B (Parent Company) is consisting of three shareholders , which are directors of B & A ( Mr Whitehouse & Mr Hick= 3000 shares and C= 7000 shares ). B was in debt with C (Vendor Company), amounting to ₤93000. For the full repayment of debt in B, C agreed to transfer it’s shares to directors of B & A at par value, provided if indebtedness to them is fully discharged. So, directors of B & A arranged A(Subsidiary) to pay for the debt. Consequently, this share transfer made directors of B & A as the sole shareholders of B. Subsequently, A and B went into liquidation.
The liquidators took action against C and directors of B & A, on behalf of A for the return of the ₤93000. Issue : Whether Armour Hick Northern Ltd (subsidiary)has given a financial assistance to Armour Trust Ltd through the repayment of debt (₤93000), for the purpose or in connection with the purchase of the shares in Armour Hick & Partners Ltd (parent), in regards of purchase by directors of both companies? PRINCIPAL : Section 67(1)
Dealing by a company in its own shares
Except as is otherwise expressly provided by this Act no company shall give, whether directly or indirectly and whether by means of a loan, guarantee or the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company or, where the company is a subsidiary, in its holding company or in any way purchase, deal in or lend money on its own shares.