Contributed By Winston & Strawn London LLP
The Companies Act 2006 includes prohibitions on the giving of "unlawful" financial assistance by a public company or its subsidiaries in connection with the acquisition of shares in that public company or acquisition of its English holding company's shares by another person, while there is no whitewash procedure to follow which would enable the provision of financial assistance, and only limited exceptions are available.
Financial assistance includes giving guarantees or security for any acquisition funding. On a debt-financed acquisition of a public company, the target will therefore often be re-registered as a private company and give guarantees or security once it has re-registered. However, to be re-registered it is necessary to acquire a sufficient percentage to de-list and resolve on registration.
Breach of the restriction against unlawful financial assistance can result in criminal sanctions, including fines and possibly imprisonment of directors and officers of the offending company. Security taken from a company in contravention of the financial assistance restrictions will be void.
The statutory financial assistance rules do not apply to the acquisition of private companies.