0370 270 6000

Less red tape will make deal-making easier

30 July 2008

New laws designed to cut red tape and the costs of M&A deals could be good news for entrepreneurs looking to buy or sell shares in businesses.

New legislation, which is due to come into force in October 2008, will do away with a process called financial assistance, which provides assurance to creditors where companies borrow and grant security as part of the acquisition process. The law was originally designed to give protection to creditors and also gave comfort to banks and institutions lending significant funds to buy-out teams involved in acquiring company shares. In reality, the law proved onerous and tended to add cost and time to the acquisition process.

While there has been debate about the potential impact the removal of this safeguard will have on the M&A market, soundings from the banking community are optimistic.

While this change in legislation has crept onto the agenda without much comment, we believe it will have a generally positive impact on deal activity, reducing the administration and costs involved in merger and acquisition work. Deal flow is reduced at the moment, given the continuing insecurity in global markets, and any move to encourage acquisitions in the present climate should be welcomed.

While the abolition of the financial assistance rules is broadly welcomed by financiers and the professional services community alike, we are aware that lenders involved in deals have considered whether to have some form of additional due diligence on acquisitions carried out after October 2008 to cover off potential risk. Put simply, banks need to be sure that the forecasts and predicted growth figures being put forward by potential acquirers are real. The financial assistance process (which involved directors giving a solvency confirmation) gave some comfort here. We are not aware that the banks will require any specific new requirements to be put in place post October 2008 to test the strength of forecasts, but we may see an increased level of due diligence into these after this date.

Obviously, we continue to face a period of relatively low deal activity, as lenders remain cautious and sources of funds become scarcer. Despite this sobering atmosphere in capital markets, the abolition of financial assistance will no doubt act as a lubricant to ease the wheels of M&A activity back into action.

Focus on...

Legal updates

Coming of Age

Official statistics show that 15,336 claims which included a complaint of age discrimination were received at the Employment Tribunals between March 2020 and March 2021. The figure is more than double the number of disability discrimination claims (the next highest discrimination claim) and is a remarkable six-fold increase on the number of age discrimination claims presented the previous year.

View

Published articles

Starling Bank employment tribunal

The outcome of the Employment Tribunal claim brought by Gulnaz Raja against Starling Bank Limited and Matthew Newman was reported last month. The Judgment which is available online should be of significant interest to employers, including regulated organisations, in relation to Covid and medical conditions in general.

View

Published articles

EU banks show slow progress on gender diversity

Recent research by DBRS Morningstar has shown that, on average in 2021, using a sample of 43 European banks, gender diversity at board level was found to be gradually improving but is inconsistent across different countries.

View

Published articles

Consumer duty - 'The drill-down' into the 'cross-cutting' rules

This article is the second in a series to help firms take a practical approach to complying with the ‘cross-cutting rules’ within the new ‘Consumer Duty’ (CD) framework. The article summarises what it seems the Financial Conduct Authority (FCA) is seeking to achieve from the applicable rules (section 2 below) and potential complications arising from legal considerations (section 3).

View

The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

Mailing list sign up

Select which mailings you would like to receive from us.

Sign up