Financial Assistance

Question 1

What does the term ‘financial assistance’ refer to?

Answer 1

A company providing financial assistance for the purchase of its own shares

Financial assistance can include various forms such as loans, guarantees, or gifts.

Question 2

What change did CA 2006 implement regarding financial assistance?

Answer 2

Removed the prohibition in relation to private companies - this means private companies can provide financial assistance under certain conditions.

Question 3

Who is prohibited from providing financial assistance under s678?

Answer 3

Both public companies and their private limited subsidiaries

This prohibition includes assistance for purchasing shares in the public company.

Question 4

What does s679 prohibit?

Answer 4

Public companies from providing financial assistance for the purchase of shares in their private limited holding companies

This rule helps maintain financial integrity within corporate structures.

Question 5

What are the forms of financial assistance?

Answer 5

• Gift
• Guarantee
• Loan
• Security
• Indemnity
• Release
• Waiver

Financial assistance can be given before or after the acquisition.

Question 6

Under what conditions is financial assistance allowed?

Answer 6

• Unconditional exceptions (Section 681)
• Conditional exceptions (Section 682)

Unconditional exceptions often relate to share redemption or capital reduction.

Question 7

What are the conditions for conditional exceptions under Section 682?

Answer 7

• Company has assets
• Assets are not reduced by the assistance
• Assistance is provided out of distributable profits if assets are reduced

This ensures that the company’s financial stability is not compromised.

Question 8

What is the larger purpose defense in relation to financial assistance?

Answer 8

Financial assistance is not prohibited if it is incidental to a larger purpose of the company

This allows for flexibility in financial operations as long as the principal purpose is not share acquisition.

Question 9

What are the consequences of violating financial assistance regulations?

Answer 9

Transaction will be held void and directors liable to a fine and/or two years in prison

This emphasizes the seriousness of adhering to financial assistance laws.