Consequences of failing to comply with section 260A

Consequences of failing to comply with section 260A

A company providing financial assistance for others to acquire shares in the company can be the basis of a criminal charge in certain circumstances. This charge is generally used where dishonesty is involved in a contravention of section 260A.

  • Two directors of Newco lend a large amount of Newco’s money to Oldco. The loan is for Oldco to buy shares in Newco. Oldco is bordering on insolvency. The directors are aware of the potential insolvency, but tell the other directors that Oldco is financially sound.
  • The CFO of Newco authorises guaranteeing a loan to Blueco. Blueco is about to default. The CFO knows of the default, but tells shareholders that Blueco is a healthy business.
  • The person was not aware of any dishonesty.
  • Someone else was dishonest.
There are other possible defences, depending on the circumstances surrounding the alleged offending. Each matter is unique and requires an individual approach and strategy.

“Did you really understand the situation?”

Questions in cases like this
  • How can they prove dishonesty was involved?
  • Was someone else dishonest?

Maximum penalty and Court that deals with this charge

The maximum penalty for Consequences of Failing to Comply With Section 260A (s260D of the Corporations Act 2001) is a fine of 2000 penalty units ($310,920) or imprisonment for five years, or both.

It is an indictable offence. This means it will be in the County Court.

What can you be sentenced to for this charge?

A guilty finding can lead to a range of penalties. The least severe offences will result in a fine, whereas the most severe will mean time in prison.

What is the legal definition of Consequences of Failing to Comply With Section 260A?
The legal definition of Consequences of Failing to Comply with Section 260A has several parts:
  1. A company provides financial assistance to someone to buy shares in the company; and
  2. The assistance materially prejudices the interests of the company, shareholders, or creditors; and
  3. The assistance was not approved by shareholders; and
  4. A person involved in the transaction was dishonest.
The section that covers this offence is 260D of the Corporations Act 2001.1