Debt-funded M&A deals Down Under

By Steven Humphries and Trent Le Breto, Walter Baden

Australian law only permits a company to financially assist the acquisition of its own (or a parent’s) shares if approved by its shareholders, or if the company’s board determines it does not materially prejudice the company, its shareholders, or creditors (which directors are often reluctant to do).

Financial assistance in this context can take many forms – loans, a guarantee, or a charge over the target group’s assets. In cross-border M&As, an often-overlooked form of such assistance occurs when a target accedes to a buyer group’s financing arrangements, typically by giving security over its assets.

In a sale context, boards typically seek shareholder approval in a process commonly known as a “whitewash”. This involves the company’s shareholders, and in certain circumstances, those of its holding company, approving the assistance by a 75% majority resolution. The buyer is unable to vote. The law imposes prescriptive information requirements for the whitewash, and materials must be lodged in advance with the Australian corporate regulator, ASIC.

The key logistical issue in M&A transactions is the 14-day statutory wait period which must expire before a company can provide the financial assistance.

What this means in practice is that the whitewash takes around 17 days once you factor in notice requirements. It is therefore critical in an Australian M&A to consider early whether the deal involves financial assistance, and plan accordingly. The key takeaway for buyers looking to debt-fund Australian acquisitions is to determine in advance whether the financier requires security over target group assets immediately on closing, or whether it will allow a post-closing grace period to bring target group assets into the buyer’s security pool. To avoid causing significant delay, or additional cost and aggravation for all involved, financial assistance issues should be addressed early.

Just something to keep on your radar if your clients are looking to finance acquisitions in Australia.

Steven Humphries

GGI member firm
Walter Baden
Law Firm Services
Sydney, Australia
T: +61 2 8328 1888
E: This email address is being protected from spambots. You need JavaScript enabled to view it.
W: walterbaden.law

Walter Baden is an independent boutique law firm specialising in corporate law. Walter Baden helps clients with their most important deals, whether acquiring, divesting, restructuring or capitalising. In addition, they provide a range of advisory services, focused on governance, regulatory compliance, and commercial transactions.

Steven Humphries and Trent Le Breton between them have over 40 years of corporate M&A experience that combines industry-leading expertise across all stages of corporate transactions with commercially astute advice.

Trent Le Breton

GGI member firm
Walter Baden
Law Firm Services
Sydney, Australia
T: +61 2 8328 1888
E: This email address is being protected from spambots. You need JavaScript enabled to view it.
W: walterbaden.law

Published: M & A Newsletter, No. 01 Autumn 2021 l Photo: Leonid Andronov - stock.adobe.com