Full disclosure: financial assistance and related corporations

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Many transactions involve financial assistance by means of a loan, guarantee or otherwise between related corporations. Often, an important consideration in these circumstances is: does such financial assistance trigger any disclosure obligations? Generally, a corporation may give financial assistance to any person (including an individual, partnership, association, body corporate, trustee, executor, administrator or legal representative) for any purpose (s. 45(2) of the Business Corporations Act (Alberta) (the Act)). However, a corporation must disclose to its shareholders financial assistance that the corporation gives to:

  1. a shareholder or director of the corporation or of an affiliated corporation;
  2. an associate of a shareholder or director of the corporation or of an affiliated corporation; or
  3. any person for the purpose of or in connection with a purchase of a share issued or to be issued by the corporation or an affiliated corporation (s. 45(3) of the Act).

Disclosure must include the following information:

  1. the identity of the recipient of the financial assistance and the recipient’s relationship to the corporation; and
  2. a description of the financial assistance, which must include: (i) the nature and extent of the financial assistance given, (ii) the amount of the financial assistance, (iii) the terms on which the financial assistance was given, and (iv) the purpose of the financial assistance.

In addition, the corporation must make such disclosure by sending the information to be disclosed to the shareholders within 90 days after providing financial assistance. Further, any increase in the amount of financial assistance and any changes to the terms on which the financial assistance was given must be disclosed to the shareholders within 90 days of the change.

There are certain exceptions to the disclosure requirement when a corporation provides financial assistance:

  • to any person in the ordinary course of business if the lending of money is part of the ordinary business of the corporation;
  • to any person on account of expenditures incurred or to be incurred on behalf of the corporation;
  • to a holding body corporate if the corporation is a wholly owned subsidiary of the holding body corporate;
  • to a subsidiary body corporate of the corporation;
  • to employees of the corporation or any of its affiliates, (i) to enable them to purchase or erect or to assist them in purchasing or erecting living accommodation for their own occupation, or (ii) in accordance with a plan for the purchase of shares of the corporation or any of its affiliates to be held by a trustee; or
  • to any person if all the shareholders have consented to giving the financial assistance (s. 45(4) of the Act).

Furthermore, a “body corporate” includes a company or other body corporate wherever or however incorporated, a body corporate is the holding body corporate of another if that other body corporate is a subsidiary, and a body corporate is considered a subsidiary of another body corporate if: (a) it is controlled by that other, (i) that other and one or more bodies corporate, (ii) each of which is controlled by that other, or (iii) 2 or more bodies corporate, each of which is controlled by that other, or (b) it is a subsidiary of a body corporate that is that other’s subsidiary.

Accordingly, parties should turn their attention to issues surrounding financial assistance early on in a transaction and should always be mindful of their disclosure obligations.

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