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ACCA Applied Skills · Corporate and Business Law (Global) · Capital maintenance and dividend law

Karim wants to buy all the shares in Dune Ltd. He plans to borrow from a bank and, after completion, have Dune Ltd give the bank a charge over its own assets as security for his loan. Where financial assistance is restricted, how is this arrangement best classified?

It is financial assistance. By granting security over its own assets to support Karim's borrowing to buy its shares, Dune Ltd uses its resources to help the acquisition. The bank being the lender, or the timing after completion, does not change this.

  1. APermitted, because the loan is made by a bank and not by Dune Ltd
  2. BFinancial assistance, because Dune Ltd's assets are used to support the acquisition of its own sharesCorrect
  3. CNot assistance, because the charge is given after completion

Explanation

Giving a guarantee or security for a loan taken to buy the company's shares is a classic form of financial assistance. The lender's identity is irrelevant, and giving security after completion does not remove the link to the acquisition.

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