Singapore Boardroom Tussle Puts Corporate Governance of Trusts in Focus

A prolonged boardroom struggle at Treasury Holdings Real Estate (THRE) has put a spotlight on the issue of the corporate governance of business trusts listed in Singapore.

THRE, which is Singapore-listed, is a former subsidiary of Irish property development company Treasury Holdings, owned by businessmen Richard Barrett and Johnny Ronan which, late last month, was sold by Treasury Holdings to a Jersey-registered company beneficially owned by Barrett.

In recent weeks three former independent directors at THRE, which acts as the trustee manager of public listed business trust Treasury China Trust (TCT) have complained about their removal from the board. The trio claimed that they were removed for opposing the way certain issues were being handled by the trustee manager, although its chief executive officer (CEO) has defended the actions as part of the renewal process. On 31 August THRE applied to the Singapore stock exchange on behalf of TCT for a temporary suspension of trading in its shares.

Under a business-trust model, the trust sells units to investors. However, the business is controlled by the trustee manager, who is usually an affiliate of the company establishing the trust. Critics of such trusts point out that this removes a degree of accountability to the trust’s unit-holders. If unit holders want to remove the trustee manager, at least 75% of them would need to vote in favour of the move. However, in some cases, a controlling shareholder would hold enough units to prevent such supermajority approval.

National University of Singapore corporate governance expert Mak Yuen Teen noted that “business trusts have unique governance issues that expose unit holders to greater governance risks. These governance risks are aggravated when there are complex structures, multiple layers of entities, and foreign-incorporated entities involved.”

Hong Kong Exchanges and Clearing (HKEx) only began developing rules for business trust listings in late 2011 after Hong Kong tycoon Li Ka-Shing listed the ports business of Hutchison Whampoa as a business trust in Singapore, rather than in his home city. Last November, telecoms and media group PCCW became the first business trust listed on the Hong Kong stock exchange.

A Monetary Authority of Singapore (MAS) spokesperson reiterated that while a business trust is “akin to a company in that it operates a business enterprise, it is not a separate legal entity. Instead, a business trust is created by a trust deed under which the trustee-manager has legal ownership of the trust assets and manages the assets for the benefit of unit-holders.”

Business trusts listed in Singapore are regulated under the Business Trusts Act, which stipulate, among other things, the trustee manager’s duties, board composition and disclosure requirements.

Nanyang Technological University associate professor Victor Yeo agreed with the MAS’s view, but added: “While the rules appear to be adequate, it is a question of how they are interpreted and implemented, which continues to pose significant challenges. He added that a business trust’s financial and management details are disclosed at the outset, so “investors are already, or should already, be aware of the situation, and should invest with their eyes open.”

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