Whitewash Resolution

What Is a Whitewash Resolution?

Whitewash resolution is an European term utilized related to the Companies Act of 1985, which alludes to a resolution that must be passed before a target company in a buyout situation can give financial assistance to the buyer of the target. A whitewash resolution happens when directors of the target company must swear that the company will actually want to pay its obligations for a period of something like 12 months. Oftentimes, a auditor must then affirm the company's solvency.

How a Whitewash Resolution Works

A few companies have utilized acquisitions for the purpose of getting financing and depleting the assets of the target companies just to leave those companies obligation ridden and unable to pay their bills.

The Companies Act Of 1985 and the whitewash resolution is intended to guarantee that the target company will stay dissolvable and won't try to discharge its liabilities when the acquisition is complete.

The whitewash resolution means the buyer guarantees through a resolution that the target company will be dissolvable for essentially a year. The auditor's part in this is to guarantee this is financially conceivable. Whenever this is done the target company can shift the responsibility to the procuring company.

Special Considerations

One more form of whitewash resolution is a corporate law concept in Hong Kong and Singapore. The whitewash resolution, in this case, is a waiver of rights of certain independent shareholders. A whitewash resolution is a waiver of rights for these shareholders to receive a mandatory takeover from different shareholders.

An investor can appeal to an executive for a whitewash resolution (or whitewash waiver). This waiver, whenever approved, would be subject to the endorsement of shareholders.

Illustration of a Whitewash Resolution

As a whitewash model, say private company ABC wishes to be purchased by company XYZ. Company ABC could give financial assistance to Company XYZ to give it enough capital to purchase its shares.

Before this can occur, Company ABC directors must pass a whitewash resolution. The resolution passed by Company ABC would note that even subsequent to giving assistance the company will stay viable for basically a year.

The company must remain financially viable something like 12 months after the financial assistance is issued to Company XYZ for the purchase. Too, Company ABC shareholders must support the transaction.

Features

• The whitewash resolution means the buyer guarantees through a resolution that the target company will be dissolvable for essentially a year and the auditor's job is to guarantee it's financially conceivable.
• Directors must swear the company can pay obligations for essentially a year and ordinarily an auditor must affirm the company's solvency.
• The whitewash resolution is intended to prevent companies from involving acquisitions for of financing and depleting the assets of the target companies.
• A whitewash resolution must be passed before a target company can offer financial assistance to the buyer.
• The resolution is intended to safeguard acquired companies from being financially depleted by the acquirer.