Financial assistance, pursuant to Section 1 (c) (xiii) of MCL, means that the giving of financial assistance by means of the making of a loan, the giving of a guarantee, the provision of security, the release of an obligation or the release of a debt or otherwise.
Under Section 128 of MCL, it provides that a company limited by shares, other than a private company which is not a subsidiary of a public company, shall not give, whether directly or indirectly any financial assistance for t he purpose of or in connection with a purchase made or to be made by a person of any shares in the company or a holding company of the company. However, the exception is made in Section 130 of MCL where the provision mentions that a company may financially assist a person to acquire the shares in the company or a holding company of the company if the board is satisfied and resolves that:
- the company should give the financial assistance
- the giving of the financial assistance is in the best interests of the company
- the giving of the financial assistance is fair and reasonable to the company’s shareholders as a whole
- the financial assistance does not materially prejudice the company’s ability to pay its creditors and
- the company will, immediately after giving the financial assistance, satisfy the solvency test
(or) if the financial assistance is approved by the shareholders. In case where the financial assistance is approved by the shareholders, the approval can be obtained by means of a special resolution passed at a general meeting or the resolution agreed to at a general meeting by all ordinary shareholders.
However, it is worth noting that Section 133 (c) mentions “the financial assistance must also be approved by a special resolution passed at a general meeting of the company that will be the holding company” in the case where the company giving the financial assistance will have a holding company that is a company incorporated under MCL but not listed in the Union and is not itself a subsidiary of another company incorporated under MCL.
| Provisions Regarding Financial Assistance | Keynotes |
| Section 128 of MCL | Prohibition on the Financial Assistance – “a company limited by shares, other than a private company which is not a subsidiary of a public company, shall not give, whether directly or indirectly any financial assistance for the purpose of or in connection with a purchase made or to be made by a person of any shares in the company or a holding company of the company.” |
| Section 130 (a) and Section 133 (c) of MCL | Exception to the prohibition under Section 128 – Financial assistance may be approved by the shareholders by means of a special resolution passed or a resolution agreed to at a general meeting by all ordinary shareholders. – Furthermore, if the company extending the financial assistance will have a holding company that is incorporated under MCL but not listed in the Union or the company that is not a subsidiary of another company incorporated under MCL, the financial assistance shall also be approved by the special resolution passed at a general meeting of the company that will become the holding company. |
| Section 133 (d) and (e) | Compliance Matters – Before the notice of the meeting is sent to the shareholders, lodge a Form C-9A on MyCO together with The notice of the meeting Any document related to financial assistanceWithin 21 days before giving the financial assistance lodge a Form C-9B on MyCO [Note: A special resolution passed must be lodged within 14 days after it is passed.] |
Qualification of this Article
The article serves as a knowledge-sharing article and the interpretation of the provisions quoted here is done solely based on the legal knowledge and personal interpretation of the author. Therefore, should this article be used as a legal advice by any other party, whether for a natural person’s or corporation’s affairs, the author has no legal obligation or the author is not held accountable for such person or corporation for any reason whatsoever.
Prepared by:
Ingyin Hmwe @ Liliana [LL.B. Graduate of University of Yangon (2018), LL.M Candidate in Business Law (International Program) of Chulalongkorn University]
Contact for work or discussion:
Email: ingyinhmwe97@gmail.com , legalbandaid@gmail.com
Line: chinsu_08
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