Funding an Empowerment Transaction

It is exciting for black partners to be taken into a business, but how will that invitation be funded? Empowerment transactions can, like any transaction, be financed by either looking to the company itself for cash or by sourcing finance from third party financiers or banks.

As far as finance by the company itself is concerned, our existing Companies Act provides that a company may provide funds to a purchaser to take up shares in the company provided that the directors of the company are satisfied that, subsequent to the transaction, the assets of the company will exceed its liabilities, and the company will be in a position to pay its debts as they become due in the ordinary course of business for the duration of the transaction. At least 75% of the shareholders are also required to pass a special resolution approving the terms upon which the assistance is to be given. These provisions have been used in recent transactions, such as the Italtile and Rainbow