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What Does It Mean to Get Financial Assistance Whitewash?

In Short

  • Under the Corporations Act 2001 (Cth), a company cannot provide financial assistance for someone to acquire its shares unless it doesn’t materially prejudice the company or its shareholders, the assistance is exempted, or shareholders approve it.
  • Shareholder approval requires a special resolution at a general meeting, excluding votes from the acquiring party and their associates.
  • The approval process involves preparing a meeting notice, obtaining directors’ consent, lodging documents with ASIC, notifying shareholders, holding the meeting, and filing final documents before providing the assistance.

Tips for Businesses

Ensure compliance with the Corporations Act when considering financial assistance for share acquisitions. Follow the outlined steps meticulously, including obtaining proper shareholder approval and lodging necessary documents with ASIC, to avoid legal complications. Consult legal professionals to navigate this process effectively.


Table of Contents

A company that provides financial assistance to facilitate the acquisition of its shares or those of its holding company should consider getting a ‘financial assistance whitewash’. This article outlines the steps a non-listed company must take to secure shareholder approval for a financial assistance transaction.

What is financial assistance whitewashing?

The financial assistance regime in Australia is governed by the Corporations Act (the Act). Under Section 260A of the Act, a company may provide financial assistance to a person acquiring shares in that company (or its holding company) only under specific conditions:

  • the financial assistance must not materially prejudice the interests of the company or its shareholders, nor should it impair the company’s ability to pay its creditors. This should be confirmed by the board of directors;
  • the company must obtain approval from its shareholders in accordance with Section 260B of the Act. This process, known as the Whitewash Procedure, involves getting formal consent from the shareholders for financial assistance; and
  • an exemption specified in Section 260C of the Act must apply, allowing financial assistance without breaching the regulatory requirements.

Ultimately, companies can proceed with financial assistance if their shareholders pre-approve the financial assistance transaction in question.

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How Must Shareholders Give Approval?

When it comes to financial assistance, the company must receive shareholder approval by:

  • a special resolution passed at a general meeting of the company. The person who is acquiring the shares (or units of shares) cannot cast a vote in favour of the resolution (or have an associate vote in favour on their behalf); or
  • a resolution agreed to by all ordinary shareholders at a general meeting. For a special resolution to pass, at least 75% of the votes cast by shareholders must be in favour of the resolution.
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What is the Process of Obtaining Shareholder Approval?

If you are a non-listed company, you should follow these steps to obtain shareholder approval for financial assistance. Additionally, it is important to note that your company’s constitution and shareholders agreement may have further requirements you need to fulfil.

1. Prepare a Draft Notice of the General Meeting

Firstly, the notice of the general meeting must include the resolutions the shareholders should consider at the general meeting. It should also note the:

  • date;
  • time;
  • place; and
  • instructions for members to appoint a proxy if required.

Furthermore, the notice should have an explanatory statement. This statement sets out the information the company has that is important for the shareholder to make an informed decision about whether to vote in favour of the resolution approving financial assistance.

You should include in the statement:

  • the nature of the financial assistance;
  • the reason for the financial assistance;
  • the effect of the financial assistance on the financial position (including its ability to pay creditors); and
  • any other matters known to the company that are relevant to the provision of financial assistance. 

2. Directors Approve the Draft Notice of the General Meeting

The directors of the company then need to have a board meeting or sign a circular resolution, considering whether:

  • the financial assistance falls under the scope of other financial assistance exemptions, and therefore shareholder approval is required;
  • to approve the draft notice of the general meeting and explanatory statement; and
  • to agree to convene the general meeting. This can either be called on short notice if the members agree or with 21 days’ notice. 

3. Lodge Financial Assistance Documents with ASIC

In addition, the company must lodge the notice of the general meeting and explanatory statement, along with the Form 2602, with ASIC.

The purpose of this form is to provide the details of financial assistance for acquiring shares in the company. This form must be lodged at least 22 days before the financial assistance is granted.

4. Send the Notice of the Meeting to Shareholders

Once you have lodged a Form 2602 with ASIC, you should send the notice of the general meeting and explanatory statement to the shareholders.

When calling the meeting of members, you must check your company’s constitution to ensure that you follow the correct process and provide the required notification period. 

Generally, the company must give at least 21 days notice of a meeting unless the constitution specifies otherwise. If your company does not have a constitution in place, the Corporations Act provides that a meeting of members may be called by a director.

The notice must set out:

  • the place, date and time of the meeting;
  • the general nature of the business that will be conducted at the meeting;
  • any special resolutions;
  • details for appointing proxies (a ‘stand-in’ for a member who is unable or does not wish to attend a meeting).

You must also provide the required documents to shareholders within 21 days notice of the meeting or with short notice if the members agree.

5. Hold the General Meeting

When you have completed the above preparation, you can then hold the meeting itself. At the general meeting, the shareholders convene and vote on whether to approve the financial assistance.

6. Lodge Final ASIC Documents

Once the meeting has taken place, if the shareholders approve the transaction, the company must lodge with ASIC:

  • a Form 2205, with a copy of the relevant resolution approving the financial assistance attached, within 14 days of the resolution being passed; and
  • a Form 2601, specifying that the financial assistance has been approved at least 14 days before the financial assistance is to be given.  

7. Provide Financial Assistance

Finally, the company can proceed with the transaction involving financial assistance 14 days after it has lodged a Form 2601 with ASIC.

Key Takeaways

If your company is considering providing financial assistance, it needs to get financial assistance to whitewash or, in other words, shareholder approval. Therefore, you need to have an understanding of your obligations under the financial assistance provisions in the Corporations Act. It is essential to prepare a comprehensive draft notice of the general meeting, including all necessary information and an explanatory statement. Directors must approve these documents before lodging them with ASIC and sending them to shareholders. Proper adherence to the outlined process ensures compliance and successful acquisition of the required approval to proceed with financial assistance.

If you are not sure what to do to get financial assistance for whitewashing, our experienced business and commercial lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What documents need to be lodged with ASIC for financial assistance approval?

The company must lodge several documents with ASIC, including:
– the notice of the general meeting and explanatory statement;
– form 2602 (details of financial assistance) at least 22 days before the assistance is granted; and
– form 2205 (resolution approving financial assistance) and Form 2601 (confirmation of approval) after the shareholder meeting.

How do shareholders approve financial assistance?

Shareholders can approve financial assistance by passing a special resolution with at least 75% of votes in favour at a general meeting, where the person acquiring the shares (or their associate) cannot vote in favour. Alternatively, they can reach a unanimous agreement at a general meeting of all ordinary shareholders.

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Nadine Martino

Nadine Martino

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