Whitewashing in M&A: Financial Assistance & Section 260B

by | Sep 29, 2026 | Blog, Buying

Whitewashing in Australian M&A: financial assistance explained

If a target company is asked to guarantee acquisition debt or grant security over its assets to support a buyer's financing, the financial assistance rules in Part 2J.3 of the Corporations Act 2001 (Cth) are almost certainly in play. "Whitewashing" is the shareholder-approval process that clears the way — and on a leveraged deal, it is best treated as a planned workstream, not a last-minute surprise.

What whitewashing actually is

"Whitewashing" is the market term for the approval process under section 260B of the Corporations Act. It applies where a company will provide financial assistance for the acquisition of shares in itself or its holding company. In plain terms, the law restricts a company's own money, assets or credit support being used to help fund its own purchase — unless one of three permitted gateways is satisfied.

Key takeaway

The test looks at substance, not labels. If target value, credit or assets are being routed into the share-purchase economics — by guarantee, security, a loan, or a release — financial assistance is the question to answer, and it should be answered at the structuring stage.

The three legal gateways

Assistance is permitted where one of the following applies:

  1. No material prejudice — the assistance does not materially prejudice the company, its shareholders, or its ability to pay creditors.
  2. Shareholder approval — the assistance is approved under section 260B. This is the usual "whitewash" route.
  3. Statutory exemption — the assistance fits within one of the limited exemptions in section 260C.

Why it matters in M&A

The most common trigger is acquisition finance. A buyer acquires a target using debt and, after completion, the lender wants the target and its subsidiaries to guarantee that debt and grant security over their assets. That support makes the acquisition easier or safer for the buyer and lender, so it can amount to financial assistance. Because the concept is interpreted broadly, Australian deal teams usually assess it early and whitewash conservatively wherever there is target group guarantee or security support.

Worked example

BidCo agrees to buy 100% of Target Pty Ltd for A$30 million — A$10 million in equity and A$20 million in bank debt. At signing, the target has given no support. Before completion, the bank requires Target and each material subsidiary to accede as guarantors and grant general security. That support helps the buyer's acquisition financing, so it raises financial assistance concerns.

The target prepares notice materials, lodges with ASIC and obtains shareholder approval — and only after the statutory process and waiting period do the target group entities enter the guarantees and security. Had the bank simply lent to BidCo with no target support, whitewashing may not have been needed; the issue arises because the target group itself is being asked to support the structure.

A practical sequence

Whitewashing follows a defined path. The mechanics do not compress to suit a signing date, so map them into the deal calendar early:

At a glance

  1. Identify the support requested from the target group — guarantees, security, intercompany loans, releases or indemnities.
  2. Ask whether that support helps a person acquire shares in the company or its holding company.
  3. Assess whether there is a credible "no material prejudice" position; if not clear, many teams whitewash.
  4. Check whether any section 260C exemption clearly applies.
  5. Map the approval chain — target, listed holding company and ultimate Australian holding company.
  6. Prepare the notice of meeting and explanatory statement with all material information.
  7. Lodge the section 260B materials with ASIC before they go to members.
  8. Obtain shareholder approval by special resolution (or unanimous ordinary resolution), observing voting exclusions.
  9. Lodge the post-approval ASIC notices.
  10. Hold off giving the assistance until the statutory waiting period has passed — often a finance condition precedent or completion step.

When it's required — and when it isn't

Whitewashing is usually needed where the target supports the buyer's financing:

  • The target guarantees the buyer's acquisition loan.
  • The target grants security over its assets for that loan.
  • The target lends funds to the buyer to help pay the purchase price.

It is often not needed where the target gives no support:

  • The buyer funds the acquisition entirely from its own equity and third-party debt.
  • The assistance clearly falls within a section 260C exemption.
  • The transaction is ordinary operations unrelated to the share acquisition.

Worth noting

Completion does not cure the analysis. Section 260A can apply to support given after the acquisition just as it does before — a guarantee or security granted post-completion still sits inside the question. And whitewashing is not a substitute for the rest: directors' duties, solvency, lender covenants and other corporate approvals must still be addressed in parallel.

The full client note

We've put the detail into a client-ready note — the three legal gateways, the ten-step checklist, the worked acquisition finance example, a side-by-side of when whitewashing is and isn't required, and the practical warning points — with a source list to anchor the analysis.

Download Whitewashing in Australian M&A

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Need Help?

This article provides general information and should not be considered legal or tax advice. For personalised guidance on financial assistance and the section 260B process, please contact the team at Quinn M&A by calling 1300 QUINNS (1300 784 667) or +61 2 9223 9166, or submit an online enquiry form to arrange a confidential discussion.