SGS 21 (Financial Assistance & Acquisitions)

Question 1

Steps in a financial assistance question?

Answer 1

Acquisition of shares 
Identify target 
Financial Assistance (type, form, time) 
Exceptions? 
Consequences?

Question 2

When does the ‘85 act apply and what are the provisions?

Answer 2

Transactions before 1/10/2008.

Prohibition on target, and ANY subsidiaries (but not the BUYER)

Whitewash may have been used to make a transaction lawful (not retrospective), provided the company was PRIVATE.

Question 3

Why is the definition of financial assistance ‘circular’?

Answer 3

Assistance must be given, and it must be financial in nature.

Question 4

What are the consequences of breaching the provisions?

Answer 4

s.680
penalties for company, fine / imprisonment for officer

Possible, following case law that transaction (security) would be void as may wider transaction (share purchase).

Question 5

What is a warranty and what is its purpose?

Answer 5

Contractual statement of fact

Offers contractual protection - the Buyer can sue for breach of warranty (damages) if a warranty is not true.

Warranties force seller to make appropriate checks and inform buyer via disclosure.

Question 6

How can warranties in a schedule be incorporated into the body of an SpA?

Answer 6

They may be a defined term in a clause and the Sellers will warrant that the Warranties are ‘true and accurate’.

Question 7

What is in the disclosure letter?

Answer 7

Sellers qualify any warranties so that they cannot be sued in relation to that fact.

Buyer has a vested interest in keeping the warranties in to force the Seller to disclose information → may allow Buyer to negotiate a better price.

Question 8

What is an indemnity?

Answer 8

Seller promises to reimburse the Buyer in relation to specific liability e.g. any costs that may arise as a result of litigation.

Question 9

What vendor protection clauses are usual?

Answer 9

Time limits (7 years for tax related breaches of warranty, shorter for others - as breaches tend to become apparent within the first 12 months)

Financial limit on amount buyer can claim.

Question 10

How do shares pass to Buyer on Completion?

Answer 10

Each seller signs STF in favour of buyer.

Buyer pays stamp duty

Board of target approves share transfers (MA 26)

New shareholders entered in register of members.