What is a financial assistance?
The general rule contained in section 260A of the Corporations Act 2001 (Cth) (Act) is that a company may financially assist a person to acquire shares (or units) in the entity if the giving of assistance does not materially prejudice:
- the interests of the company or its shareholders;
- or the company’s ability to pay its creditors.
If a transaction is determined to be financial assistance, then shareholder approval and the requirements of section 260B must be complied with.
What is a financial assistance whitewash?
Put simply a financial assistance whitewash is a procedure involving shareholder approval by a company passing a special resolution at a general meeting of its members, with no votes being cast in favour of the resolution by the person acquiring the shares or any associates.
If after the completion of the transaction, the Company has an ultimate holding company, then the financial assistance must be approved by a special resolution passed at a general meeting of the ultimate holding company.
Section 260B(4) of the Act contains the requirements for information to accompany the notice of meetings and section 260B(5) contains the requirements as they relate to the documents to be sent to the Australian and Investments Commission (ASIC) before the notice of meeting is sent out.
Consequences of failing to comply
If a company provides financial assistance and fails to comply with section 260A of the Act the validity of the transaction is not affected and the company is not guilty of an offence. That said, any person who is involved in the company’s contravention contravenes section 260A which is a civil penalty provision.
Further information
If you need assistance in complying with your compliance obligations and require a financial assistance whitewash, contact us for an obligation free and confidential discussion.
Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
Telephone: (07) 3221 0013
Fax: (07) 3221 0031
Mobile: 0419 726 535
e: mburrows@dundaslawyers.com.au
Disclaimer
This article contains general commentary only. You should not rely on the commentary as legal advice. Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.
