Repeal of restrictions on financial assistance for acquisition of own shares including the “whitewash procedure”
With effect from 1st October 2008 the Companies Act 2006 (“the Act”) prohibits a private company from providing financial assistance for the purchase of its own shares or in its holding company.
A public company is still prohibited from providing financial assistance for the acquisition of shares in its private holding company. Where a private company has a subsidiary which is a public company, the public company must not assist the acquisition of shares in the private holding company.
The Companies Act 1985 prohibited a company from granting financial assistance directly or indirectly for the acquisition of shares in itself or its holding company. The old Companies Act 1985 contained an exception for private companies to grant such financial assistance by going through a complex and expensive procedure, often referred to as ‘whitewash’. This was an expensive, time consuming and cumbersome exercise involving various professional advisers.
Under the Act, the prohibition on granting financial assistance will be wholly lifted for private companies but will remain in place for public companies as indicated above.
These changes mean that where financial assistance is given on or after 1st October 2008, companies will no longer need to go through the whitewash approval procedure or process. Companies will also no longer be required to obtain an Accountants Report or file the following declarations or forms:
- 155(6)a - Declaration in relation to assistance for the acquisition of shares;
- 155(6)b - Declaration by directors of a holding company in relation to assistance for the acquisition of shares;
- 157 - Notice of application made to the court for the cancellation of a special resolution regarding financial assistance (for the acquisition of shares).
What Companies should do:
Companies should put in place procedures to ensure that directors consider the appropriate factors as provided by the Companies Act 2006 when resolving to authorise transactions involving financial assistance. The process should be documented properly in Board Minutes following consideration in a Board Meeting. Equity and debt providers should also consider whether to require additional protection and assurances to replace the protection previously afforded by a whitewash.
For further details on this topic, please contact a member of the Corporate Team http://www.sheridans.co.uk/services/corporate.asp.
Issued November 2008.
