In October 2008 the government repealed the statutory prohibition on a private company providing financial assistance for the purpose of the acquisition of shares in itself or another private company. This made the statutory "whitewash" procedure redundant. How, will this actually assist technology companies seeking finance?

Technology companies will need to ensure that directors are aware of, and have complied with, their responsibilities in relation to the corporate benefit produced by the transaction proposed and also the net asset position. The directors should confirm the following issues in a board minute: 

  • Corporate Benefit: the directors must evidence the fact that they have considered whether the entry into the transaction is in the best interests of the company and likely to promote the success of the company for the benefit of its members as a whole. 
  • Directors’ Duties: The Directors should produce a board minute that describes the process undertaken by the board, the evidence considered and the conclusions reached by the board, including the commercial benefit to the company’s business and its ability to meet obligations based on current projections. 
  • Solvency/Net Asset Position: The legal requirement for auditor involvement in the process is now reduced. The directors must instead consider whether the entry into the transaction will result in an unlawful reduction of the company’s capital. The directors should consider whether the company is solvent and will remain so after the grant of the security and/or guarantee.  

The amount of detail considered appropriate in any such assessment may depend on the degree of uncertainty as to the possibility of a payment having to be made and the potential magnitude of the payment.


The relaxation of the rules could be considered a blessing for technology companies wishing to purchase their own shares but without the protection of the statutory process a more proactive, in depth consideration is formally required from directors and financial institutions may face a greater financial risk in funding the transactions should this consideration be lacking.