SHOULD THE BAN ON FINANCIAL ASSISTANCE UNDER COMPANIES ACT 2006 BE ABOLISHED FOR PUBLIC COMPANIES?
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Abstract
Financial assistance ban which restricts monetary assistance provided for acquisition of shares in the parent or subsidiary company under UK company Law dates to 1920’s. The law under Company’s Act 1985 which restricted both public and private companies was reformed in 2006. The reform came into effect on 1st October 2008. From that day, the financial assistance ban was not applicable to private companies anymore while acquiring shares in a private company. Along with the restriction even the associated whitewash procedure which was a gateway from complying with financial assistance rule by private companies was abolished. But the rules regarding public companies had to be kept intact based on The Second Company Law Directive (77/91/EC) which is rooted in European law and had to be complied by all the member countries.
This was considered a “long awaited victory” by many, majorly because of the reduction in complexity and costs involved. But at the same time legal experts throughout United Kingdom also recognised the legal problems with not abolishing the same rule for public companies.
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