Summary
- Under Section 260A of the Corporations Act 2001 (Cth), a company may only provide financial assistance for the acquisition of its own shares (or those of its holding company) if the assistance does not materially prejudice the company or its creditors, shareholder approval is obtained through the whitewash procedure, or a statutory exemption applies.
- Shareholder approval requires either a special resolution passed by at least 75% of votes at a general meeting (excluding votes by the person acquiring the shares) or unanimous agreement of all ordinary shareholders, with the notice of meeting and explanatory statement lodged with ASIC at least 22 days before the assistance is granted using Form 2602.
- Following shareholder approval, the company must lodge Form 2205 within 14 days of the resolution and Form 2601 at least 14 days before the financial assistance is provided, meaning the company cannot proceed with the transaction until all ASIC lodgement requirements are satisfied.
- This article is a guide to the financial assistance whitewash procedure for non-listed companies in Australia, explaining the shareholder approval process and ASIC lodgement requirements under the Corporations Act 2001 (Cth).
- LegalVision is a commercial law firm that specialises in advising clients on corporate law and commercial transactions.
Tips for Businesses
Begin the whitewash process well in advance of the intended transaction date, as ASIC lodgement and notice periods mean the process takes at least 22 days before assistance can be granted. Ensure the explanatory statement clearly sets out the nature, reason, and financial effect of the assistance to support informed shareholder voting. Review your company constitution and shareholders agreement for any additional approval requirements beyond those prescribed by the Corporations Act.
A company that provides financial assistance to facilitate the acquisition of its own shares, or those of its holding company, must follow a specific approval process under the Corporations Act 2001 (Cth). Getting this process right, known as a financial assistance whitewash, is essential to avoid breaching the Act. 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.
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Frequently Asked Questions
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.
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.
Generally, at least 21 days’ notice is required, unless the company’s constitution specifies otherwise or members agree to short notice. The Form 2602 must also be lodged with ASIC at least 22 days before assistance is granted.
The statement must cover the nature and reason for the financial assistance, its effect on the company’s financial position including ability to pay creditors, and any other matters relevant to shareholders making an informed voting decision.
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