Certain companies are prohibited from providing financial assistance, directly or indirectly, for the acquisition of their own shares or shares in their holding company.
The prohibitions are contained in Chapter 2 of section 677 of the Companies Act 2006 (CA 2006).
This Practice Note explains:
- •
the situations in which prohibitions on financial assistance apply, and
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other rules of law which must be considered where financial assistance is being offered to a purchaser of shares in the company providing the assistance
The financial assistance regime under the Companies Act 1985 (CA 1985) differed in significant ways from the current regime. This Practice Note covers the current regime. For information on the pre-CA 2006 regime, see Practice Note: Financial assistance—fundamentals—How does the CA 2006 prohibition on the giving of financial assistance differ from that which existed under CA 1985?.
Why prohibit financial assistance?
In the context of the CA 2006, financial assistance refers to assistance given by a company to an entity purchasing shares in that company or its holding company. Commonly, financial assistance could take the form
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