Financial Assistance

Question 1

Which transactions are the rules on financial assistance applicable to?

Answer 1

• Acquisition or sale of shares
• Issue of shares by a company to an investor

Question 2

What is the target company?

Answer 2

The company whose shares are being acquired (whether by transfer or issue)

• in MCQ - be clear on who the Target is (as this concerns whether financial prohibitions apply)

Question 3

Which companies are prohibited from giving financial assistance?

Answer 3

If the target company is a public company, the prohibition applies to:
- The target company itself; and
- Any subsidiary of the target company, whether public or private

If the target is a private company, prohibition applies to:
- Any public company subsidiary of the target company
- It does not apply to the target itself

Question 4

What does giving financial assistance mean?

Answer 4

Financial assistance by way of:
- gift
- guarantee, security or indemnity, release or waiver
- loan
- any other financial assistance

• Can be direct or indirect
• Can be given before, at the same time or after acquisition
• Must be given for the purpose of acquisition

Question 5

What are the exceptions?

Answer 5

• Purpose exception: the principal purpose of financial assistance is not for the purpose of acquisition, or the acquisition is only an incidental part of same larger purpose
• Specific types of transaction are exempt: e.g., dividend payments
  E.g.,
• money lending in ordinary course of business
• assistance in respect of employee share schemes

The conditions for the exceptions are:
i) company giving assistance is private company or
ii) the company giving the assistance is a public company and the net assets of the company are not reduced by giving of assistance

Question 6

What are the consequences of carrying out prohibited financial assistance?

Answer 6

• Assistance is void
• Share purchase may be void
• Criminal offence

Question 7

Proposed acquisition by a public company (X Plc) of shares in a private company (Y Ltd)

• Target is private company

Answer 7

The restrictions do not catch the private company
- Y Ltd can provide financial assistance to X Plc in connection with the acquisition of its shares, providing directors do not breach their statutory duties