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Financial assistance in Australia and its impact on leveraged buyouts In Australia financial assistance is governed by section 260A of the Corporations Act 2001. The rules are highly relevant to leveraged buyouts because acquisition debt is usually secured or guaranteed by the target group after completion. Without compliance this support can be unlawful. Financial assistance occurs where a company helps a person acquire shares in itself or its holding company. In an LBO this commonly includes guarantees for acquisition debt granting security over assets or upstream loans or distributions used to repay the acquisition facility. The concept is interpreted broadly and does not require the company to pay the purchase price directly. Permitted ways to give financial assistance: A company may give financial assistance if one of the following applies. First the assistance does not materially prejudice the interests of the company its shareholders or its creditors. In practice this is difficult to rely on in leveraged buyouts because increased leverage and security can change the company’s risk profile. Second the assistance is approved by shareholders under the whitewash procedure in section 260B. This is the most common and lowest risk approach in LBO transactions. Third a limited statutory exemption applies although these are rarely relevant in buyout structures. The whitewash process in practice The usual LBO structure is for the acquisition to complete without the target group giving guarantees or security. The whitewash is then completed post completion allowing the target group to accede to the finance documents and grant security. The process involves the following steps: Directors pass resolutions approving the proposed financial assistance calling a general meeting if required and approving the explanatory statement. Directors should consider solvency and creditor impacts and ensure their duties are properly addressed and minuted. Shareholders then approve the financial assistance by special resolution meaning seventy five percent of votes cast in favour.