ECDA Key Appointment Holder Change in a Childcare Share Sale

Who counts as a key appointment holder under ECDA rules?

A key appointment holder (KAH) is anyone on the licensee's governing board, any partner of the licensee, and anyone else who has general management or supervision of the centre's business.

The definition comes from section 2 of the Early Childhood Development Centres Act 2017 and is repeated in s3.5.3 of ECDA's Code of Practice for Operators. It covers:

• a member of the board of directors, committee, board of trustees or other governing board of the licensee;
• a partner of the licensee, where the licensee is a partnership;
• any other person, "by whatever name called", who has general management or supervision of the business of the centre. The Code explains this as anyone who will make decisions on matters such as expansion or cessation of the business, changes in fees or relocation.

The definition does not list shareholders as such. A buyer who only holds shares is not automatically a KAH, but a buyer who joins the board or takes over general management is one. In most owner-operated centres the buyer does both, so a share sale almost always involves a KAH change.

Why does a share sale trigger a KAH change and not a licence transfer?

In a share sale the licensee company does not change, so the licence stays where it is and only the people running the company change.

The licence belongs to the legal entity named on it. When a buyer purchases the shares of that entity, the entity, its Unique Entity Number (UEN) and its licence all stay the same. What changes is who sits on the board and who manages the centre. Regulation 20(2) of the Early Childhood Development Centres Regulations, quoted at s3.5 of the Code, requires a licensee that is not an individual to notify the Chief Licensing Officer (CLO) and the parents of enrolled children in writing at least 1 month before any change in its board, committee, trustees or partners.

Compare that with an asset sale, where the buyer's own company becomes the licensee and the 3-month transfer process in s3.3 applies. Our guide to the ECDA transfer of licence covers that route in full.

The trade-off is well known to buyers: the share route is shorter on notice, but the buyer inherits the company's history, so due diligence has to be thorough. Our guide to methods of a takeover sets out the commercial pros and cons of each route.

What exactly must be submitted under s3.5.5?

The licensee must give at least 1 month's written notice to parents and the CLO and send ECDA a set of documents covering the letter, the corporate change, the new KAHs and the communication plan.

All notifications on a change of KAHs must be made by the licensee itself (s3.5.1), which in a share sale means the company, acting through its existing board before completion. Section 3.5.5 lists the requirements:

Note the last line. The outgoing directors stay on the hook to answer ECDA's questions about the change, so sellers should expect to remain contactable after completion.

When does a KAH change become a transfer of licence?

A KAH change becomes a transfer when it also changes who the licensee is, and then the full s3.3 process applies.

Section 3.5.4 of the Code says the inclusion or removal of KAHs "may or may not effect a change in the licensee, and/or the status / type of the legal entity and/or the UEN", and that should there be a change in the licensee, an application for a transfer of licence must be submitted. Section 3.7.3 says the same about a change in the licensee's name.

Section 3.3.1 also defines a transfer widely, to include any transfer of any right, benefit or privilege under the licence to another person, whether or not the UEN or the name or type of legal entity changes. A deal that combines a share sale with a restructure, such as moving the centre into a new holding structure, a change of entity type, or the buyer's group taking over operations through a different company, should therefore be checked with ECDA before the parties commit to a 1-month timetable.

Who can be a key appointment holder?

A new KAH must not fall within the disqualifications in section 19 of the Act unless the CLO consents in writing.

Section 19(1) says a person must not act as a KAH for any licensee without the CLO's written consent if, among other things, the person:

• has been convicted of an offence under the Act, or of an offence involving dishonesty, in Singapore or elsewhere;
• has been convicted of a prescribed offence;
• is or has been a director of, or directly concerned in managing, a centre whose licence was refused or revoked;
• has been refused approval to be deployed at a centre, or had that approval cancelled (other than because the centre ceased to exist);
• does not satisfy any prescribed criteria for a KAH.

The self-declaration form covers offences, warnings and financial capacity, so a buyer should check its own position, and that of any co-investor who will join the board, before signing.

What does a share sale timeline look like?

The ECDA notice period is 1 month, but other consents can take longer, so the ECDA step is rarely the only thing setting the completion date.

HDB premises need particular care. HDB's published terms for its commercial tenants say a tenant must not make a substantial change in its shareholding without HDB's prior written consent, and that if the shareholders at the start of the tenancy (and their next of kin) keep less than 51% of the shares, HDB deems this a substantial change that counts as an assignment of the tenancy. Read the centre's own tenancy agreement and get HDB's position in writing before relying on a share sale. Our guide to HDB childcare centre takeovers sets out what HDB publishes.

How Edugrow helps with a share sale

Edugrow has advised on 70+ education business transactions since 2014, including share sales and asset sales of licensed preschools. We help sellers and buyers choose the structure that fits the centre's premises and history, prepare the ECDA notices and parent communication with the parties, and coordinate the landlord and HDB steps so that the 1-month KAH notice is not the only date anyone is watching. If you are thinking about selling, see our sell-side service; if you want to buy, register as a buyer.