Provision of guarantee to associated company etc after disposal

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When a PLC disposes of part of its shares in a subsidiary (target company) which results in the target company becoming an associated company or joint arrangement of the PLC, the provision on financial assistance under the Listing Requirements should be taken into consideration.

If the PLC or its other subsidiaries have provided guarantee for a debt of the target company and such arrangement continues after the disposal, the board of directors of the PLC must ensure that the provision of the financial assistance (i.e. the guarantee) is:
• fair and reasonable to the PLC; and
• not to the detriment of the PLC and its shareholders.

Where the aggregate amount of financial assistance provided or to be provided at any time to the target company compared to the net tangible assets of the group is 5% or more, the PLC must:
– issue a circular to its shareholders; and
– seek shareholders’ approval of such provision of financial assistance.

See paragraph 8.23 of the Main Market Listing Requirements and Rule 8.25 of the ACE Market Listing Requirements.


This post was first posted on Linkedin on 14 April 2021.

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