UK financial assistance: Rogue's charter

Author: | Published: 1 Dec 2006

The UK Companies Act 2006 will abolish the prohibition on private companies giving financial assistance and remove the whitewash procedure (by October 2008, on the current timetable). However, the financial assistance rules will still apply to public companies, at least to some extent. It seems that the worst fears of the Law Society and practitioners will not now come to pass, but an opportunity to clarify the remaining legal uncertainties in this area might have been missed. The unpopularity of the existing rules has resulted in their demise, but what about the misconduct they were designed to prevent?

The prohibition Section 151 of the Companies Act 1985 prohibits a UK company (and any of its UK subsidiaries) from giving guarantees, granting security or otherwise using its assets to support the purchase of its own or its UK holding company's shares. This prohibition is a part of general body of rules designed...