20.4 Financial Assistance 559In Germany, it has been argued that § 57(1) AktG can restrict a downstream merger be-
tween the takeover vehicle and the target company as illegal distribution of assets to the
target company’s shareholders.^34
Fifth, the Directive does not prevent the target company from choosing a rela-
tively low subscription price when issuing new shares to the acquirer in the con-
text of a reverse takeover. The subscription price is constrained by: capital main-
tenance rules (section 5.4); pre-emptive rights and the need to obtain the consent
of existing shareholders;^35 as well as the purpose of the company and other general
legal constrains on the actions of board members.
Sixth, the purpose of the advancing of funds plays an important role. The word-
ing of the Second Directive does not prohibit the company from advancing funds
for a purpose other than the acquisition of its shares. It is therefore not sufficient
for the financial assistance to be prohibited that it was given in the context of the
acquisition; the company must have given the assistance for the purpose of the ac-
quisition of its shares.^36
The Directive is silent on the test to be applied. In principle, the test could be:
subjective and focus on the intentions of the company; objective and focus on the
transaction as a whole; or a combination of subjective and objective tests.
The relevance of the purpose of the advancing of funds can be illustrated by the case of
Fiskars Corporation, a Finnish supplier of consumer goods. In 2004, Fiskars Corporation
was a listed company controlled by the Ehrnrooth family through a number of holding
companies. Investor, the investment vehicle of the Wallenberg family, owned a large block
of shares in Fiskars through a holding company. Fiskars was the controlling shareholder of
Wärtsilä Corporation, a much larger Finnish listed company. Through one of their holding
companies, the Ehrnrooth family owned a large block of shares in Wärtsilä as well. In order
to prevent Investor from selling its block of shares in Fiskars to outsiders, that Ehrnrooth
holding company sold its shares in Wärtsilä Corporation to Fiskars Corporation and used
the proceeds to buy the block of shares owned by Investor. Did Fiskars Corporation ad-
vance funds “with a view to the acquisition of its shares by a third party”?
From an economic perspective, this is certainly what seems to have happened. From a
legal perspective, the answer depends on the test to be applied. In order to mitigate the risk
of non-compliance, Fiskars Corporation said that it purchased Wärtsilä shares as part of its
long-term investment strategy of remaining the biggest shareholder of Wärtsilä. In other
words, Fiskars said that those payments were not made for the purpose of financing the
(^34) See Riegger B, Kapitalgesellschaftsrechtliche Grenzen der Finanzierung von Unterneh-
mensübernahmen durch Finanzinvestoren, ZGR 2008 pp 246–247.
(^35) Article 29 of Directive 77/91/EEC (Second Company Law Directive).
(^36) For older English law, see Charterhouse Investment Trust Ltd v Tempest Diesels Ltd
1986 BCLC 1 (“for the purpose of or in connection with”) as well as sections 153(1)
(the “pre-acquisition exception”) and 153(2) (the “post-acquisition exception”) of the
Companies Act 1985. For present law, see section 679(1) of the Companies Act 2006
(“directly or indirectly for the purpose of the acquisition before or at the same time as
the acquisition takes place”). For the distinction between “for the purpose of” and “in
connection with”, see, for example, Senior G, Takeovers of Companies in the United
Kingdom, Australia, Canada, and Hong Kong: Prohibited Financial Assistance – A Trap
for the Unwary, The International Lawyer 25(3) (1991) pp 587–613.