Past its prime

Author: | Published: 1 Sep 2007

The evolution of financial assistance restrictions offers an excellent paradigm of a good law gone bad. What started out as a perfectly reasonable rule to protect creditors by requiring companies to maintain adequate capital, gradually accreted into an expansive set of restrictions covering almost all forms of upstream financial support in the context of the acquisition of shares in a company or its holding company, often without exception.

Financial assistance is a concept commonly encountered in Commonwealth and civil law European countries, and refers to legal prohibitions on assistance provided by a company for the purchase of its own shares or the shares of any of its holding companies. Modern rules on financial assistance are often sweeping, prohibiting the provision of any financial assistance by a company in connection with a share acquisition, and subject to few, if any, exceptions. Where assistance is provided in breach of applicable law, not...