5/18/2011 Exceptions Financial assistance provided incidental to some other larger purpose:s 47C(1). Brady v Brady [1989]AC 755,[1988]All ER 617(House of Lords) Dispute between 2 brothers who controlled company. Management deadlock to be resolved by corporate reorganisation which involved company financing one of the brothers to buyout his share. Did the exemption apply? Held:No.Provision of financial assistance was essence of scheme and not incidental to some other larger purpose. What test adopted in this case? 19 Section 47C(1):do the following come within the exception? 1.X Co has been poorly managed,and a change of controller and management would be desirable.Y Co purchases shares in X Co to become the new controller and Y Co appoints new managers to X Co,for the benefit of X Co.X Co helps fund Y Co's purchase of shares in X Co. 2.Z Co provided security over its own assets to secure a loan taken out by P Co to acquire shares in Z Co.This assistance was "Whitewashed"under s 47E.Under the security arrangement with the lender,Z Co is not allowed to sell its assets without the lender's approval.Z Co now wishes to dispose of certain assets for commercial reasons.The lender agrees,subject to Z Co providing a further security over a portion of the proceeds of the sale of the assets,as security for the loan given to P Co. 20 105/18/2011 10 19 Exceptions • Financial assistance provided incidental to some other larger purpose: s 47C(1). • Brady v Brady [1989] AC 755, [1988] All ER 617 (House of Lords) • Dispute between 2 brothers who controlled company. • Management deadlock to be resolved by corporate reorganisation which involved company financing one of the brothers to buyout his share. • Did the exemption apply? • Held: No. Provision of financial assistance was essence of scheme and not incidental to some other larger purpose. • What test adopted in this case? 20 Section 47C(1): do the following come within the exception? 1. X Co has been poorly managed, and a change of controller and management would be desirable. Y Co purchases shares in X Co to become the new controller and Y Co appoints new managers to X Co, for the benefit of X Co. X Co helps fund Y Co’s purchase of shares in X Co . 2. Z Co provided security over its own assets to secure a loan taken out by P Co to acquire shares in Z Co. This assistance was “Whitewashed” under s 47E. Under the security arrangement with the lender, Z Co is not allowed to sell its assets without the lender’s approval. Z Co now wishes to dispose of certain assets for commercial reasons. The lender agrees, subject to Z Co providing a further security over a portion of the proceeds of the sale of the assets, as security for the loan given to P Co