Contributed By MMC Africa Law
It is necessary for a company to demonstrate commercial benefit before issuing its real estate asset as security for a loan to a third-party company, even if the third-party company is a related company. Where commercial benefit does not exist, the companies are required to enter into a commercial benefit agreement for payment of an agreed fee to the company providing the asset.
Financial assistance relating to the acquisition of real estate assets is not prohibited provided that commercial benefit can be demonstrated.
However, financial assistance in relation to the acquisition of shares in a private company is permitted. Public companies, on the other hand, are prohibited from giving financial assistance for the acquisition of their own shares except where the principal purpose of the financial assistance is not to facilitate the acquisition, or the giving of the financial assistance for that purpose is only incidental to achieving some larger purpose of the company and is given in good faith.
In relation to share acquisitions, if a person is acquiring or proposing to acquire shares in a private company, a public company that is a subsidiary of that company shall not give financial assistance (directly or indirectly) for the purpose of the acquisition before or at the same time as the acquisition takes place. Also, if a person is acquiring or proposing to acquire shares in a public company, neither the company nor any subsidiary of it may give financial assistance (directly or indirectly) for the purpose of the acquisition before or at the same time as the acquisition takes place.