ABSTRACT
A and B subsequently agree to purchase from C his shares in Lamb Ltd. There can be no objection to a shareholder selling his shares in a company, since shares are supposed to be transferable (s 182). However, the method of payment may cause problems. A and B paid C partly in cash and partly by means of redeemable, interest-bearing debenture, that is, by means of a loan secured on the stock of Lamb Ltd, the very company whose shares are being purchased. Section 151 provides that, where a person is acquiring shares in a company, it is not lawful for that company to give financial assistance directly or indirectly for the purposes of the acquisition before, during or after the acquisition. The arrangement whereby A and B, once they become directors of Lamb Ltd, authorised Lamb to grant a debenture (a secured loan) over its stock is plainly such assistance (see Carney v Herbert (1985)). This is so despite the fact that courts have bound themselves to look at the commercial realities of a situation; that is, is there really financial assistance? There are exceptions to s 151.
