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What Does it Mean to Get Financial Assistance Whitewash?

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The financial assistance provisions in the Corporations Act 2001 (Cth) prevent a company from financially assisting a person acquiring shares in the company or a holding company unless:

  • the financial assistance does not materially prejudice the interests of the company or its shareholders, or the company’s ability to pay its creditors;
  • the assistance is an exempted dealing set out in the Corporations Act. For example, the company is providing a lien on partly-paid shares, or the company is a bank providing a loan in its ordinary course of business; or
  • shareholders approve the assistance.

Ultimately, if shareholders approve a financial assistance transaction, the company has obtained “financial assistance whitewash”. This article outlines what a non-listed company needs to do to obtain shareholder approval to proceed with a financial assistance transaction.

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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.

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 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 company’s financial position (including its ability to pay creditors); and
  • any other matters known to the company that are relevant to the provision of the 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 a Form 2602, with ASIC.

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.

Furthermore, these documents must be provided to shareholders with 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.

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Key Takeaways

If your company is considering providing financial assistance, it needs to get financial assistance 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.

If you are not sure what to do to get financial assistance whitewash, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.

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