Did Edwin Tong fail to safeguard S$2 billion in surplus during NTUC Income’s corporatisation?

As scrutiny intensifies around the halted deal between Allianz Europe B.V. and Income Insurance Limited, a significant question has emerged regarding a critical decision made by Mr Edwin Tong, Minister for Culture, Community and Youth, back in 2022.

The spotlight so far has focused on NTUC Central Committee’s claim that they were unaware of the capital extraction clause in the proposed Allianz deal, a revelation that has drawn widespread criticism.

However, a deeper issue appears to have been overlooked: why did Mr Tong, who is also a Senior Counsel, allow NTUC Income’s surplus of S$2 billion to be transferred without setting conditions to protect the funds and ensure their use for social purposes?

NTUC Income, a long-standing co-operative under the NTUC umbrella, had a history of providing affordable insurance and financial services to underserved communities.

In 2022, it was corporatised to become Income Insurance Limited, a move intended to help the organisation gain access to capital and compete more effectively in the insurance sector.

As part of the corporatisation, NTUC Income sought and was granted an exemption from Section 88 of the Co-operative Societies Act (CSA), which would have otherwise required surplus funds to first cover liquidation costs and liabilities, followed by distribution to shareholders.

Any remaining surplus would typically be transferred to a central account benefiting the broader co-op sector.

Mr Tong, in his role as Minister for Culture, Community and Youth, approved this exemption, allowing S$2 billion in surplus funds to be transferred to the new corporate entity.

However, it appears no explicit conditions or safeguards were imposed on how these funds could be used, as revealed by the now-cancelled Allianz deal with Income.

This decision has come under scrutiny because, without specific conditions tied to the exemption, the S$2 billion surplus was left unregulated, potentially allowing it to be used for purposes other than Income’s stated social mission.

In his 14 October speech, Minister Edwin Tong explained that the exemption was granted because NTUC Income was not ceasing operations but merely changing its legal form to a corporate entity. According to Mr Tong, the surplus was necessary to strengthen Income’s capital base and financial adequacy to remain competitive in the insurance industry.

He justified the exemption by stating that NTUC Income would continue its business under a new corporate structure, with the assurance that its social mission would be maintained. This rationale was based on representations made by NTUC Income to MCCY, asserting that the surplus was integral to supporting its future operations and social objectives.

However, the exemption is now the reason why the government, through the Ministry of Culture, Community and Youth (MCCY), ultimately halted Allianz’s Pre-Conditional Voluntary General Offer to acquire Income in July 2024, after reviewing the transaction and finding that it included a capital reduction plan which would see Income return S$1.85 billion to shareholders within three years of the acquisition’s completion.

This projected capital extraction raised concerns, particularly as it contradicted the rationale given by NTUC Income during the corporatisation process, which emphasised the need to build up a stronger capital base.

The S$2 billion surplus was initially carried over to help support Income’s growth and social mission, but the capital reduction plan revealed that a substantial portion of the surplus could have been diverted away from its intended purpose.

The abrupt halt to the Allianz deal, coupled with the government’s urgent push to amend the Insurance Act to allow withholding of approval for the proposed transaction, prompts a closer look at why NTUC Income was granted the exemption from Section 88 in the first place.

Additionally, it raises questions as to why no conditions appear to have been imposed on the surplus funds carried over.

Had conditions, such as ringfencing the surplus for NTUC Income’s social objectives, been set during the corporatisation in 2022, the government may not have needed to intervene at such a late stage to block the Allianz deal.

In Parliament on 16 October 2024, Workers’ Party MP He Ting Ru directly questioned Mr Tong about whether there had been any conditions placed on the S$2 billion surplus when it was carried over during the corporatisation.

Mr Tong’s response offered no clarity on whether any such restrictions were imposed.

This has raised legitimate concerns, especially given Mr Tong’s legal background, as to why this significant amount of money was not regulated or ringfenced for uses aligned with Income’s social mission.

Before entering politics, Edwin Tong was a Senior Counsel at the law firm Allen & Gledhill, specialising in complex corporate disputes and international arbitration.

His legal expertise was widely respected, and his appointment as Senior Counsel in 2015 underscored his stature in the legal field. One landmark of his professional career was representing City Harvest Church pastor Kong Hee in a long-running misappropriation of funds case.

Given this background, it is perplexing that Mr Tong, when overseeing NTUC Income’s corporatisation as MCCY minister, did not anticipate the need for specific conditions to ensure that the surplus would be used to further the social mission of the organisation.

Ultimately, the decision to grant the exemption without stipulating how the surplus would be used could have opened the door to the type of capital extraction that was proposed in the Allianz deal.

This situation now raises a critical question: Did Mr Tong allow the exemption to pass with minimal scrutiny because NTUC Income is affiliated with NTUC, a labour movement closely linked to the People’s Action Party, or was this a failure of competence on the part of a seasoned lawyer?

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