Few bankers and professions involved in leveraged finance, management buy-outs or management buy-ins will lament the passing of the prohibition on private companies giving financial assistance for the purchase of their own or their holding company's shares. The prohibition will finally be abolished on 1 October 2008, following the latest stage of implementation of the Companies Act 2006. The whitewash procedure is also to be abolished.
As with most legal reform, the reality is not quite as simple. While the formalities of the whitewash have gone, certain key issues will still remain to be considered by both lenders and directors. In addition, the prohibition will remain in place for public companies; however, if the target company (and/or any relevant subsidiary), being a public company, re-registered as a private company immediately prior to the financial assistance being given, the financial assistance would be lawful.
The current regime set out in sections 151 to 154 Companies Act 1985 will continue to apply to public companies until 1 October 2009, when the new Companies Act 2006 provisions (which continue to prohibit public companies giving financial assistance) are currently expected to come into force.
Read Wragge & Co's expert analysis for more information about the changes. For guidance on what to do next, the firm's banking & finance specialists have also put together some tips for action.