A recent English case provides an example of where a credit and security arrangement that discharges a purchaser's liabilities does not constitute financial assistance by the company for the purchase of its shares.
In the situation where a target company owes its parent company a substantial debt, a purchaser may buy the entire share capital of the company for a negligible price but undertake to guarantee the performance of the target company of its indebtedness to the parent company.
This case1 supports the proposition that the purchaser will not be financially assisted if the target company then legitimately refinances with a third party to repay the indebtedness that was guaranteed by the purchaser.
Further, it may not be financial assistance if the target company provides security to its parent company for the guarantee given by the purchaser. This depends on the commercial reality of the transaction.
The case centres around section 151(2) of the UK Companies Act 1985 for which there is no equivalent provision in New Zealand. However, the case is still useful in so far as it provides an example of a transaction that would not be classified as financial assistance and therefore, not fall under the ambit of the approval procedures governing financial assistance in New Zealand.
1 Anglo Petroleum Ltd v. TFB (Mortgages) Ltd  EWHC 258 (CH)
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