Financial assistance is when a company helps a person with the purchase of its own shares or the shares of its holding companies. The assistance can be given by:
- Lending money to a person to buy the shares.
- Guaranteeing a loan by a third party to a person (the borrower) who uses the loan to buy the shares.
Conditions for private and public companies to lend financial assistance
Private companies may provide financial assistance to a person for the acquisition or proposed acquisition of shares in a company which does not have a holding company, or where the holding or ultimate holding company is not a public company.
A public company and its subsidiary may help a person to acquire shares in the company or its holding or ultimate holding company if all the following conditions are met.
- The giving of such assistance falls under sections 76(8) and 76(9) of the Companies Act.
- The company’s members and board of directors approve this move.
- The assistance does not materially prejudice the interests of the company or its shareholders.
- The assistance does not affect the company’s ability to pay its creditors.
Special resolution for financial assistance
Before the company can proceed with giving financial assistance, its board of directors must pass a resolution stating all of the following:
- The company should give the financial assistance.
- The terms and conditions of the financial assistance are fair and reasonable to the company.
- The grounds for providing such financial assistance.
After the resolution is passed, the company must file a “Notice to Member on giving Financial Assistance under S76(9A)/S76(9B)/S76(10)(E)” transaction via BizFile+.