State the requirements of the Companies Act which relate to the company giving financial assistance for purchase of its own shares. What are the consequences of non – compliance with these requirements?
ANSWER
It is generally unlawful for a company whether directly or indirectly and whether means of a loan, guarantee or the provision of security to give any financial for the subscription or purchase of its shares or those of its holding subsidiary.
• This section exemplifies the rule in Trevor v Whitworth. However, a company may lawfully finance the purchaser or acquisition of its shares in the following circumstances:
• Where lending of money is part of the ordinary business of the company and the same is lent in the ordinary course of business.
• Where the company enforces a scheme to advance loans to trustees to enable them to purchase its fully paid shares for the benefit of its employees including salaried directors.
• Where the company has in force a scheme to advance loans to all its bona fide employees other than directors to enable them purchase its fully paid shares way of beneficial ownership.
• Non-compliance with this section renders the company and every officer in default liable to a fine not exceeding KShs.20, 000.