I of the Third Schedule, are where: 1.disclosure ispermittedinwritingbythecustomeror,ifheisdeceased,hisappointed personalrepresentative;2.disclosureissolelyinconnectionwithanapplicationforagrantofprobateorlettersofadministration in respect of a deceased customers estate;3.disclosure is solelyinconnection withthebankruptcyofa customerwhoisan individual,ortheinsolvency of a customer which is a body corporate;4. disclosure issolelywith aview totheinstitution of,or solelyinconnection with,the conductofcertain types of proceedings, such as proceedings between the bank and the customer or his surety relatingto the banking transaction of the customer;5. disclosureistoapoliceofficerorpublicofficeroracourtwhereitisnecessaryforreasonsofinvestigation or prosecution;6.disclosureisnecessaryforcompliancewithagarnisheeorderservedonthebankattachingmoneys in the account of the customer;7.disclosureisnecessaryforcompliancewithanorderoftheSupremeCourtorajudgethereofpursuant to the powers conferred under Part IV of the Evidence Act (Cap 97, 1997 Rev Ed);8.providedthe bankis abank incorporatedoutside Singaporeor aforeign-owned bankincorporatedinSingapore,disclosureisstrictlynecessaryfor compliancewitha requestmadebyitsparentsupervisoryauthority. However, no deposit information may be disclosed to the parent supervisory authority; and9.disclosureisincompliancewiththeprovisionsoftheBankingAct(Cap19,2008RevEd),theDepositInsuranceandPolicyOwners'ProtectionSchemesAct2011(Act15of2011)oranynoticeordirective issued by the MAS to banks. Exceptions in Part I Iof the Third Schedule 22.3.8Thepurposesforwhichdisclosureofcustomerinformationisallowed(butfurtherdisclosureisprohibited), as provided in Part II of the Third Schedule, are where: 1. disclosureissolely inconnectionwiththeperformanceofdutiesas anofficer,oraprofessionaladviser of the bank;2.disclosureissolelyinconnectionwiththeconductofinternalauditofthebankortheperformanceofriskmanagement.InthecaseofdisclosurebyabankwhichisthebranchofabankincorporatedoutsideSingapore,suchdisclosuremaybemadetoitsheadofficeorparentbankoranybranchor relatedcorporation designatedin writingby itsheadoffice. Inthe caseof abank incorporatedinSingapore,suchdisclosuremaybemadetotheparentbankoranyrelatedcorporationofthebankdesignatedinwritingbyitsheadoffice.Inthecaseofaforeign-ownedbankincorporatedinSingapore,suchdisclosuremaybemadetotheparentbankoranyrelatedcorporationofthebankdesignatedinwriting by the parent bank; 3. disclosure, which is solely in connection with the outsourcing of the banks operational functions ismadetoanyperson,includingtheheadofficeofthebankoranybranchoutsideSingapore,whichisengagedbythebanktoperformtheoutsourcedfunctions.IfanyoutsourcedfunctionistobeperformedoutsideSingapore,referencemustbemadetotheMASNoticetoBanksentitledBankingSecrecyConditions for Outsourcing (MAS 634). Amongst other things, MAS 634 requires banks to notify the MAS ofall outsourcing arrangements involving the disclosure of customer information upon entering into the relevantoutsourcing agreement;4.disclosureissolelyinconnectionwith(i)themergerorproposedmergerofthebankoritsfinancialholdingcompanywithanothercompany,or(ii)anyacquisitionorissue,or proposedacquisitionorissue, of any part of the share capital of the bank or its financial holding company;5. disclosureissolelyinconnectionwiththetransferorproposedtransferofthebusinessofthebanktoacompanyunderDivision1or2ofPartVIIAoftheBankingAct(Cap19,2008RevEd).Inthiscase,theinformationmaybedisclosedto(i)anytransferorortransferee,(ii)anypersonaffectedbythetransfer,(iii)anyprofessionaladviserappointedbyatransferor,transfereeorpersonaffectedbythetransfer, or (iv) any independent assessor appointed by the Minister for Finance or the MAS;6.disclosureis solelyin connectionwith the transferor proposedtransfer of theshares inthe bankunder Division 3 ofPart VIIA of the Banking Act (Cap19, 2008 Rev Ed). In this case,the information may bedisclosedto(i)anytransferorortransferee,(ii)anyprofessionaladviserappointedbyatransferorortransferee, or (iii) any independent assessor appointed by the MAS;7. disclosureissolely in connectionwiththerestructuringorproposedrestructuringofthesharecapital of thebank under Division 4 of Part VIIA of the Banking Act(Cap 19, 2008 Rev Ed). Inthis case, theinformationmaybedisclosedto(i)anyshareholderof thebank,(ii)anysubscriber,(iii)anyprofessionaladviser appointed by thebank or a shareholder or subscriber, or (iv)any independent assessor appointed bythe MAS;8. disclosureis solelyin connectionwiththerestructure, transferorsale,or proposedrestructure,transferorsale,ofcreditfacilities.Inthiscase,theinformationmaybedisclosedtoanytransferee,purchaseroranyotherpersonparticipatingorotherwiseinvolvedintherestructure,transferorsale,orproposedrestructure,transferorsale,includinglawyersorotherprofessionaladvisers.However,nocustomerinformationotherthaninformationrelatingtotherelevantcreditfacilitiesmay bedisclosed Thisexception would appear topermit disclosure ofinformation relating toloans orother credit facilitieswhere abank wishes to sell such loans as such or, pursuant to an asset securitisation;9.disclosureisbyabankinSingaporewhichhasissued acreditorcharge cardtoacustomer,tootherfinancial institutionsinSingaporewhichissuescreditorchargecardsnotifyingofthesuspensionorcancellationof thecardbythe bank byreason ofthecustomers defaultinpayment.Information that maybedisclosedisthecustomersnameandidentity,theamountofthedebtoutstandingonthecreditorcharge cardand the date of suspension or cancellation of the card;charge card, and the date of suspension or cancellation of the card;10.disclosureis of customerinformation (excludingdeposit information)which isstrictly necessary(i)forthecollation,synthesisorprocessingofcustomerinformationbyacreditbureauforassessingthecredit-worthiness of thecustomers of banks, or (ii)for the assessment, by certain specifiedmembers of thecreditbureau,ofthecredit-worthinessofthecustomersofbanks,subjecttosuchconditionsasmaybespecified by the MAS;11. disclosure of informationof a general nature (not related to the details of the customers account)made toanotherbankormerchantbankinSingaporewhereitisstrictlynecessaryfortheassessmentofthecredit-worthinessofthecustomerinconnectionwithorrelatingtoabonafidecommercialtransactionor a prospective commercial transaction;12. disclosureistoanyfinancialinstitutioninSingaporeregulatedbytheMASsolelyinconnectionwith the promotion, to customers of the bank in Singapore, of financial products and services made availableinSingaporebyanysuchfinancialinstitution.Nocustomerinformation,otherthanthecustomersname,identity, address and contact number, may be disclosed under this exception; or13.disclosureissolelyinconnectionwiththepayment ofcompensationtoinsureddepositorsundertheDeposit InsuranceandPolicy Owners'ProtectionSchemes Act2011 (Act15of 2011).Inthis case,theinformationmaybedisclosedtothedepositinsuranceandpolicyowners'protectionfundagencyorthePublicTrustee,oranypersonauthorisedorappointedbythedepositinsuranceandpolicyowners'protectionfundagencyorthePublicTrustee.PursuanttotheDepositInsuranceandPolicyOwners'ProtectionSchemes(DesignationofDepositInsuranceandPolicyOwners'ProtectionFundAgency)Notification 2011 (S237/2011), Singapore Deposit InsuranceCorporation Limited is designated as the depositinsuranceandpolicyowners'protectionfundagencyforthepurposesoftheDepositInsuranceand PolicyOwners' Protection Schemes Act 2011 (Act 15 of 2011).

Penalties 22.3.9Contraventionof section 47 isanoffence. Uponconviction, anindividualmay be punished withafine not exceeding S$125,000, or imprisonment for a term notexceeding three years, or both. In the case ofa corporation, a fine not exceeding S$250,000 may be imposed. Contractual Duties of Confidentiality 22.3.10Thestatutorybankingsecrecyregimedoesnotpreventabankfromcontractingwithitscustomers to assume a higher standard of confidentiality. This is provided for in section 47(8). Common Law Duties of Confidentiality 22.3.11Itwas previously thought that the statutory banking secrecy regimedid not override the commonlaw of duties of confidentiality on a bank which arose out of the banker customer relationship. 22.3.12However,followingthedecisionoftheSingaporeCourtofAppealinSusilawativAmericanExpressBankLtd[2009]2SLR(R)737;2009SGCA8,itisnowclearthatthecurrentstatutorysecrecyregimeleavesnoroomforthefourgeneralcommonlawexceptionsexpoundedinTourniervNationalProvincial and Union Bank of England [1924] 1 KB 461 to co-exist. 22.3.13In theseminal caseof Tournier vNational Provincialand UnionBank of England[1924] 1KB 461,theEnglishCourtofAppealheldthatabankerhadanimplieddutytokeeptheaffairsofacustomerconfidential,subjectto fourgeneralexceptionsunderwhichdisclosurecouldbemadebythebank.Thesewereclassifiedintofourcategories:(a)wheredisclosureisundercompulsion bylaw;(b)wherethereisadutytothepublictodisclose;(c)wheretheinterestsofthebankrequiredisclosure;(d)wherethedisclosure is made by the express or implied consent of the customer. 22.3.14 TheSingaporeCourtofAppealheldthat,inlightoftheplainwordingofsection47, thefourexceptionsinTournierhadbeenembracedwithintheframeworkof section47oftheBankingAct(Cap19,2008 Rev Ed), which is now the exclusive regime governing banking secrecy in Singapore. 22.3.15 Inarriving at its decision, the Singapore Court of Appeal held that, interms of detailsand scope,section47ofandtheThirdScheduletotheBankingAct(Cap19,2008RevEd)providedamorecomprehensiveregimethanthatarticulatedinTournier.InthewordsoftheCourtofAppeal:Thereissimplynoroom,inSingapore,fortheless sophisticatedandmoregeneralcommonlawrulesarticulatedinTourniertohaveanyfurtherrelevancesavefortheperspectiveofhistoricalevolutionandcontextitprovides. Singapore endorses OECD Standard for Exchange of I nformation through DTAs 22.3.16On 6 March 2009, the Ministry of Finance (the 'MOF') issued apress statement announcing thatSingapore isendorsing theOrganisation forEconomic Co-operationand Development(the 'OECD')Standardfortheeffectiveexchangeofinformation(the'EOIStandard')throughAvoidanceofDoubleTaxationAgreements (DTAs). The IncomeTax (Amendment) (Exchange ofInformation) Act 2009 cameinto force on9 February2010 enabling Singaporeto implement theEOI Standard under theIncome Tax Act.Provided theinformationrequestedisnotinformationprotectedfromunauthoriseddisclosureundertheBankingActortheTrust CompaniesAct, theSingaporetax authoritymay, uponreceiving the request,exercise itspowersundertheIncomeTax Acttoobtaintheinformationrequested.Non-compliancewith any noticeorrequestby the Singapore tax authority in this regard would be an offence under section 65C of the Income Tax Act. Return to the top

SECTION 4 LENDING AND SECURITY Legislation 22.4.1 InSingapore, the business oflending is regulatedby variousstatutes dependingon theperson ortype of institution that is providing the funds. 22.4.2Banksandfinancecompanies arelicensedor regulatedundertheBanking Act(Cap 19, 2008RevEd) and the Finance Companies Act (Cap 108, 2011 Rev Ed) respectively. 22.4.3EverypersonwhocarriesonthebusinessofmoneylendinginSingapore(otherthanbanksorfinancecompanieslicensed,undertherelevantActs,tocarryontheirrespectivebusinesses inSingapore)mustbelicensedunderorexcludedorexemptedfromtheprovisionsof,theMoneylendersAct(Cap188,2010RevEd).Moneylendingbyapersonwhoisnotsolicensedorwhoisnotanexcludedorexemptedmoneylender,isanoffence.Inaddition,section14(3)oftheMoneylendersAct(Cap188,2010RevEd) renders the borrowers obligation to repay such a person unenforceable. 22.4.4TheMoneylendersAct(Cap188,2010Rev Ed)cameinto forceon1March2009,repealingandreplacingitspredecessorwhichwas enacted50yearsago.ThenewActunderscoresamoreflexibleandprogressiveapproachtotheregulation ofmoneylendinginSingaporetokeep pacewiththemodern crediteconomy.Withtheintroductionoftheconceptof'excludedmoneylender',anypersonwholendsmoneysolelyto corporationsorlimited liabilitypartnershipsor tobusinesstrusts andreal estate investmenttrusts(ortheirrespective trusteesortrustee managers) will,generally,notbe subjecttothenew Act.However,apersonlendingtoindividuals(otherthanthosewhichqualifyas'accreditedinvestors' withinthemeaningofSection4AoftheSecuritiesandFuturesAct(Cap289,2002RevEd))willnotbeanexcludedmoneylender for the purposes of the new Act. Security 22.4.5SecurityforaloanistakenbyabankinSingaporetoavoidtheeffects,inthewinding-uporbankruptcyofitsborrowingcustomer,oftheparipassudistributionoftheassetsofthatborrowingcustomer. Such securities may be classified as proprietary security or possessory security. 22.4.6Proprietarysecurityconfersonthesecuredcreditorarightofownershiptothepropertythatissubjecttothesecurity.Possessionofthepropertyremainswiththepersonprovidingthesecurity.The most common proprietary securities are the mortgage and the charge. 22.4.7Incontrast,thelegaleffectivenessofapossessorysecurityisdependentuponthecreditorobtainingandretainingpossessionofthepropertythatisthesubjectofthesecurity.Themostcommonpossessory securities are the pledge and the lien. 22.4.8 Inadditiontoproprietaryand possessorysecurity,abank mayenhance itspositionbyobtainingpersonal securityin the form ofan agreement by athird party to undertakea personal obligation topay thebank if the borrowingcustomer defaults. There are two types of suchpersonal security, namely, guaranteesandindemnities.Whilethetakingofsuchpersonalsecuritydoesnotusuallyresultinthebankacquiringrights over the assets of the relevant third party, such guarantees andindemnities are nonetheless useful inproviding further recourse for the bank in the event of its borrowing customers default. 22.4.9 Indeterminingwhetherasecurity interestiscreatedbyaparticular transaction,andthenaturefth tit i t t th t l kt th b t fth ti tth th th l b lofthatsecurityinterest,thecourtslooktothesubstanceofthepartiesagreementratherthanthelabelappliedbythepartiesortheformofthedocuments.Thetruenatureofthetransactionshouldbeascertained from the documents against the surrounding circumstances in which they came into being. 22.4.10 Apartfrom thesecurity rightsgranted infavour ofthe bankunder charges,mortgages, pledges,and liens,the Companies Act(Cap 50,2006 Rev Ed)provides for adistinct regimefor the takingof securityover scripless shares (or book entry securities) listed on the Singapore Exchange Securities Trading Limited. 22.4.11 Inadditiontotheproprietary,possessory andpersonalsecuritywhichare available toabankinSingaporeto secure theobligationsofitsborrowingcustomer, thebankmayalsoavailitself ofitscommonlawrightto combineaccountsandcontractualrights ofset-offagainstthe borrowingcustomersaccountswiththebank.Unlessthebankanditscustomerhaveagreedotherwise,abankisentitledtocombineaccountsmaintainedwith thebankbya customerinhisownright againstadebtpayable bythecustomerto thebank and to treatthe balance, if any,as the amount actuallystanding to the customerscredit. Thisrighttocombinealltheaccountsofacustomerisregardedasarightofset-offwhich,inpractice,isusuallyfortifiedbycontractto circumvent the limitations ofthisrightunder the commonlaw.Forexample,contractualprovisionsareusuallyintroducedtoentitleabanktoset-offasumpresentlydueto,orfrom,thecustomerwithasumpayableby,or,asthecasemaybe,tothecustomeratafuturedatetocombine different kinds of accounts maintained by the customer in different currencies. Return to the top SECTION 5 CHARGES 22.5.1Asecurityinterestbywayofchargeariseswhenthe ownerofapropertygivestheright tohiscreditorto resortto theproperty forpaymentofa debtorclaim.In theeventofthe chargorsinsolvency,the chargee may enforce the security in priority to the claims of unsecured creditors. 22.5.2Inpractice,theterms 'mortgage'and'charge'areoftenusedinterchangeably.Statutoryusagehasalsotendedtoassimilatemortgagesandchargesaswell.Forexample,amortgageundertheConveyancingandLawofPropertyAct(Cap61,1994RevEd)isdefinedtoincludeacharge.However,there are differences between the two types of security. 22.5.3 Acharge iscreated bythe contractual actsof theparties. Unlikea mortgage,a chargedoes notinvolveatransferofownershiptothechargee.Alsounlikepossessorysecuritiessuchasthepledgeandlien, theeffectiveness ofa charge is not dependent uponthe chargeeobtaining and retainingpossession ofthechargedproperty.Intheeventofdefault,thechargeehastherighttorealisethechargedproperty,through judicial process, whether by way of order for sale or the appointment of a receiver. Creation of Charge 22.5.4Achargetakeseffectbywayofanagreementbetweendebtorandcreditorwithouttitleorpossession in the property passing to the chargee. 22.5.5There is generally no formal requirement as to the agreementcreating the charge. However, therearetwoimportantinstanceswherebywritingisrequired.First,section6(d)oftheCivilLawAct(Cap43,1999RevEd)providesthatnoactionshallbebroughtagainstanypersonuponanycontractforthedispositionofinterestinimmovablepropertyunlesstheagreementisinwritingandsigned.Accordingly,achargecreatedinrespectofaninterestinlandwillnot beenforceableunlessthecontractbetweentheparties is in writing and signed. The second exception relatesto promises to answer for the debt of another.Pursuanttosection6(b)oftheCivil LawAct(Cap43,1999RevEd),noactionshallbebroughtagainstadefendantuponapromisetoanswerforthedebtofanotherpersonunlessthepromiseisinwritingandsigned. Consequently a charge created over the chargors assets to secure the debt of the banks borrowingcustomer,forinstance,achargegivenbyaholdingcompanytosecurealoangivenby the chargeetoasubsidiary of the holding company, must be in writing and signed. Types of Charges 22.5.6 A charge may be fixed orfloating. All floating charges must be registered undersection 131 of theCompaniesAct(Cap50,2006RevEd)butonlyfixedchargesoveroneormoreofthespecifictypesofassets listed in section 131 (3) need to be registered. 22.5.7 A fixed chargeis one thatfastens on assetsthat are identifiable and ascertainable, suchas land,shares,shipsandaircraft.Thefixedchargeencumbersthechargedassetimmediatelyfromthetimeitisshares,shipsandaircraft.Thefixedchargeencumbersthechargedassetimmediatelyfromthetimeitiscreated. The chargor is unable to deal with a charged asset without the consent of the chargee. 22.5.8Incontrast,afloatingchargecreatesanimmediatesecurityinterest,butdoesnotspecificallyattachtotheindividualassetsuntilcrystallisation.Theassetssecuredbyafloatingchargearealwaysgenerallyidentifiedinthechargingdocumentbyreferringtoallof,or,asthecasemaybe,allofanidentifiable class or type of, the 'undertaking and assets' of the chargee, both present and future. 22.5.9Thelabelling of a chargeas fixed or floatingis not determinative ofthe nature of thecharge. Thecriticalfeaturedistinguishingafloatingchargefromafixedchargeiswhetherthechargorisatlibertytodeal with the assets. 22.5.10Thetruenatureofachargemustbeascertainedbyconsideringthetermsofthesecurityagreement,andthefactualandcommercialmatrixinwhichtheagreementiscreatedandperformed.Assuch,achargeoveruncollectedbookdebtswhichleavesthechargorfreetocollectthemandusetheproceedsintheordinarycourseof businessisafloatingcharge,evenifexpressedasafixedchargeoverthe uncollected book debts and a floating charge over the proceeds. 22.5.11 The main disadvantage ofhaving a floating rather thana fixed charge is thetreatment of floatingchargeholdersinthewindingupofthechargingcompany.Fixedchargeholdersandpersonstowhomstatutory preferentialdebtsareowedhavepriorityoverfloatingchargeholdersforthe paymentoftheir debts. Registration Requirements 22.5.12Section131(1)oftheCompaniesAct(Cap50,2006RevEd)providesthatachargethatiscreatedbyacompanyincorporatedinSingapore(orthebranchofaforeigncorporationregisteredinSingaporeunderDivision2ofPartXIoftheCompaniesAct)andtowhichsection131appliesmustbelodgedwiththeRegistrarofCompaniesforregistrationwithin30daysafterthecreationofthecharge,inthecasewherethedocumentcreatingthechargeisexecutedinSingapore,andwithin37daysafterthecreationof thecharge, inthe casewherethe documentcreating thecharge isexecuted outsideSingapore(section 139). 22.5.13Charges that are subject to registration under section 131 are: a charge to secure any issue of debentures; a charge on uncalled share capital of a company; a charge on shares of a subsidiary of a company which are owned by the company;achargeoranassignmentcreatedorevidencedbyaninstrumentwhichifexecutedbyanindividual, would require registration as a bill of sale; a charge on land wherever situate or any interest therein; a charge on book debts of the company; a floating charge on the undertaking or property of a company; a charge on calls made but not paid; a charge on a ship or aircraft or any share in a ship or aircraft; anda chargeon goodwill,on apatent or licence undera patent,on atrade mark,or ona copyrightor a licence under a copyright. ChargescapableofregistrationundertheInternationalInterestsinAircraft EquipmentAct2009(Act5of2009) do not fall within the ambit of section 131 of the Companies Act (Cap 50, 2006 Ed).

22.5.14 Achargethatisnotregisteredundersection131oftheCompaniesAct(Cap50,2006RevEd)withinthetimelimitisvoidagainsttheliquidatorandothercreditorsofthecompany.Intheeventofinsolvency of the chargor company, the chargee of an unregistered charge will lose its security and can onlyclaim as an unsecured creditor of the company. 22.5.15 Notwithstanding thefailureto registerachargeasrequiredunder section131oftheCompaniesAct(Cap50,2006RevEd),theunderlyingdebtduefromthechargorcompanytothechargeeisnotaffectedbytheavoidanceofthechargeagainsttheliquidatorandcreditorsofthecompany.However,pursuanttosection131(2),themoneysecuredbythechargewillbecomeimmediatelyrepayableifthecharge becomes void for non-registration. 22.5.16Registrationconstitutesnoticeoftheexistence(butnotnecessarilytheparticulars)ofthechargetoallpersonsdealingwiththechargedpropertywhomightreasonablybeexpectedtosearchtheregister of all matters for which registration is prescribed register of all matters for which registration is prescribed. 22.5.17Apartfrom registrationunderthe CompaniesAct (Cap50,2006 RevEd), theremay beadditionalregistrationrequirementsdependingonthenatureofthechargedasset.Forexample,achargeoverrealpropertygovernedbytheLandTitlesAct(Cap157,2004RevEd)mustbeintheprescribedformandregisteredthereunder.Similarly,securitygivenoverashipforaloanmustbeintheprescribedformandregisteredwiththeRegistryofShips.Whenanindividual createsa chargeoverhisproperty,thechargeissubjecttotheregistrationrequirementsoftheBillsofSaleAct(Cap24,1985RevEd)ifthechargeconstitutes abill ofsale.Under theBillsof SaleAct (Cap 24,1985 RevEd),in orderto beeffectiveassecurity,thebillofsalemustsecureatleastS$100,shouldnotbemadeorgivenwhollyorpartlyinconsiderationofapre-existingdebt,hastobeexecutedintheprescribedform,andmustberegisteredwithin three days of its execution. Enforcement of Charges 22.5.18 Someoftherightsofenforcement availabletoachargeeofcharged propertymaybeexercisedevenbefore apayment default.Upon anydealing inconsistentwith thecharge, thechargee hasnot merelyapersonalremedyforbreachofcontract,buthasotherremediessuchasaninjunction,notwithstandingthattherehasbeennofailuretopay.Achargeecanalsoobtaintheappointmentofareceiverpriortodefault on grounds of jeopardyof security. However, the power of sale arises asa remedy only upon defaultinpayment ofthe secureddebt. Intheevent ofdefault inpaymentby thechargor, thechargee isentitledto look to the property and its proceeds for the discharge of the liability. Return to the top SECTION 6 MORTGAGES 22.6.1In mostcases, wherea bankobtains securityin theform ofa mortgage,the mortgagortransfersownershipoftheassetthatisthe subjectofthesecuritytothemortgagee.Thetransferofownershipissubjecttothemortgagorsrighttoredeem,whichentitlesthemortgagortocallforthere-transferofownership tothemortgagorwhenthesecureddebt issatisfied(thisisknownasthemortgagorsequityof redemption). 22.6.2Asmentionedabove,despitethetechnicaldifferencesbetweenamortgageandacharge,theterms are often usedinterchangeably. From the perspective of the secured creditor,a mortgage and chargewillyieldthesamepracticalresultalthoughthenatureofthesecurityisdifferent.Amortgagemaybeviewedasanenhancedchargeasitgivesnotonlyrightsofappropriationoveranasset(asachargedoes), but also entails a transfer of ownership of either legal or equitable title to the mortgagee. Creation of Mortgage 22.6.3Asin thecase of acharge, thereis generallyno formalrequirementon theagreement creatingamortgage. However, formal requirements must be observed depending on the nature of the property which isthesubjectofthemortgage.Theprovisionsofsections6(d)and6(b)oftheCivilLawAct(Cap43,1999RevEd),whichhavebeendiscussedabove,wouldsimilarlyapplytomortgagesinthecircumstancesdescribed. Types of Mortgages 22.6.4 A mortgage can be either legal or equitable. The mortgage will be equitable where: the formalities necessary to create a legal mortgage have not been fully complied with;the mortgagors interest in the asset being mortgaged is itself an equitable interest; orthepartieshaveenteredintoanagreementtocreatealegalmortgageinthefutureovertheasset in question. 22.6.5Generally,themaindifferencebetweenalegalandanequitablemortgageisthatanequitablemortgagelosesprioritytoasubsequentlegalmortgageifthesubsequentmortgageewasapurchaserforvalue in good faith without actual or constructive notice of the prior equitable mortgage. 22.6.6Differentrulesofpriorityapplywhereamortgageistakenoverland.In Singapore,therulesofpriority applicable to legal and equitable mortgagesover land that isnot regulated under theLand Titles Act(Cap 157,2004 RevEd) aregoverned by theRegistration ofDeeds Act (Cap 269, 1989Rev Ed).Section 14oftheRegistrationofDeedsAct(Cap269,1989RevEd)providesthatallinstrumentsentitledtoberegisteredundertheRegistrationofDeedsAct(Cap269,1989RevEd)willhavepriorityaccordingtothedate of their registration and not according to the dateof the instruments or of their execution. Pursuant tosection6,achargebyreasonofadepositoftitledeedswillhavenoeffectorpriorityasagainstasubsequentassuranceforvalueunlessanduntilamemorandumofchargesignedbythepersonagainstwhomthechargeisclaimed,hasbeenregisteredinaccordancewiththeRegistrationofDeedsAct(Cap269,1989 Rev Ed).Wherethe mortgagedland isgoverned bytheLandTitles Act (Cap157,2004 Rev Ed),priority is determinedaccordingto thedateof registrationof theinstrumentof legalmortgage. In thecaseof an equitable mortgage, a caveat may be lodged to protect the mortgagees interest. Registration requirements 22.6.7TheCompaniesAct(Cap50,2006RevEd)definesachargetoincludeamortgageandtheprovisionsofsection131oftheCompaniesAct(Cap50,2006RevEd)inrelationtotheregistrationofcharges applies to mortgages. 22.6.8Apartfromregistrationunder theCompaniesAct (Cap50,2006Rev Ed),theremay beadditionalregistrationrequirementsdependingonthenatureofthemortgagedasset.Forinstance,amortgageoverrealpropertygovernedbytheLandTitlesAct(Cap157,2004Rev Ed)mustbeintheprescribedformandregisteredunderthatAct.Itistheactofsuchregistrationthatcreatesthemortgage.Further,itisprovidedthataregisteredmortgageshallnotoperateasatransferofthelandmortgagedbutshalltakeeffect as security only. 22.6.9Pursuanttosection53of the Conveyancingand LawofPropertyAct(Cap61,1994RevEd),amortgageoflandwillbevoidatlawunlessitis bydeed in theEnglishlanguage. If,however,thesubjectmatter ofthe mortgage is notland, thenthere isno requirementfor themortgage tobe executedby deed.Nevertheless,inpractice,itisadvantageousforthemortgagetobeexecutedbydeedas,inordertoenforcea deed,itis notnecessarytoshow thatconsideration passed betweenthecontracting parties.Atcommonlaw,apromiseisnotbindingasacontractunlessitiseithermadeinadeedorsupportedbyconsideration. 22.6.10Therearealsopracticalissuestobetakenintoconsiderationwhencreatingamortgage.Forexample,inthecaseofamortgageofshares,amortgageiscreatedthroughatransferoftitleinthesubjectsharesto the mortgagee,followingwhichthesharesareregisteredinthenameofthemortgagee.Pursuant to section 195(4) of the Companies Act (Cap 50, 2006 Rev Ed), the mortgagors interest cannot bereflectedintheshareregister.Hence,inpractice,themortgageiseffectedbydeliveryofthesharecertificate andits relatedtransfer form,duly executedby themortgagor, togetherwith a document settingout thecircumstances of thetransfer and providing for re-transfer to themortgagor upon repaymentof theloan. Enforcement 22.6.11 Wheretheborrowerdefaultsinrepayingthesumsdueunderthemortgage,abankcanhaverecoursetoanumberofrightsandremediesinordertoenforceitssecurity.Therightsofthesecuredlenderare cumulative,whichmeansthatthebankmayexercisealloranyoftheremediesuntilitisfullyrepaid. Thus, evenafter it sells the propertyand there is a shortfall(unless the sale is pursuantto the rightofforeclosure)the bankcansuetheborrowingcustomer forthebalance,onhispersonal promisetorepaythe moneys. 22.6.12 Thebankmaychoosetoexerciseitspowertoselltheproperty.Thepowertosellisusuallyprovidedforin everywell-draftedmortgagedocument. It isalsoimplied bystatute(pursuantto section 24of theConveyancing and Lawof Property Act(Cap 61, 1994 Rev Ed)), into everymortgage that ismade bydeed. Ifthe objective isto protect thesecurity and to collectprofits yielded bythe property whichmay beappliedtowardsdischargingthemortgagedebt,areceivermaybeappointedeitherpursuanttotheprovisionsofthesecuritydocument,section29oftheConveyancingandLawofPropertyAct(Cap61,1994 Rev Ed), or acourt order. Where the subject of the mortgage is land,the express terms of a mortgageinstrument willusually give the bankthe right toenter into possessionupon default and afterwritten noticeis given tothe borrowing customer. In sellingthe property, the bankhas a duty to takereasonable steps toobtain a proper price, such as holding a public auction where appropriate. Return to the top SECTION 7 PLEDGES 22 7 1Al d ttht f fi fth tb th l dt th l d22.7.1Apledgeoperatesupon the transferofpossessionoftheassetbythepledgor tothepledgee.There is no transfer of ownership. 22.7.2Critical tothecreationof apledgeisthedeliveryofthesubjectmatterofthepledge.Deliverymaybeactualorconstructive.Forexample,apledgemaybecreatedoverpersonalchattels,stocksorgoods by actual delivery of the items or bill of lading relating to the goods. 22.7.3Thepledgeeretainspossession ofthepledgedassetsuntil the secureddebtis satisfied.Ifthepledgordoes notrepaythedebt, thepledgeeis entitled tosellthepledged asset andusethe proceedstosatisfy the debt. 22.7.4Itisanimpliedtermofthecontract ofpledgethatthepledgeemayselltheassetpledgedtosatisfythedebtondefaultofpaymentatthetimefixedforrepayment.Wherethereisnotimefixedforrepayment,thepledgeemaydemandpaymentand,indefaultofpayment,sellonnotice tothepledgorofhis intention to do so. The pledgor has a right to redeem the pledge up to the time of the sale. Return to the top SECTION 8 LIENS 22.8.1The significanceofalienisthatitconfersa rightto retainlawfulpossessionof propertyownedby another person, until a claim by the person in possession against the owner is met. Types of Lien 22.8.2 There are two types of lien, namely, a general lien and a particular lien. 22.8.3 Ageneralliengivesarightto thelienholdertoretainpossessionofproperty of anotheruntilallclaimsagainstthatpersonaresatisfied.Itusuallyexistsasacommonlawrightarisingbyusageorasaterminacontract.Examplesofgenerallienscreatedatcommonlawaresolicitorslien,bankerslien,stockbrokers lien, insurance brokers lien, and factors lien. 22.8.4 On the other hand, a particular liengives a right to the lien holder to retain possession of propertyofanotheruntiltheexpensesincurredinrespectoftheretainedpropertyissatisfied.Aparticularliengenerally ariseswhere propertyhas beendelivered tothe lienholder forimprovement and repair andhe hasexpended skillor labouron the property.Upon completion of thework and provisionof services,a particularlien arises upon the improved goods. A common example ofa particular lien is an architects lien on the planshe has prepared to secure his professional fees.

Creation of Lien 22.8.5 A lien may be created by common law, by contract, or by statute: A common lawlien arises where the custom and usage in a particular trade has been so frequentlyrecognisedthattherightoflienbecomespartofthecommonlaw,andisacceptedbythecourtswithoutfurther evidence.For example,at common law,a banker hasa lienover the securitiesof acustomer placedwith the bank to cover the customers indebtedness to the bank. Dependingonthetermsofthecontract,aliencreatedbycontractmaybeageneral lien oraparticularlien.As anexampleofalienarisingbycontract,abankeroftencontractswithhiscustomertocreatealieninthebanksfavouroverthecustomerspropertytosecurethecustomersindebtednesstothe bank.The scopeandnatureofastatutorylienaretobeconstruedaccordingtothe wordsofthestatuteinquestion. Astatutorylienmay beagenerallienor particularlien,dependingon theprovisionsofthestatute.Anexampleofastatutorylienistheunpaidsellerslienwhereonlypartdeliveryofgoodsismade (see the Sale of Goods Act (Cap 393, 1999 Rev Ed), section 42). Enforcement 22.8.6Aholder ofa commonlaw lienonlyhas a passive righttodetain theproperty ofanother untilhisclaim is met; hecannot recover the amount owing tohim by disposing of the property.However, a power ofsalemaybeconferredonthelienholder by statutory provisionsorcontractualterms.In the absence ofastatutoryorcontractualpowerofsale,alienholdermayapplytocourtforanorderofsalewhereitisdesired that the property be sold at once. Return to the top SECTION 9 GUARANTEES AND INDEMNITIES 22.9.1 A guaranteeis essentially aspecies of contractwhereby a party (called theguarantor) promisestoanswerforthedebtofasecondperson(calledtheprincipaldebtor),thepromise beingmadetothecreditortowhomtheprincipaldebtorisliable.A contractofguaranteeisanancillarycontractandcannotexist unless there originally existed a principal debtors obligation. 22.9.2Aguarantee is often givenas a collateralform of security, e.g. a guarantee by aparent companyinrespectoftheobligationsofthesubsidiary, oraguaranteebythedirectorsofacompanyinrespectofthe companys obligations under the mortgage. Corporate Benefit 22.9.3Whereaguaranteeistobegivenbyacompanytosecurebankingfacilitiesgrantedtoaborrower,thedirectorsofacompanymustalwaysactbonafideforwhattheyconsidertobeinthebestinterestsof thecompany itselfandnot thegroupof whichit isamember. However,thisis notto saythatdirectors of acompany in a groupcannot consider the company's widerinterests as a memberof the group.The interestsof the groupmay be relevantto deciding what isin the interestsof the company.In addition,ifthecompanyisinsolventatthetimetheguaranteeisgiven,thedirectorsarealsounderadutytoconsider the interests of the companys creditors. 22.9.4Thepropertestiswhetheranintelligentandhonestmaninthepositionofadirectorofthecompanyconcerned,could,inthewholeoftheexistingcircumstances,have reasonablybelievedthatthetransactionwas forthe benefitof thecompany(Charterbridge Corporation Ltd vLloyds BankLtd [1970]Ch62, which was approved by theSingapore Court of Appeal inIntraco Ltdv Multi-Pak SinIntraco Ltdv Multi-Pak Singapore Pte Ltd [1994] 3 SLR (R) 1064; [1994] SGCA 142). 22.9.5Therequirement ofcorporate benefitmaybe morereadily establishedinthe caseof aguaranteegiven by aholding company to secure the obligations ofa subsidiary. However, the givingof a guarantee byasubsidiarytosecureobligationsofitsholdingcompanyisnotsoeasilyjustifiedunlesstheguarantorisitselfreceiving theproceedsof theloan, possiblyindirectlyvia inter-companyloans.Other indirectbenefitswhichmayflowtothesubsidiaryguarantor,suchasreducedcostoffunding,orstrongerormaintainedfinancial capability ofthe parent, are factorswhich may be takeninto account by thedirectors in assessingwhether there is sufficient corporate benefit. 22.9.6 Ifthe corporateguarantee wasgiven infurtherance ofsome purposewhich isnot forthe benefitof thecompany, forexample, the guarantee is provided inorder for a totally unrelatedcompany toobtain abankloan,theprovisionoftheguaranteemayamounttoanabuseofthedirectorspowers,andtheguaranteemay beset asideif thebank hadknowledge ofthe impropriety.The directorswould bein breachof theirduty asdirectors toact ingood faithin the bestinterests oftheir company,and maybe personallyliable for any loss sustained by the company as a result of their actions. Creation of Guarantee 22.9.7 Pursuant to section 6(b) of the Civil LawAct (Cap 43, 1999 Rev Ed), a guarantee is required to bein writing and signed by the guarantor or someone lawfully authorised by him to sign it. 22.9.8Inajointandseveralguarantee,itisessentialthatallwhoarenamedassuretiesintheguaranteeshould actuallysign theguarantee;otherwise, thosewho havealreadysigned willnot bebound.InIndianBankvRamachandran&Ors[1991]1SLR(R)511;[1991]SGHC43,theSingaporeHighCourtobserved that a joint andseveral guarantee carries with it the implication that itshall not be binding unlessexecutedbyallthosenamed asguarantorstherein.This isnotadefence,butaconditionprecedenttoaguarantors liability. 22.9.9Although thereis norequirement forthe executionof aguarantee tobe witnessed,it is,and haslongbeenthepracticeto executeguarantees inthepresenceofawitnessorwitnesses.Thereshould beindorsedonorsubscribedtothedocument,astatementthatithasbeensosigned,andtheattestingwitnessshouldsignhisnametothestatementandaddhis addressanddescription.Itisalwaysadvisablethatthe executionofguaranteesshouldbeattestedaccordingtotheusualpracticeinordertopreserveevidence of their execution. I ndemnity Clause 22.9.10 In Singapore, guarantees are usually drafted insuch a way as to take effectas both a guaranteeandanindemnity.Forexample,theguaranteemayincludeaclausewhichstatesthat,asidefromhisobligationsasaguarantor,eachguarantoragreestoindemnifythebankagainstallclaims,losses,etc.which the bank may suffer in relation to the advancesto the borrower. In this way, each guarantor has alsoentered into a contract of indemnity with the lender. 22.9.11A contract of indemnity is a contract by one party to keep another harmless against loss. Unlike aguarantee, the liability of an indemnifier is independent of the existence of a principal debtors obligation. 22.9.12Thereisnorequirementforanindemnitytobeinwritingorinadeed,althoughforreasonsexplainedabove, itis usualpractice foran indemnityto beexecuted asa deedand forthe executionto beattested. Return to the top SECTION 10 SECURITY OVER BOOK-ENTRY SECURITIES 22.10.1 In Singapore,nosecurity interestmaybe createdinsecurities listedonthe SingaporeExchangeSecuritiesTradingLimited('SGX-ST')exceptasprovidedinsection130NoftheCompaniesAct(Cap50,2006 RevEd)or anyotherwritten law orany regulationsmade under section130P. The security whichmay be createdis statutory security, as providedunder section 130N(2), or securitycreated under commonlaw,as providedbyregulation23A oftheCompanies(Central DepositorySystem)Regulations(Cap 50,Reg2) which is made under section 130P. 22.10.2 Such securitiesare referred to asbook-entry securities in the Companies Act (Cap 50,2006 RevEd) which are defined in Section 130A to meanlisted securities, the documents evidencing title to which aredepositedbyadepositorwiththeCentralDepository(Pte)Limited(the'Depository')andthatareregisteredin thename ofthe Depositoryor itsnomineeand whichare transferableby wayof book-entryintheregistermaintainedbytheDepositoryinrespectofbook-entrysecuritiesandnotbywayofaninstrument of transfer. 22.10.3TheDepositoryisacorporationestablishedasadepositorycompanyforthepurposesoftheCompaniesAct(Cap50,2006RevEd),which,asabaretrustee,operatestheCentralDepositorySystemfor the holding and transfer of book-entry securities. 22.10.4 Book-entry securities can onlybe deposited with the Depository by a person whohas an accountdirectlywiththe Depository('an account holder')orwith adepositoryagent,butnot withasub-accountholder. 22.10.5AdepositoryagentisapersonorbodyapprovedbytheDepository(Thisincludesamembercompany of the SGX, a trust company registered under the Trust Companies Act (Cap 336, 2006 Rev Ed), orabankingcorporation ormerchantbankapprovedbytheMASundertheMonetaryAuthorityofSingaporeAct (Cap 186, 1999 Rev Ed)) which: (i) performs servicesas a depositoryagent forsub-account holdersin accordance with the terms ofa depository agent agreement entered into between the Depository and the depository agent;(ii)deposits book-entry securities with the Depository on behalf of the sub-account holders; and(iii) establishes an account in its name with the Depository. A 'sub-account holder' means a holder of an account maintained with a depository agent. 22.10.6Withrespecttothecreationofstatutorysecurity,section130N(2)oftheCompaniesAct(Cap50, 2006Rev Ed) provides thata security interest inbook-entry securities tosecure the payment ofa debtorliabilitymaybecreatedinfavourofanydepositor(i)bywayofassignment,byaninstrumentofassignmentintheprescribedformexecuted bythe assignor,or(ii)bywayofcharge,byaninstrumentofcharge in the prescribedform executed by the chargor. As such, astatutory security under section 130N(2)canonly becreatedinfavourofanaccountholderoradepositoryagent(andnotasub-accountholder)and must be created by an instrument in a form prescribed by the Companies Act (Cap 50, 2006 Rev Ed). 22.10.7 Consequently,in ordertotakea statutorysecurityunder section130N(2)ofthe CompaniesAct(Cap 50, 2006 Rev Ed),the bank musteither hold an account with the Depositoryor, be itself,a depositoryagent Inaddition becauseoftheinflexiblenatureoftheformprescribedforcreatingthestatutoryagent.Inaddition,becauseoftheinflexiblenatureoftheformprescribedforcreatingthestatutorysecurity, the nature of thesecurity, the rights of the bank as beneficiary ofthe security and the obligationsofthegrantorofthesecurityarequiterestrictedandtheholdingofsuchstatutorysecuritybyabankpresents quite a number of disadvantages. 22.10.8Asaresult,manybanksinSingaporechoosetotake'commonlaw'securityoverbook-entrysecurities, as providedfor in regulation 23Aof the Companies (Central DepositorySystem) Regulations madeunder section 130P of the Companies Act (Cap 50, 2006 Rev Ed). 22.10.9 Essentially,inordertocreatecommon law securityoverscriplesssharespursuanttoregulation23A,thegrantorofthesecurityandthebankwouldeachopenasub-accountwithadepositoryagentselectedby,andwhichisacceptableto,thebank.Thegrantorandthebankshouldthenenterintoasecurity agreementunder theterms of which,the grantor will,inter alia,charge in favourof, andassign to,thebankallofitsright,title andinterestinandtothesub-accountmaintainedbyitwiththedepositoryagent,aswell asallthebook-entrysecuritiesheldinthatsub-account.Noticeofthatassignmentshouldbegiven to, andbeacknowledgedby, thedepositoryagent.Pursuant totheassignment,the bank,astheassignee of thegrantorsrights, wouldbe entitled toinstruct thedepositoryagent totransfer thescriplesssharesheldinthegrantorssub-accounttothebanks sub-accountalthoughthisshouldnotstrictly benecessary,asthesecurityshouldbeperfectedoncenoticeofthatassignmenthasbeengiventothedepository agent. Return to the top SECTION 11 ISLAMIC BANKING 22.11.1 Recentyearshavewitnessedagrowingimpetusfor IslamicfinancialservicestobecomepartofSingapore'scontinuingdevelopmentasaninternationalfinancialcentre.AscorporationsareincreasinglytappingIslamic financingtoraisefunds, financialinstitutionshave beenencouragedtoadd IslamicfinancialproductsandservicestotherangeofconventionalfinancialservicesandproductsthatarealreadyavailableinSingapore.WhereassomejurisdictionshaveestablishedaseparateregulatoryframeworkforIslamicfinancialservices,thefinancialauthoritiesinSingaporehavedecidedthat,forthetimebeing,bothIslamic and conventional banking shall be accomodatedwithin a common regulatory framework. Towards thisend,somelegislativechanges havetakenplacetoaccomodateandfacilitate thedevelopment,withinthatcurrent framework, of Islamic banking in Singapore. PursuanttoBankingRegulationsissued by the MASsince2005(BankingRegulations4A,22,23,23A,23B,23C and23E), banksin Singapore maycarry onand offerfinancing based onIslamic conceptsof murabaha,ijarawa-gtina,diminishing musharakaandistisna.In 2010,theMASissuedits comprehensive'Guidelines ontheApplication of Banking Regulationsto Islamic Banking' whichaims toprovide bankswith guidanceon theregulation of Islamic banking in Singapore.

The overallpolicy approachin relationto thetax treatment ofIslamic financingproducts andinstruments inSingaporehasbeentoalignthetaxtreatmentofIslamiccontractswiththetaxtreatmentofthoseconventionalfinancingcontractstowhichtheyareeconomicallyequivalent.ThetaxregimeinSingaporehasseenprogressive modificationwithaview toachievingalevel playingfieldforIslamic andconventionalfinancialserviceswithrespecttotaxation.StepstakenincludetheclarificationbytheMASin2006withregardstotheincometaxandGSTtreatmentsforshariahcompliantfinancingarrangementsbasedonthemurabaha and ijara wa igtina structures and the issuance by MAS of its latest circular in June 2011 clarifyinghowdirectandindirect taxincentiveswouldbeappliedbytheSingaporetaxauthoritiesinrespectofthequalifying Islamic financing transactions. Return to the top

______________________

Updated as at 2 April 2012

By: Eugene OoiPartnerAllen & Gledhill LLP Elizabeth WongSenior AssociateAllen & Gledhill LLP

Disclaimer: Thearticles andbriefings on this website are for general information only. Readers areadvised to seek specificlegal advice before acting on the contents set out therein. If advice is required, please consult a Singapore lawyer or oneofthe writers of the relevant article or briefing. If you would like to contact the writers, please write to singaporelaw@sal.org.sg,indicating your queries and the name of thewriter whom you wish to contact. The writer will be informed of your request andwill contact you subsequently. 2012 Singapore Academy Of Law. All Rights Reserved.SitemapTerms of UseDisclaimer