20.4 Financial Assistance 563Furthermore, the transaction must not “conflict with the company’s best interests”,
where at least one of the parties to a transaction referred in Article 23(1) is a party
referred to in Article 23a (see above).
The wording of the Second Directive does not prohibit circular transactions or
chains of transactions where the company has advanced funds for a purpose other
than the acquisition of its shares (see above).
Neither does the wording of the Directive prohibit a company from providing
financial assistance to a third party for the purpose of buying shares in the com-
pany’s parent or subsidiary company or a third company. Such transactions can
nevertheless be constrained by the governing law.
In England, the Companies Act 2006 restricts the giving of financial assistance by a sub-
sidiary for the acquisition of shares in its parent company. The prohibition applies even
where the parent company is a private holding company.^56 In Germany, however, the giv-
ing of financial assistance for the acquisition of shares in a third company is governed by
provisions that act as a constraint on corporate actions generally. It is not covered by the
prohibition of financial assistance.^57
Distributions to shareholders as financial assistance ex post and ex ante. The
Second Directive does not prevent distributions that have explicitly been permitted
by provisions of EU company law.^58 This is because of the general principle that
the provisions of a directive cannot be interpreted in such a way that they would
frustrate the effectiveness of other provisions of the same directive or the provi-
sions of another directive.
After the completion of the acquisition, the target company can therefore dis-
tribute funds to shareholders in the form of dividends, through share buy-backs,
through withdrawal of shares, or otherwise as permitted by provisions of EU com-
pany law (section 10.2).
Whether the target company is permitted to do the same before the acquisition
and advance funds “with a view to the acquisition of its shares by a third party” by
such means is a matter of interpretation. Again, no provision of the Second Direc-
tive can prohibit the distribution of profits where the conditions expressly set out
in the Second Directive for profit distributions have been met. On the other hand,
the wording of the Directive clearly prohibits the granting of loans to any party for
the purpose of acquiring shares in the company regardless of whether that party is
a non-shareholder or a shareholder and regardless of whether the making of loans
to shareholders is governed by particular company law rules.^59
(^56) Section 679 of the Companies Act 2006.
(^57) For German law, see § 71a AktG.
(^58) See also section 681 of the Companies Act 2006.
(^59) See nevertheless Habersack M, Kapitalerhaltung. Brüssel rüttelt an Finanzverfassung
der Unternehmen, FAZ, 21 November 2007, p 25: “Vor diesem Hintergrund ist mit
einer Änderung von Paragraph 71a AktG nicht zu rechnen. Allerdings wird der deutsche
Gesetzgeber auch zu bedenken haben, dass das MoMiG aller Voraussicht nach zu einer
Lockerung der in Paragraph 57 AktG geregelten strikten Vermögensbindung führen
wird: Die Vergabe von Darlehen an Aktionäre und die Stellung von Sicherheiten zugun-