ABA Section of Business Law
ABA Section of Business Law
Business Law Today
March / April 2000
The Companies Act on buyout transactions
Section 151 of the Companies Act states:
…[W]here a person is acquiring or proposing to acquire shares in a company, it is not lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of that acquisition before or at the same time as the acquisition takes place… .
[W]here a person has acquired shares in a company and any liability has been incurred (by that or any other person), for the purpose of that acquisition, it is not lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of reducing or discharging the liability so incurred.
"Financial Assistance" in the Companies Act is defined to mean, among other things:
• Financial assistance given by way of gift;
• Financial assistance given by way of guarantee, security or indemnity;
• Financial assistance given by way of a loan or other agreement under which any of the obligations of the person giving the assistance are to be fulfilled at a time when, in accordance with the agreement, any obligation of another party to the agreement remains unfulfilled;
• Any other financial assistance given by a company the net assets of which are thereby reduced to a material extent or which has no net assets.
