Under S 76(1), a company is prohibited from giving financial assistance, whether directly or

indirectly, for the purpose of or in connection with the acquisition of its shares or the shares in
its holding company. Timing at which the financial assistance was given does not matter as
the assistance can be direct or indirect.
Prima Facie Case
The first issue is whether there is a prima facie case of financial assistance. As per Hoffman J
in Charterhouse Investment, which was approved in Wu Yang at [44], there are two elements
in the prohibition, the first is the giving of financial assistance and the second is that it should
have been given for the purposes of or in connection with a purchase of shares. In the first
element, financial assistance is defined by the SGCA in Wu Yang at [46] to be any form of
material assistance to which a monetary value can be ascribed, without which the party
acquiring the companys shares would have been unable to acquire the shares. Financial
assistance will include giving a loan, guarantee, security or release of a debt as per S 76(2).
Lord Denning stated a simple test in Wallersteiner v Moir. To determine if
financial assistance is given, the court only needs to look at 2 things: where does
the money come from and what happened to the money. If one can connect the
money with the acquisition of share, then prima facie there is a case for financial
assistance.
Substantial Purpose
The second step is to determine if the substantial purpose of the transaction was to assist the
person to purchase the companys shares. Wu Yang made the distinction between purpose
and reason for giving the financial assistance. According to Wu Yang, reason does not fall
within the test for S 76. It may have been for the benefit of the company but the subject belief
or good faith of the directors are irrelevant as courts will ultimately look at substance of the
transaction. Under Wu Yangs interpretation of S 76(3), as long as a substantial purpose of
the financial assistance given was for the acquisition of the shares in the company, the
second element under S 76(1)(a) will be satisfied, even if there are other valid reasons such
as legitimate commercial interests.
This is in contradiction to what was held in the previous case of Intraco. It was held in Intraco
that if the background to the transaction was not just to give financial assistance and there
was a broader goal, then it might fall outside of the scope of S 76. In Intraco, the underlying
logic behind the takeover was to save Multi-Pak and it was a genuine transaction that
benefited the company, and consequently its shareholders and creditors. However, Wu Yang
criticised Intraco for not considering Brady v Brady, which held that an unlawful purpose is not
removed by the fact that the directors were motivated to act bona fide in the best interest of
the company. Wu Yang held that to allow financial assistance based on bona fide principle will
provide a blank cheque for avoiding an effective application of the financial assistance
provision.
Intraco attempted to narrow the rule against the financial assistance, but Wu Yang disagrees
with that approach. Given how easy it is to satisfy the test for purpose, Wu Yang makes it
difficult for companies to give financial assistance even if the director has a genuine
underlying motive. It is a very board and expansive prohibition.
Depletion of Asset
Menon JC in PP v Lew Syn Pau held that one of the requirements for financial assistance is
that there has to be actual or potential depletion of assets. While this is not the only factor we
need to consider in establishing financial assistance, if the transaction resulted in actual or
potential of the companys assets, the case of financial assistance will be stronger.

Exceptions to Financial Assistance

Payment of Dividend
Under S 76(8)(a), payment of a dividend by a company in good faith and in the ordinary
course of commercial dealing will not be prohibited. If financial assistance is found, then this
section acts as a possible way out for directors from contravening S 76.
S 76(8)(a) is more applicable to a listed company than private companies. The idea is that in
large companies, the company does not have control over what the shareholders do with the
money they obtain as dividend. There needs to be practical way out and this is why
Parliament provided this exception.
It seems difficult for small privately run family companies to satisfy the conditions of good faith
and in the ordinary course of business if the whole transaction is structured in order to ensure
that the shareholders are entitled to the money to buy over the shares.
Capital Reduction Exercise
A payment made by a company pursuant to a reduction of capital in accordance with Division
3A of the Company Act as per S 76(8)(b).
The reduction of capital can take form in the options of
1. Share buyout via the 4 exceptions set out in S 76B-G (Capped at 10% of shares)
2. Selective capital reduction (court order or solvency approach)
For more details please refer to capital maintenance.
Other Exceptions
The assistance may be valid if the purpose is to provide employee stock options as per S
76(9)(b).
The assistance is valid if the company providing the assistance is doing so in the ordinary
course of business as a bank, finance company, insurance company or other company
supervised by MAS as per S 76(9)(a).
The assistance is valid if it provided pursuant to a court order as per S 76(8)(h).
Whitewashing
There are three ways of approving the giving of the financial assistance.
1. Unanimous shareholder resolution + S 7A solvency statement as per S 76(9B)
This is generally only feasible if all the shareholders wish to approve the transaction.
There must be notice to the members of particulars of the financial assistance and the
financial assistance must be given within 12 months of the resolution. Notice of
resolution and solvency statement must be lodged with ACRA.
2. Special shareholder resolution + court application as per s 76(10)
There must be notice to members and debenture holders of the company. The notice is
lodged with ACRA and there must be publication of the resolution. Members, creditors,
debenture holders of the company and registrar may apply to court in opposition of the
financial assistance.
3. Board Directed whitewashing: S 7A solvency statement as per S 76(9A)
The problem with the board directed whitewashing is that the amount of financial
assistance is not more than 10% of current aggregate of paid up capital and reserves of
the company. The company receives fair value for the financial assistance. The Board
resolution must set out full details and grounds for the boards conclusions. Within 10
days of providing the financial assistance, notice detailing the particulars must be sent to
the members. Notice of resolution and solvency statement must be lodged with ACRA.

Consequences

If a company is found guilty of financial assistance, the transaction that constitutes the
financial assistance is voidable at the option of the company as per s 76A(2).
Every officer who engages in the financial assistance is guilty of a criminal offence as per s
76(5) and may be liable to pay compensation to the company or other persons as per s
76(6). He will also face disqualification if convicted as per S 154(2). The director may be able
to seek relief against civil compensation under S 391 as per 74(7). S391 cannot be used to
relieve him from criminal liability as per Re Indeaglobal.com.
In addition, where a director is guilty of financial assistance, he is also likely to have breached
his duty to act in the best interest of the company, since such an act would not be in the best
interests of the company. As per S 76(15), the director is not relieved from his duties owed to
the company in connection with the giving of the financial assistance. PROCEED to discuss S
157 and common law bona fide duty.
Minority shareholders may pursue the breach of director duties in giving the financial
assistance via S 216A derivative actions and CLDA. If there is also a personal wrong, the
breach of director duty (especially if financial assistance is only given to a particular class of
shareholders) may be used as evidence of a S 216 oppression.