BANKS: DANGER IN FINANCING PROPERTY COMPANY SHARE SALES Companies are prohibited - subject to a few limited exceptions - from financing the purchase of their own shares. Any financial institution providing loan finance for such a prohibited transaction runs the risk of having the loan declared void and unenforceable (and any supporting mortgage bond invalidated). That's exactly what happened in a recent High Court case, where the purchasers of a farm-owning company's shares (and the partnership which operated the farm) obtained a bank loan for the purpose. Although a loan obtained with the intention of financing a prohibited deal "is not void where the third party is unaware of such intention", in this case the bank had intimate knowledge of how the transaction had been structured by the parties. Its loan - and bond - were accordingly declared invalid. Recent Articles for April 2010; Source: www.dotnews.co.za |
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