Financial assistance was the 10m given to trust of

Info icon This preview shows pages 5–6. Sign up to view the full content.

View Full Document Right Arrow Icon
financial assistance was the $10m given to trust of Adler to purchase shares in HIH Examples of financial assistance provided by { Lipton and Herzberg} o Company lending a person money to be used to acquire shares o Company guaranteeing a person’s loans where the proceeds of the loan are used to acquire shares in the company o Company providing its own assets as security for a person’s loan where the proceeds of the loan are used to acquire shares in the company D.2 Does it Materially Prejudice Shareholders, Company, Creditors Assuming there is financial assistance must consider if the transaction materially prejudices: o Shareholders and company {s 260A(1)(i) Corporations Act} o Ability to pay creditors {s 260A(a)(ii) Corporations Act} The old test was the facilitation test {Burton v Palmer} o Where it was asked if the assistance actually assisted the purchaser? o The purchase could not have bought shares without company providing financial assistance However since this, {ASIC v Adler per Santow J } has held that the current provisions focus on the prejudicial impact of the transaction on creditors and shareholders therefore the impoverishment test is now appropriate o The Impoverishment Test considers the effect on the company – Has the financial assistance had a negative impact (impoverished) the company? In { ASIC v Adler} Santow J decided that there was no gain for the company from the transaction of giving Adler $10m as it gave him an unsecured loan in which HIH did not have an interest in – HIHC would always be worse off if Adler had money for own interests than having the money themselves Onus is on the defendant to show that there has been NO material prejudice D.3 Has there been Shareholder Approval? If there has been material prejudice then consider if there has been shareholder approval { s 260B Corporations Act} There must be a general meeting of shareholders at which either o a special resolution is passed with no votes cast in favour by the acquirer or an associate (75%) o or all the ordinary shareholders must agree If the company providing the assistance is or will be a subsidiary then it will also need approval by a special resolution of its Holding company {s 260B(2) and (3) Corporations Act} Information relevant to the decision must be provided by the company to shareholders and copies of that and resolution lodged with ASIC {s 260B(4) to (7) Corporations Act} D.4 Do any Exemptions apply? Finally if you do not have shareholder approval, then the financial assistance may qualify under an exemption under {s 260C Corporations Act} Financial assistance is exempt where it is: o A lien for unpaid amounts on partly paid shares in the company or consists of an agreement to have shares paid by instalments o Finance provided by a financial institution in the ordinary course of business and on ordinary commercial terms o A guarantee or security given in the ordinary course of dealing by a company that is a subsidiary of a debenture issuer where this is given in relation to issuer’s borrowing liability o Given under an employee share scheme and has been approved by shareholder resolution (under s 260C(4) Corporations Act} o A reduction of share capital or buy back made in accordance with the provisions of
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern