560 20 Acquisition Finance
purchase of Fiskars shares by any party.^37 An objective test might have lead to another con-
clusion.
As the purpose of the prohibition of financial assistance is to protect (other) share-
holders and third parties such as the company’s creditors,^38 the test should be an
objective one. This does not prevent the use of an additional subjective test.
In the English case of Brady v Brady,^39 Lord Oliver distinguished between the principal
purpose and subsidiary purposes. The case leaves plenty of room for interpretation.^40 The
test contains both objective and subjective elements under the Companies Act 2006.^41 The
“principal purpose” test implies the test can be an objective one. The “good faith” test im-
plies that the objective test is complemented by a subjective test. In Anglo Petroleum Ltd v
TFB (Mortgages) Ltd,^42 it was accepted that the use of money by a company to repay its ex-
isting indebtedness would not normally fall within the concept of the company giving fi-
nancial assistance to another person.
Seventh, the Second Directive was amended in 2006 and now provides for excep-
tions from the main rule. New provisions of Member States’ laws implementing
Directive 2006/68/EC have made it easier to provide financial assistance.
The purpose of the amendments was to enable Member States “to permit public
limited liability companies to grant financial assistance with a view to the acquisi-
tion of their shares by a third party up to the limit of the company’s distributable
reserves so as to increase flexibility with regard to changes in the ownership struc-
ture of the share capital of companies”. According to the purpose of the Directive,
this possibility should be subject to safeguards, having regard to the objective of
protecting both shareholders and third parties.^43 In practice, it can be legally too
time-consuming for the company to comply with the conditions set out in the Sec-
ond Directive. The most important rules are as follows:^44
- Member States have a right but not a duty to permit a company to, either di-
rectly or indirectly, advance funds or make loans or provide security, with a
view to the acquisition of its shares by a third party. - If they do, the conditions set out in Article 23(1) of the Second Company Law
Directive (as amended) must be complied with. - The transactions must take place under the responsibility of the administrative
or management body at fair market conditions. Fair market conditions mean
(^37) Fiskars Corporation, stock exchange releases dated 1 April 2004.
(^38) Recital 2 of Directive 77/91/EEC (Second Company Law Directive).
(^39) Brady v Brady [1989] AC 755.
(^40) Ferran E, op cit, pp 293–297; see also Cabrelli D, In Dire Need of Assistance? Sections
151–158 of the Companies Act 1985 revisited, JBL (2002) pp 281–283.
(^41) Sections 678 and 679 of the Companies Act 2006.
(^42) Anglo Petroleum Ltd v TFB (Mortgages) Ltd [2007] EWCA Civ 456.
(^43) Recital 5 of Directive 2006/68/EC.
(^44) Article 23(1) of Directive 77/91/EEC (Second Company Law Directive) as amended by
Article 1(6) of Directive 2006/68/EC.