The Prohibition On Financial Assistance - 870 Words

Since its enactment in the Companies Act 1928, the prohibition on financial assistance has been mainly influenced by two different streams of statutory interpretations. On one hand, Waller LJ’s judgment in Belmont Finance Corporation v Williams Furniture Ltd (No 2) gave a ‘significant boost’ to a broad interpretation of the statutory language. His strict approach, seems to have inspired a number of judges to adopt a literal interpretation of the prohibition and to disregard the commercial substance of transactions which fall afoul of it. On the other hand, Hoffman J, with the introduction of the ‘commercial realities’ test in Charterhouse Investment Trust Ltd v Tempest Diesels Ltd provided a legislative framework, which allows courts not†¦show more content†¦Furthermore, it shall argue that Laddie J’s judgment at first instance in MT Realisations Ltd (in liquidation) v Digital Equiptment Co Ltd, deserved more credit from the judiciary and should have not been discarded so easily. Similarly, it considers that Re Uniq Plc’s ratio is appreciated in bringing life to the exceptions contained in s. 678(4) and s. 679(4). Two Contrasting Views of the Prohibition pre-Companies Act 2006 In Belmont Finance, a decision which attracted much criticism amongst legal academics, a company bought an asset at an overvalue. Subsequently, the vendors used the proceeds of sale to purchase the company. It was held, in the CoA, that the transaction amounted to financial assistance on the basis that the company disregarded its own commercial interests and acted with the objective of facilitating the company’s acquisition of shares. Waller LJ gave an ‘unfortunate boost’ to the prohibition by taking a strict view and stating that to not contravene the provision, the company would not only have to justify the price paid, but also that the decision to enter the transaction was in the interests of the company. Moreover, he added that the prohibition would be triggered if the arrangement was done partly with the intention to allow purchasers to acquire shares. Therefore, following Belmont, where a company purchases an asset from their future buyer for fair value, act ing in its own commercial interests, it would be caught by theShow MoreRelatedProhibition and Removal of a Director Essay1242 Words   |  5 PagesPROHIBITION OF DIRECTOR Before explaining about this point, we must know that prohibition provides protection to the public from directors and managers of companies that have an irresponsible, incompetent or irresponsible to make sure that, for the period of the prohibition, the director was not able to take advantage of the limited liability status of the company, or involved in the management of the company. Because of that company act have taken seriously in this action. 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