Financial Assistance Flashcards
What is the purpose of financial assistance rules?
A. To prevent the misuse of company funds during share acquisitions
B. To encourage investment in public companies
C. To simplify takeover procedures
D. To provide tax relief for investors
A. To prevent the misuse of company funds during share acquisitions
Explanation: The rules protect company assets and prevent capital being misused during share purchases, especially by public companies.
Under s678 CA 2006, who is prohibited from giving assistance?
A. The parent company of the target
B. Private companies not in a group with a public company
C. The target’s director
D. The public target company and its subsidiaries
D. The public target company and its subsidiaries
Explanation: If the target is a public company, the target and all its subsidiaries (regardless of type) are prohibited from giving assistance.
Which of the following is NOT financial assistance under s677 CA 2006?
A. A direct loan to the share buyer
B. A guarantee for a loan used to buy shares
C. A dividend payment from distributable profits
D. A release of a debt owed by the share purchaser
C. A dividend payment from distributable profits
Explanation: Dividends paid lawfully from distributable profits are expressly excluded under s681 as unconditional exemptions.
What makes a transaction financial assistance?
A. It involves money or assets to support the share acquisition
B. It is a gift from one shareholder to another
C. It benefits the director personally
D. It delays payment for shares
A. It involves money or assets to support the share acquisition
Explanation: The core definition under s677 is that assistance must be financial in nature and support the acquisition of shares.
What is the effect of breach of s678 CA 2006?
A. Criminal liability and transaction may be void
B. Directors lose voting rights
C. The shares are forfeited
D. The buyer must return any gains
A. Criminal liability and transaction may be void
Explanation: Breach can result in fines or imprisonment under s680, and the transaction may be rendered void.
How can pre-emption rights be disapplied under s570 CA 2006?
A. By agreement between directors
B. By special resolution of shareholders
C. Automatically if issuing to employees
D. They cannot be disapplied
B. By special resolution of shareholders
Explanation: Statutory pre-emption rights under s561 CA 2006 can be disapplied by a special resolution under s570.
Which is an unconditional exemption from financial assistance?
A. Dividend payment from profits
B. Selling treasury shares
C. Loan to a director
D. Support for share scheme
A. Dividend payment from profits
Explanation: Dividends from distributable profits are unconditional exemptions under s681 CA 2006.
Does giving a gift to assist with a share purchase count as financial assistance?
A. Yes, it is explicitly included under s677(1)(a)
B. No, gifts are not financial in nature
C. Only if the gift is from a director
D. Only if the gift exceeds £10,000
A. Yes, it is explicitly included under s677(1)(a)
Explanation: Financial assistance includes gifts given for the purpose of helping someone acquire shares.
Can directors authorise unlawful financial assistance if shareholders approve?
A. Yes, with unanimous shareholder approval
B. No, criminal penalties still apply
C. Only in private companies
D. Yes, if the company is solvent
B. No, criminal penalties still apply
Explanation: Shareholder approval does not override the statutory prohibitions. The company and officers may still face penaltie
What does s681 CA 2006 address?
A. Definition of equity securities
B. Unconditional exemptions
C. Conditional exemptions
D. Role of shareholders in acquisitions
B. Unconditional exemptions
Explanation: Section 681 CA 2006 lists exemptions that apply regardless of circumstances, such as dividends or share redemptions in certain cases.
When does financial assistance arise in a share issue?
A. Always
B. When a public company issues shares for cash
C. When a company finances an investor’s purchase
D. Never
C. When a company finances an investor’s purchase
Explanation: Financial assistance occurs when a company helps someone acquire its shares financially, whether by loan, guarantee, etc.
What is needed for conditional exemption under s682 CA 2006?
A. Board approval
B. Written shareholder agreement
C. That the assistance is out of distributable profits or does not reduce net assets
D. The approval of the FCA
D. The approval of the FCA
Explanation: For some conditional exemptions, companies must meet asset or distributable profits conditions — but FCA approval is required in other financial promotions contexts, not financial assistance.
