Guernsey: The Financial Assistance Regime in Guernsey, September 2006


Section 1 of the Companies (Financial Assistance for Acquisition of Own Shares) Ordinance, 1998 ("FAO") restricts the giving of financial assistance by a Guernsey company ("GCo") or any of its subsidiaries which is a Guernsey company, for the purpose of the acquisition of shares in GCo or in reducing or discharging a liability incurred for the purpose of the acquisition.

The FAO is modelled on, but is different in some important respects from, sections 151 to 158 of the Companies Act 1985 of the United Kingdom.

This briefing provides an overview of the financial assistance regime, identifies some of the key differences between the FAO and sections 151 to 158 of the Companies Act 1985 of the United Kingdom ("CA85"), highlights the legal consequences of a breach of the FAO and summarises the criteria, compliance with which will prevent from becoming unlawful for the purposes of the FAO any transaction which would otherwise be lawful under that Ordinance.

It has been proposed, as a part of the general company law and related legislation reform that the FAO be repealed, but as at the date of this note the FAO remains in force.

Overview of the Financial Assistance Regime under the FAO

Section 1(1) and 1(2) of the FAO respectively provide that:

  • where a person is acquiring or proposing to acquire shares in a company, the company and any of its subsidiaries may give financial assistance directly or indirectly for the purpose of or in connection with that acquisition before or at the same time as the acquisition takes place provided that the company or, as the case may be, the subsidiary fulfills the criteria set out below; and
  • where a person has acquired shares in a company and any liability has been incurred (by that or any other person) for the purpose of or in connection with that acquisition, the company or any of its subsidiaries may give financial assistance directly or indirectly for the purpose of or in connection with reducing or discharging the liability so incurred provided that the company or, as the case may be, the subsidiary fulfills the criteria set out below.

The criteria for the giving of financial assistance referred to above are the same for each subsection and are that the company or, as the case may be the subsidiary:

(a) is authorized to do so by the provisions of its memorandum or articles; and

(b) will, immediately after the financial assistance is given, satisfy the solvency test

The Definition of Financial Assistance under the FAO

Section 2 of the FAO defines "financial assistance", in terms mirroring CA85 section 152(1)(a), as meaning:

  • financial assistance given by way of gift
  • financial assistance given by way of guarantee, security or indemnity, other than an indemnity in respect of the indemnifier’s own neglect or default, or by way of release or waiver
  • financial assistance given by way of a loan or any other agreement under which any of the obligations of the person giving the assistance are to be fulfilled at a time when, in accordance with the agreement, any obligations of another party to the agreement remains unfulfilled, or by way of the novation of, or the assignment of rights arising under, a loan or such other agreement
  • any other financial assistance given by a company the net assets of which are thereby reduced to a material extent or which has no net assets

Key Differences with Section 151 CA85

Key differences between the FAO and section 151 CA85 include:

  • Under section 151 CA85 it is prima facie unlawful for financial assistance to be given but prima facie lawful under the FAO
  • The FAO does not include an equivalent to the "de minimis" provisions contained in section 152(1)(a)(iv) CA85
  • The FAO does not include a "principal purpose" exemption, such as contained in section 153(1) and (2) CA85
  • Under section 151, only private companies can carry out a whitewash. In Guernsey there is no concept of a "public" company so that all companies are in effect private. However the compliance criteria under the FAO is open to all Guernsey companies whether or not they may be designated "public" by the rules or regulations of another jurisdiction
  • The requirements of the solvency test are far more relaxed under the FAO than under CA85. The compliance criteria under the FOA are far simpler than the equivalent under CA85. See "The Whitewash Procedure" below.

Legal Consequences of a Breach of the FAO

Under the FAO it is prima facie lawful for financial assistance to be given subject to compliance with the specified criteria. This perspective is reinforced by the provisions of the FAO in relation to dealings with third parties. Section 6(1) provides that if a person is dealing with a company in good faith, no act of the company shall be invalidated by reason of a failure to comply with the provisions of Section 1 (the "whitewash"/compliance criteria). As such, unlike the CA85, a transaction tainted with unlawful financial assistance is not also void.

Section 6(3) takes this protection a step further by providing that a party to a transaction with a company is not bound to enquire as to whether the transaction is in accordance with the provisions of section 1.

The FAO does not provide that a failure to comply with its provisions, resulting in the giving of unlawful financial assistance, results in the commission of any offence or breach, nor does it provide any sanction for such.

However section 6(4) stresses that despite these third party protection provisions it remains the duty of a company’s directors to observe any limitation on their powers imposed by or deriving from the provisions of section 1. As a result the directors of a company giving unlawful financial assistance may be in breach of their fiduciary duties to the company. The consequences of being in breach of such duties might include personal liability for loss suffered by the company as a result.

The Whitewash Procedure

Strictly speaking, as the provision of financial assistance under the FAO is prima facie lawful, there is no need for what is known as a "whitewash" procedure i.e. a procedure which if followed makes a prima facie unlawful act a lawful one. Under the FAO the giving financial assistance is lawful if the company or as the case may be the subsidiary giving the financial assistance:

  • is authorized to do so by the provisions of its memorandum or articles; and
  • will, immediately after the financial assistance is given, satisfy the solvency test.

The Solvency Test

Section 3(1) of the FAO provides that a company satisfies the solvency test if:

(a) immediately following the date on which the assistance is proposed to be given, the company will be able to discharge its liabilities as they fall due in the normal course of its business;

(b) the value of the company’s assets is greater than the aggregate of:

(i) the amount of its liabilities;

(ii) the nominal amount of its issued shares; and

(iii) any amounts standing to the credit of its share premium account and capital redemption reserve fund.

Where the company is one which is a supervised company as defined in the FAO (essentially a company regulated by the Guernsey Financial Services Commission) there is an additional requirement that such supervised company also satisfy any other requirement as to solvency imposed on it by the laws or regulations to which it is subject.

Section 3(2) provides that in determining whether the value of a company’s assets will be greater than the aggregate of the amounts specified above, reliance may be placed upon valuations of assets and estimates of liabilities which are reasonable in all the circumstances.

There is no statutory requirement to obtain an auditors’ report. It is ultimately for the directors to decide what supporting evidence (if any) is appropriate in order for them to be in a position to form the opinion referred to above.

Further, there is no statutory requirement to swear a statutory declaration. In practice, the directors who authorise the financial assistance will include in the transaction board minutes that they confirm they have formed the opinion referred to above

Please note that this briefing is only intended to provide a very general overview of the matters to which it relates. This briefing is not intended as legal advice and should not be relied on as such. © Carey Olsen 2006

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.