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Homework answers / question archive / Pioneer Co
Pioneer Co. is a holding company of two subsidiaries, namely Ryzen Co. and Panther Co.
On January 2017, Sherman Co. intended to purchase the shares owned by Pioneer Co in Ryzen Co. Consequently, Sherman Co managed to obtain a loan from The
Fortune Bank for financing the purchase. The Fortune Bank requires a security and Sherman Co. had proposed to the board of directors of Pioneer Co that the security would be provided by Panther Co.
On August 2018, Pioneer Co had passed a board resolution to waive the unpaid amount owed by a shareholder for the shares issued by Pioneer Co to the shareholders in 2016. These shares are then registered as fully paid up in the register of members and shareholding.
On July 2019, the board of Pioneer Co had also received an offer for its shares from Bless Co. Both companies agreed that Bless Co will apply for a loan in order to purchase the shares and the directors of Pioneer Co undertake to become the guarantors for the loan.
On March 2020, Pioneer Co had issued shares to some of its employees who have exercised their right under an employee share scheme established in 2017. These shares were issued at a fixed price of $2.50 per shares when the market price for the shares is $6.00.
Explain whether the above are financial assistance under the Companies Act 2016.
Case 1:
In this case, security is proposed to be provided by Panther Co. It is to finance the purchase of shares in Ryzen Co. It is not prohibited under the companies act since Panther Co. is not the Holding company of Ryzen Co.
Sec 67(2):No public company shall give, whether directly or indirectly and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of, or in connection with, a purchase or subscription made or to be made, by any person of or for any shares in the company or in its holding company.
Case 2:
It falls under Financial Assistance and company is not authorized to do so. It can only waive off the interest fully or partly on the amount unpaid by its shareholder but cannot waive off the unpaid amount and convert into fully paid in the member register. It could be treated as indirect financing.
Case 3:
As per the Sec 67(2) mentioned above, No public company shall be allowed to do so. Pioneer Co. shall not finance this purchase by way of guarantee.
Case 4:
However, the 2013 Act does permit, as an exception to the previously stated rule, a company to provide financial assistance, pursuant to an ESOP Scheme (approved through a special resolution), to the following:
