MT Realisations Ltd (in liq) v Digital Equipment Co Ltd [2003] 2 BCLC 117

• Purchase acquired a target company from the vendor.

• Vendor assigned purchaser the benefit of an on-demand loan due from the target company; purchaser agreed to pay vendor for the assignment of loan.

• Purchaser was later unable to make payment to the vendor, so agreement was later restructured – target was made to make payments directly to the vendor, and this was set-off against the money still owed to the vendor by the purchaser under the loan assignment.

• Was argued that set-off of money owed by purchase was unlawful financial assistance.

Held

• Was no financial assistance

• For there to be financial assistance, something has to be given to someone that he does not have already

  • Here, purchaser had not been given any new rights against target company, rather, it had already acquired the right to a loan payable by target company

    • Had purchaser wished to use this to pay off the vendor for the loan assignment, could have simply demanded payment in full at any time

  • By making loan payable to vendor and setting this money off against money due to vendor under loan assignment, was simply short-circuiting the process

• Thus purchaser was simply exercising a pre-existing legal right - this cannot constitute financial assistance