International Law

Financial assistance by a company to assist buying shares in the company

Financial assistance by a company to assist buying shares in the company is allowed under the conditions set out in s260A(1) ie if it does not materially prejudice the company or its members or its ability to pay creditors or it is approved by shareholders under s260B or it is exempt under s 260C

It is also necessary to comply with chapter 2E CA, if there is the provision of a financial benefit to a director: s 208(1) CA

But there is no definition of "financial assistance" and it usually involves an analysis of the transaction in question to determine whether it involves a net transfer of value to the person acquiring shares .

These provisions were considered earlier this year in Kinarra Pty Ltd & Anor v On Q Group Limited [2008] VSC 12. Kinarra failed to prove that a transaction by which On Q issued shares to IPay as part of a licensing and joint venture arrangement involved financial assistance prohibited by the Act.

The judge decided that On Q had proved that the transaction did not provide financial assistance to IPay to acquire shares in On Q. "If I am wrong about the financial assistance, I find that On Q has made out the defence that the financial assistance will not materially prejudice the company or its shareholders."

Full post as published by Australian Regulatory Compliance Review on July 13, 2008 (boomark / email).