Redeeming Redeemable Preference Shares in Singapore: Conditions, Solvency and the ACRA Filing

A Singapore company can redeem redeemable preference shares only if its constitution authorises it, the shares are fully paid up, and the redemption follows the terms the constitution sets out. If you fund the redemption out of capital, every director must also make a solvency statement.

Raffles Corporate Services works with a panel of experienced Singapore law firms who offer cost-effective and efficient legal service and advice. This article is general information only and is not legal advice.

The filing itself is free and processes immediately in Bizfile. That is the easy part, and the part most people worry about. The hard part sits upstream: getting the constitutional authority right, identifying honestly where the money is coming from, and understanding that for a private company the redemption does not legally happen on the day the board resolves. It happens when the Registrar updates the electronic register of members.

Here is the whole sequence and the places companies get caught. If you want the statutory analysis rather than the process, our deep dive on Section 70 takes the provision apart clause by clause.

What a redeemable preference share is, and why the constitution matters so much

A preference share carries a preferential right over ordinary shares, usually to dividends, to capital on a winding up, or both. A redeemable preference share adds one feature: the company can buy it back and cancel it later.

Section 70(1) of the Companies Act 1967 permits a company having a share capital to issue redeemable preference shares only if so authorised by its constitution, and it goes further. Redemption may be effected “only on such terms and in such manner as is provided by the constitution”.

That does two jobs. The constitution must let you issue redeemable preference shares at all, and it must set out the terms and manner of redemption, which you must then follow. If your constitution is silent on when redemption can be triggered, by whom, at what price and on what notice, you do not have a workable redemption right. You have a share class labelled “redeemable” with no mechanism behind it.

This is by far the most common defect we see. Investors negotiate a redemption right into a term sheet, the shares get issued, and nobody amends the constitution to carry the mechanics. Years later the redemption is triggered and the company cannot lawfully do what the shareholders’ agreement promised, which is an expensive problem to fix at the point of exit. Our guide on how to alter a company constitution in Singapore covers putting it right, and the rules on variation of class rights under Section 74 explain why you cannot simply rewrite a preference class without the class’s consent.

The conditions to redeem, in the order they bite

1. The shares must be fully paid up

Section 70(3) is absolute: shares must not be redeemed unless they are fully paid up. There is no solvency workaround and no shareholder approval that cures it. Check the register of members and the allotment records first. Partly paid preference shares are rare but they do exist, particularly where an investor subscribed in tranches and a tranche was never called.

2. Identify the funding source, because it sets the rest of the process

Section 70(4) says the shares must not be redeemed out of the capital of the company unless all the directors have made a solvency statement in relation to the redemption and the company has lodged a copy of that statement with the Registrar. Section 70(5) carves out one route: shares redeemed out of the proceeds of a fresh issue made for the purpose of the redemption are not treated as redeemed out of capital.

The mixed case catches people out. If the fresh issue does not raise the full redemption amount and the company tops up the shortfall from capital, you are in Section 70(4) territory and the solvency statement is required.

3. Follow the constitutional terms exactly

Notice period, redemption price or the formula that produces it, any premium, whether redemption is at the company’s option or the holder’s, and any order of priority between holders. These come from your constitution and the terms of issue, not from the Act. A well-drafted resolution recites each condition and records that it has been satisfied, which is what an auditor, an acquirer or a court will look for later. Our note on board resolutions in Singapore sets out the standard worth applying.

The solvency statement is a personal exposure, not a formality

Where the redemption is out of capital, all the directors must make the solvency statement. Not a majority, not the two who are around that week.

Section 7A of the Companies Act 1967 defines what the statement means. The directors must form the opinion that:

• as at the date of the statement, there is no ground on which the company could be found unable to pay its debts;
• the company will be able to pay its debts as they fall due during the 12 months immediately after that date (or, if a winding up is intended within that period, that it can pay its debts in full within 12 months of the commencement of the winding up); and
• the value of the company’s assets is not less than its liabilities, including contingent liabilities, and will not become less after the redemption.

Contingent liabilities are expressly in scope, as are all other circumstances the directors know or ought to know affect asset and liability values. Directors must have regard to the most recent compliant financial statements and may rely on valuations and estimates that are reasonable in the circumstances.

The form matters too. If the company is exempt from audit requirements, the statement is a written declaration signed by every director. If it is not exempt, it is either such a declaration or it must be accompanied by a report from the company’s auditor stating that the auditor has inquired into the affairs of the company and is of the opinion that the statement is not unreasonable in all the circumstances.

And the sanction is personal. A director who makes a solvency statement without having reasonable grounds for the opinions expressed in it commits an offence under Section 7A(6), punishable by a fine not exceeding $100,000 or imprisonment for up to three years, or both.

That is a criminal exposure attaching to the individual who signed, not a filing penalty. If the company’s position is marginal, get the numbers properly supported before signing. The same discipline applies to reducing share capital by solvency statement, and it sharpens where finances are already strained, as the Park Hotel line of authority on directors’ duties to creditors shows.

Filing the notice of redemption with ACRA

Under Section 70(6), a private company redeems redeemable preference shares by lodging a prescribed notice of redemption with the Registrar, through the share transactions eService on Bizfile. There is no filing fee and approval is immediate. The steps, in order:

1. Pass the board resolution approving the redemption, reciting the constitutional authority, the terms relied on, the funding source and the number and class of shares redeemed.
2. If the redemption is out of capital, have every director sign the solvency statement, with the auditor’s report attached if the company is not exempt from audit requirements.
3. Log in to Bizfile and open the eService for updating share information. Company officers can file directly; a registered corporate service provider can file on the company’s behalf.
4. Select the option to file a notice of redemption of redeemable preference shares.
5. Enter the redemption details and attach the solvency statement where required.
6. Review, declare the accuracy of the information and submit.
7. Check that the electronic register of members reflects the reduced number of preference shares.

Step 7 is not housekeeping. Section 70(7) provides that a redemption by a private company on or after 3 January 2016 does not take effect until the electronic register of members is updated by the Registrar under Section 196A(5). Until then, the holder is still legally the holder.

Public companies differ. Under Section 70(8), a public company that redeems redeemable preference shares must, within 14 days after doing so, give notice to the Registrar specifying the shares redeemed.

What goes wrong in practice

The constitution does not carry the redemption terms. Covered above, and it is the single most common failure. The share class exists, the mechanism does not.

Directors sign the solvency statement on the strength of last year’s accounts. Section 7A(4) requires regard to the most recent compliant financial statements and all other circumstances the directors know or ought to know about. A large customer that went under in March counts, even if the December accounts look healthy.

The redemption is paid before it is filed, and nobody closes the loop. Money moves, everyone treats the matter as done, and the notice is never lodged. For a private company the shares have not actually been redeemed: the former holder remains on the register with whatever rights attach. That is an unpleasant discovery during due diligence.

One director is uncontactable. A statement signed by four of five directors is not a solvency statement under Section 7A. Sequence the signing before you commit to a redemption date.

Redemption is confused with a buy-back. A redemption under the constitution runs under Section 70; a purchase of the company’s own ordinary shares runs under the buy-back provisions with their own thresholds and filings. See our notes on selective share buy-backs and treasury shares.

One useful overlap: redeeming redeemable shares in accordance with the constitution is expressly outside the financial assistance prohibition in Section 76. If the redemption sits inside a wider transaction in which the company also funds somebody’s share acquisition, read our guides on providing financial assistance for share purchases and filing the Section 76 notice to members first.

Frequently asked questions

Do I need shareholder approval to redeem redeemable preference shares?
The Act does not impose a general shareholder approval requirement for redemption. What governs is your constitution and the terms of issue. If those require a members’ resolution or the consent of the preference class, you need it. Check both documents before relying on a board resolution alone.

Can we redeem preference shares if the company has no distributable profits?
Yes, if you fund the redemption out of capital or from the proceeds of a fresh issue of shares made for that purpose. Redemption out of capital requires a solvency statement from all directors and a copy lodged with ACRA. Absence of distributable profits does not by itself block a redemption.

When does the redemption legally take effect for a private company?
Not on the date of the resolution and not on the date of payment. For a private company redeeming on or after 3 January 2016, the redemption takes effect when the Registrar updates the electronic register of members. Until that update, the holder remains the registered holder.

Does a director who disagrees have to sign the solvency statement?
Every director must make the statement for a redemption out of capital, and no director should sign one they do not believe. If a director cannot form the opinion on reasonable grounds, the redemption cannot proceed by that route. Restructure the funding or resolve the underlying concern.

Getting the sequence right the first time

Redemptions are not difficult. They are unforgiving about order. Constitution, then paid-up status, then funding source, then solvency where required, then resolution, then filing, then register check. Skip a step and the defect usually surfaces years later in front of an auditor or a buyer.

Raffles Corporate Services handles share transactions for Singapore private companies end to end: checking whether your constitution actually supports the redemption you have promised, drafting the resolutions and solvency statement, making the ACRA filing, and reconciling your registers afterwards.

You can reach us through Raffles Corporate Services, or read more on Singapore corporate secretarial practice at Singapore Secretary Services. The full text of Section 70 is on Singapore Statutes Online.

— The Editorial Team, Raffles Corporate Services