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 a confidential and obligation-free discussion:
Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
T: +61 7 3221 0013 (preferred)
M: +61 419 726 535
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.
Related insights about corporate law
-
Bullying in the workplace by a body corporate
This investigation reveals the legal implications of workplace bullying in a body corporate. Find out what the Obligations of Reasonableness and the Fair Work Act 2009 (Cth) mean for workers and how to apply for an order to stop the bullying.
-
Director’s duties – the case of MG Corrosion Consultants PL v Gilmour
The case of MG Corrosion Consultants Pty Ltd v Gilmour [2014] FCA 990 serves as a reminder of the need for Directors to uphold their obligations under the Corporations Act 2001 (Cth). Uncover the Courts findings and the implications for Directors.
-
What exactly is a bare trust?
This article explores the taxation implications of setting up a Bare Trust, from income tax to capital gains tax and beyond. Learn more about the duties of a Trustee and the considerations to keep in mind when creating a Bare Trust.
-
Director Identification Numbers – more red tape?
Treasury Laws Amendment Bill proposes a Director Identification Number (DIN) regime to create transparency, detect illegal phoenix activity, and provide streamlined system for liquidators/administrators. Consultation closes 26 Oct 2018.
-
Diversion of the corporate opportunity doctrine
Directors have a legal responsibility to act in the best interests of the company and its shareholders. This article explores how Directors can pursue opportunities for personal gain without breaching their duties, as well as other related topics such as directors’ duties and liabilities.
-
Safe Harbour protects proactive Directors not merely ‘living in hope’
From 1 July 2018, directors of financially challenged companies have a defence against breaching Section 588G(2) of the Corporations Act 2001 (Cth). However, directors must take proactive steps to assess the financial position and implement a rescue strategy when first suspecting insolvency.
-
De-encryption laws: compelling tech giants to cooperate with law enforcement
The Australian Government is introducing encryption-related legislation that could have significant implications. Get the full scoop on what this Bill could mean for companies and citizens before it is officially announced.
-
Director’s personal liability – misleading & deceptive conduct
Directors: prevention is cheaper than cure! Explore ways to ensure your corporation doesn’t engage in misleading or deceptive conduct under the Australian Consumer Law (ACL). Take active steps to protect yourself from personal liability.
-
What exactly is a term sheet?
Term sheets can be a powerful tool when negotiating a commercial agreement. Learn more about what they are, how they work, and when to use them.
