Whitewash Resolution Key Guide for MA under Companies Act

924 reads · Last updated: January 3, 2026

Whitewash resolution is a European term used in conjunction with the Companies Act of 1985, which refers 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 occurs when directors of the target company must swear that the company will be able to pay its debts for a period of at least 12 months. Oftentimes, an auditor must then confirm the company's solvency.

Core Description

  • Whitewash Resolution allows a target company to provide financial assistance for the purchase of its own shares, subject to stringent approvals.
  • It balances corporate deal flexibility with robust protections for minority shareholders and creditors.
  • Originating from UK company law, this mechanism has evolved and is used in multiple jurisdictions for M&A transactions.

Definition and Background

A Whitewash Resolution is a corporate approval process that authorizes a target company to grant financial assistance — such as loans, guarantees, or collateral — to support the purchase of its own shares. Under traditional company law, providing such assistance is generally prohibited to preserve capital and protect creditors. The Whitewash Resolution, however, provides a legal exception to this prohibition when specific transparency, solvency, and shareholder approval requirements are met.

The concept began in the UK Companies Act 1981, was refined in the 1985 Act, and further adapted by the Companies Act 2006. While the 2006 reforms removed the ban for private companies, similar mechanisms remain relevant in Ireland, Singapore, Jersey, Guernsey, and Australia. Often, the process is connected with other regulatory regimes and market-specific rules, especially for listed companies and public takeovers.

The Whitewash Resolution thus serves as a compromise: it enables dealmakers — such as private equity sponsors and acquisition vehicles — to complete transactions without compromising the interests of minority investors or creditors, provided strict procedural safeguards are followed.

Calculation Methods and Applications

Overview of Solvency Assessment

To ensure legal compliance, directors must declare that the company will remain solvent for at least 12 months after the transaction. This includes two principal tests:

  • Balance Sheet Solvency: Directors confirm that the company’s assets will exceed its liabilities after accounting for any new financial commitments from the transaction. The calculation must account for fair value adjustments, potential goodwill, deferred taxes, and the impact of the proposed financial assistance.

  • Cash Flow Solvency: Using a rolling 13-week model, often extended to a 12-month period, management forecasts the company’s ability to pay its debts as they fall due. This assessment includes stress-testing revenue, working capital cycles, and debt obligations under adverse scenarios.

Required Data and Documentation

Key inputs for the solvency assessment include:

  • Audited financial statements
  • Management accounts
  • Detailed transaction structure and amount of assistance
  • Financing terms, debt servicing schedules, and liquidity forecasts
  • Contingent liabilities, including guarantees and indemnities

Directors’ solvency statements are typically reviewed by an independent auditor, whose comfort letter is provided to shareholders for additional assurance.

Procedural Steps

  1. Board Approval: Directors approve the proposed assistance and sign the solvency statement.
  2. Expert Review: An independent auditor examines the directors’ forecasts and underlying assumptions.
  3. Shareholder Circular: Explanatory materials, including the solvency statement and any auditor’s report, are circulated to shareholders.
  4. Resolution Vote: A special shareholder resolution (typically requiring 75 percent approval) is passed.
  5. Filing: Finalized documents are submitted to the corporate registry within statutory timelines.

These steps ensure full transparency and informed consent, minimizing the risk of legal challenges at a later stage.

Comparison, Advantages, and Common Misconceptions

Advantages

  • Deal Certainty: Facilitates complex transactions, such as leveraged buyouts, where financial assistance from the target is critical.
  • Protection: Thorough documentation and mandatory disclosures support the interests of minority shareholders and creditors.
  • Transparency: Shareholder meetings and involvement of independent experts enhance clarity in the approval process.

Disadvantages

  • Process Complexity: Multiple procedural steps, rigorous documentation, and deadlines may lead to deal delays.
  • Cost: The necessity of independent audits and legal services increases transaction expenses.
  • Potential Bias: Directors’ solvency declarations, if insufficiently scrutinized, may be overly optimistic and carry risks in the event of changing circumstances.

Misconceptions

  • Whitewash is Not Blanket Approval: It does not automatically legalize all forms of assistance; every statutory requirement must be met.
  • Shareholder Vote Alone is Insufficient: The directors’ solvency statement, independent review, statutory disclosures, and regulatory filings are all required.
  • Not Universally Applicable: Jurisdictions vary; some have ended or changed the whitewash regime, and others (such as the US) have not implemented it.
  • Not a Solvency Guarantee: The solvency statement covers a defined future period, not indefinite financial health.
  • Auditor’s Letter Is Not a Rubber Stamp: The auditor’s comfort depends on thorough and accurate evidence and assumptions.
  • Entity-Specific Requirement: Each relevant group entity must separately obtain whitewash approval; using group-wide assumptions can invalidate the process.

Practical Guide

Step-by-Step Process

  1. Appoint Advisors: Engage legal counsel and auditors at an early stage to clarify requirements and manage timelines.
  2. Model Financials: Prepare detailed financial projections and stress tests covering at least 12 months, including downside scenarios.
  3. Draft Solvency Statement: The board of directors reviews analyses and declares future solvency, recording the rationale and discussions.
  4. Audit and Review: Independent experts review documentation, challenge assumptions, and prepare their opinion.
  5. Prepare Disclosure: Circulate a memorandum to all voting shareholders with comprehensive details of the proposed assistance and expert reports.
  6. Hold Shareholder Vote: Call and conduct a meeting, ensuring that interested or conflicted parties abstain from voting.
  7. Post-Approval Filings: File all resolutions and supporting documents with the appropriate registries.

Case Study

Example (Fictional for Illustrative Purposes Only):
A private equity fund plans to acquire ControlTech, a target in the UK. The buyer’s lenders require ControlTech to guarantee acquisition financing — a scenario requiring a whitewash. After conducting financial modeling (demonstrating positive net assets and liquidity for 12 months, even under stressed conditions), the directors issue a solvency declaration. An independent auditor verifies the forecasts are reasonable. Shareholder communications highlight relevant risks, and a special resolution passes with 75 percent approval, excluding the buyer’s related shares. This process supports transparency and creditor protection, and the deal continues following filings with Companies House.

Note: This case is fictional and is provided only as an illustration, not as investment guidance.

Resources for Learning and Improvement

  • Legislative Texts:

    • UK Companies Act 2006 (ss.678–683) via legislation.gov.uk
    • Ireland Companies Act 2014 (SAP regime)
    • Singapore Companies Act s.76

  • Landmark Cases:

    • Brady v Brady [1989] AC 755
    • Chaston v SWP Group [2003] EWCA Civ 1409
    • MT Realisations v Arum [2007] EWHC 1951 (Ch)

  • Reference Books:

    • Gower & Davies: Principles of Modern Company Law
    • Sealy & Worthington on Company Law

  • Guidance and Practice:

    • Practical Law and LexisPSL guides on Whitewash Resolutions
    • ICAEW and ACCA materials on solvency testing
    • Law firm briefings on procedural steps and risks

  • Databases & Registries:

    • Companies House
    • BAILII, Westlaw, and Lexis for case law and filings

  • Professional Courses:

    • CPD courses from legal societies
    • University and business school modules on M&A law

  • Webinars:

    • ICAEW and law firm webinars on whitewash resolution procedures, stress-testing, and regulatory considerations

FAQs

What is a Whitewash Resolution?

A Whitewash Resolution is a special shareholder approval that allows a company to provide financial assistance for the purchase of its own shares, as long as solvency and regulatory requirements are satisfied.

When is it needed?

It is required when a target company or its subsidiaries seek to provide loans, guarantees, or security to help finance a buyer’s acquisition of the company’s shares, in situations where such assistance would otherwise be prohibited by law.

Which jurisdictions use it?

Whitewash procedures are used in the UK (historically), Ireland, Singapore, Jersey, Guernsey, Isle of Man, and Australia, with variations across jurisdictions.

Who approves a Whitewash Resolution?

Shareholders typically approve it via a special resolution, usually with a 75 percent majority and excluding interested parties. Directors are also required to approve and sign a solvency statement.

What is the role of auditors?

Auditors or other independent experts review the directors’ solvency analysis, provide comfort letters, and help verify the accuracy and reliability of financial modeling.

What happens if rules are not followed?

Failure to comply with the whitewash requirements may render the financial assistance void or voidable, expose directors to possible legal liability, and impede the related transaction.

How does it protect minority shareholders and creditors?

The regime includes measures such as extensive disclosures, independent review, and voting restrictions designed to protect minority shareholders and creditors by preventing abusive transactions.

Conclusion

The Whitewash Resolution is a structured legal tool that makes certain corporate transactions possible while safeguarding stakeholder interests. Its procedural rigor — including solvency assessments, independent reviews, and formal shareholder involvement — provides a balance between transactional flexibility and robust corporate governance. For directors, investors, and transaction professionals, understanding the requirements and implications of a Whitewash Resolution is essential for facilitating M&A activity within proper legal and regulatory boundaries. As corporate law continues to evolve, staying updated on procedural standards and regulatory changes is crucial for anyone involved in the preparation or approval of such resolutions.

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