The reform of the prohibition against the giving of financial assistance for the acquisition of shares by a third party in a transaction involving a public limited liability company

Abstract

The current UK prohibition against the giving of financial assistance for the acquisition of shares by a third party (applicable to transactions involving a public limited liability company) was founded upon a misconception. Although the original rationales for the prohibition’s inception have been gradually eradicated and its scope restricted, new rationales have been moulded to justify its continued application. By analysing its early development and modern case law application, this thesis identifies the scope of the prohibition – including interested parties who may be impacted by its operation. Previously, there has been neither a comprehensive enquiry into the commercially beneficial transactions which may be impeded by operation of the prohibition nor a determination of the types of abuse which may arise out of transactions involving the giving of financial assistance. Historically, company law reviews of the prohibition in the UK have identified some of the aforementioned impacts but failed to undertake either a thorough assessment of the alternative safeguards available to protect interested parties or the level of protection afforded by those safeguards. This thesis accomplishes these points - identifying the unnecessary duality of protection provided by the prohibition and thus its redundancy. This thesis also analyses how other jurisdictions have dealt with the giving of financial assistance in order to assess their relative advantages and disadvantages and, accordingly, the desirability of the UK and/or European Union member states adopting one of those alternative approaches. On the basis of this wide-ranging enquiry, four recommendations logically emerge which are capable of immediate, or progressive, implementation and which have the ultimate objective of abolishing the prohibition as it applies to the giving of financial assistance for the acquisition of shares by a third party in a transaction involving a public limited liability company