Financial Assistance IBA Corporate And M&A Law Committee 2017

INTRODUCTION

This note provides a guide to the prohibition in Irish law against a company providing assistance for any acquisition of its own shares. It begins by setting out the scope of the prohibition before providing a list of transactions that are not prohibited. It explains the summary approval procedure ("SAP") that can be used to validate financial assistance given by a private company. Finally, it sets out the consequences of providing financial assistance in breach of the prohibition.

SCOPE OF THE PROHIBITION

The Companies Act 2014 (the "Act") came into operation on 1 June 2015 and introduced significant reforms in company law in Ireland. Section 82 of the Act prohibits any Irish incorporated company, public or private, from directly or indirectly providing financial assistance for the purpose of an acquisition (by subscription, purchase, exchange or otherwise) of shares in itself or in its holding company.

Section 82 can be breached by providing financial assistance by way of a loan, guarantee, security or otherwise and such assistance is not lawful unless exempted, or validated using the SAP. The prohibition is not confined to these forms of assistance. For example, the courts have previously found that the purchase by the company of an asset from the intended purchaser of shares at an inflated price will be classed as financial assistance (Eccles Hall Limited v Bank of Nova Scotia 3 February 1995 (HC)). In addition, a severance payment made by a company to one (1) of its former directors where this severance payment is in fact consideration for the transfer of that director's shares to another member of the company will also be seen as financial assistance (Re Greenore Trading [1980] ILRM 94).

As the term "financial assistance" is not defined by legislation it is difficult to come up with a comprehensive list of the types of transactions that are covered. In considering whether a transaction is prohibited, one should look at the commercial realities of the situation and whether the only or main purpose behind the transaction is to help the purchaser to buy the shares (CH Ireland Inc (in liquidation) v Credit Suisse Canada [1999] 4 IR 542).

A helpful clarification under the Act is contained in section 82(5), which explains that financial assistance in relation to the acquisition of shares in a company or its holding company is not prohibited if the company's principal purpose in giving assistance is not to give it for the purpose of any such acquisition and the assistance is given in good faith in the interests of the company. The Act also clarifies that financial assistance is not prohibited where the assistance is only an incidental part of some larger purpose of the company and the assistance is given in good faith in the...