When Do Break Fees Constitute Unlawful Financial Assistance?

In its decision in Paros Plc v Worldlink Group Plc1, the High Court considered whether break fees in heads of terms constitute unlawful financial assistance.


ParOS plc (ParOS) and Worldlink Group plc (Worldlink) were in negotiations with a view to undertaking a reverse takeover, that is, the unquoted Worldlink was proposing to acquire the larger AIM-quoted ParOS with the result that the shareholders of Worldlink would become majority shareholders in ParOS. ParOS and Worldlink entered into heads of terms in respect of the proposed reverse takeover. Some provisions of the heads of terms were intended to be legally binding whereas others were intended not to be legally binding:

The non-binding provisions of the heads of terms stipulated that Worldlink would re-register as a private company as soon as possible and ParOS would acquire the entire issued share capital of Worldlink. The binding terms provided (among other things) that Worldlink would pay ParOS a break fee which amounted to ParOS's costs and fees in the transaction. The intention behind the proposed re-registration of Worldlink as a private company was that it could then, once re-registered, lawfully give financial assistance to ParOS in connection with the share acquisition as the prohibition in the Companies Act 2006 on the giving of financial assistance only applied to public companies. However, the structure of the transaction changed later in the negotiations: Rather than providing for Worldlink to re-register as a private company (and thereby avoid the statutory prohibition on the giving of financial assistance), the parties attempted to achieve the same result by structuring the transaction as an asset rather than a share acquisition. No other provisions of the heads of terms were varied.


The court had to consider if the break fee constituted unlawful financial assistance. The Companies Act 2006 prohibits:

a UK public company from giving financial assistance for the purpose of the acquisition of its shares or those of a parent company, and a UK private company from giving financial assistance for the purpose of the acquisition...

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