A few years ago, we canvassed the now outdated and antiquated financial assistance (or illicit loan) provisions that remain in the Newfoundland Corporations Act (the “Act”) and the problems they create for financial institutions seeking guarantees in financing transactions. This article seeks to examine in greater detail the solutions and work-arounds.
Any corporate or commercial transaction involving a Newfoundland and Labrador corporation must include a consideration of the prohibited financial assistance provisions in the Corporations Act (Newfoundland and Labrador) and how to address any issues that arise. Failure to do so could result in the enforceability of a loan or guarantee, personal liability for corporate directors and professional negligence claims. This newsletter outlines the concept of prohibited financial assistance under NL corporate law and the most common ways the prohibition is overcome or mitigated.