Identifying
Financial Assistance
The Financial Assistance regime is set at section 2J.3 of the Corporations Act 2001 (Cth) (‘Act’). Financial Assistance is the process whereby a company financially assists a person to acquire shares in the company, or its holding company.
The Act sets the regime for managing Financial Assistance when it is identified as a live issue in a transaction.
While there are:
- several exemptions (see section 260(c) of the Act for exempted Financial Assistance); and
- a material prejudice test (see section 260(a) of the Act for the limbs of the Financial Assistance, material prejudice test), what is generally the cleanest and transparent way to resolve a Financial Assistance issue is by a section 260B Whitewash procedure.
However, being an administrative process, which involves compliance with ASIC timing requirements, the Whitewash procedure can impose significant strain on transaction deadlines.
Having a proactive legal team is essential in managing Financial Assistance timing issues when they, invariably, present.
THE MORE EXCITING STUFF (WHEN FINANCIAL ASSISTANCE ARISES)
Financial Assistance is interpreted broadly and is often hiding in plain sight.
It is not limited to circumstances where the subject company provides cash to a purchaser of shares. CXT have confronted Financial Assistance issues where:
- The subject company is providing security over its assets in a debt raising (i.e., convertible note) scenario.
- The subject company is providing security over its assets to facilitate finance approval for a purchaser of shares in the company.
- The subject company is paying a deferred element of the purchase price in a share sale scenario, on behalf of the buyers, direct to the sellers.
Failure to comply with the Financial Assistance procedures under the Act can have consequences for those involved (whether or not that involvement was dishonest).
Identification of a Financial Assistance issue, and management by an appropriately skilled legal team, will avoid adverse implications.
WHERE TO GET THE SOLUTION TO MY FINANCIAL ASSISTANCE PROBLEM?
CXT Legal are experts in mergers and acquisitions, and specialists in identifying and managing Financial Assistance (and, importantly, implementing legal strategies for complying with the regime in a commercial manner).
If you think Financial Assistance is a live issue in your deal, get in touch with our transactions team today.
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