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Financial assistance laws clarified

21.12.2005

Amendments to the Commercial Code coming into effect on January 1 2006 will clarify the consequences of breaching financial assistance provisions and may affect acquisition financing. At present, the law does not specify the legal consequences of breaching certain loan prohibitions.

The loan prohibitions in question mean that a private limited or public limited company must not issue and secure loans with regard to:

• a shareholder whose share represents more than 5% of the company's share capital in the case of a private limited company or more than 1% in case of a public limited company;
• a shareholder or member of the company's parent undertaking whose share represents more than 5% of the parent's share capital in the case of a private limited company or 1% in the case of a public limited company;
• a person so that they can acquire shares in the company; or
• a member of the company's management and/or supervisory boards, and the procurator.

The prohibition does not apply to securing a loan taken by the parent undertaking, or taken by a shareholder or member of the parent undertaking who belongs to the same group as the subsidiary if this does not harm the financial status of the company or the interests of creditors.

Following the amendments, transactions that violate the loan prohibition are void. However, if the financial status of the company or the interests of its creditors are harmed as a result of granting security to the parent undertaking or relevant related persons, the transaction will not be void; rather the person whose loan was secured must compensate for damages caused to the company.

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