Raising Capital and Financial Assistance

By Law Chi Leung



Two leading figures of Barclays, CFO and general counsel, decided to resign. (InsideCounsel, 2013)  It is believed that they depart Barclays due to the recent scandals, including the one taking place 5 years ago.


In 2008, due to the disastrous financial crisis, the UK government announced to inject £37 billion into leading UK banks so as to rescue the collapsing financial sectors.  Banks being helped at that time included Royal Bank of Scotland Group, Lloyds and HBOS.  Barclay’s avoided being bailed out by the government by raising capital privately.  However, its way of raising capital has now been being investigated by UK authorities, Financial Services Authority and Serious Fraud Office.  (Reuters, 2013)



Laws Being Violated

Facing the hard time, Barclays’ lent Qatar Holding money to buy back its shares.  Such an act was against Section 678 of the Companies Act 2006 (UK) which states “Where a person is acquiring or proposing to acquire shares in a public company, it is not lawful for that company, or a company that is a subsidiary of that company, to give financial assistance directly or indirectly for the purpose of the acquisition before or at the same time as the acquisition takes place.”  It implies the one (Qatar Holding) ”borrowing” money from the public company to buy the share will not be breaking the law. (legislation.gov.uk, 2013)


The Principle of the Law

Section 678 of the Companies Act 2006 (UK), or Section 47A of Companies Ordinance (HK), which is very similar to the former, both were set up to maintain the share capital of a company so as to protect the creditors of the company.  A company can easily “generate” share capital by asking a thirty party to buy back its shares after lending money to that party.  Creditors may thus be misled by the overvalued capital share and transact with the company.


In Barclays’ case, it raised £4.5 billion in June 2008 and more than £7 billion in November 2008 where £5.3 billion was invested by Qatar (theguardian, 2013). It implied that approximately 46% of the injected shares were not applied for business purposes and misleading to external users.




If it is true that Barclays did lend Qatar money to buy back its shares, it is obviously a fraud.  It is time for Barclays to review ethic issue in light of the scandals it is now facing.








Legislation.gov.uk. (2013). Companies Act 2006.  Retrieved from http://www.legislation.gov.uk/ukpga/2006/46/part/18/chapter/2


InsideCounsel. (2013).  Barclays GC, CFO to resign.  Retrieved from http://www.insidecounsel.com/2013/02/05/barclays-gc-cfo-to-resign


Reuters. (2013). UK authorities probe Barclays over Qatar loan.  Retrieved from



Thegurdian. (2013).  Serious Fraud Office investigating Barclays payments to Qatar.  Retrieved from http://www.guardian.co.uk/business/2012/aug/29/sfo-investigation-barclays-qatar

6 Responses to Raising Capital and Financial Assistance

  1. Chan Shing Ho Johnny (2010007173) says:

    Thank you so much for bringing up the issue of fund raising that is to be covered in the next couple of weeks’ time.

    Just as discussed in the context of the existing laws and regulations in UK, it is not lawful for a company to either directly or indirectly gives financial assistance for the purpose of the acquisition before or at the same time as the acquisition takes place. It may come to our concern a number of problems, especially in terms of information disclosure and other regulatory issues that directly come into conflict with various stakeholders’ interests, such as investors and creditors. For instance, the question on how much under the loan agreement was allegedly loaned, and to what bodies concerned, is unclear. (Rowley, 2013)

    After reading the post, I did a bit more research on the internet, and turned to find out that the Qatar Holding had instructed two investment banks to exercise Barclays’ warrants and immediately place 300 million shares with buyers and fund managers around the world, which was equivalent to a sale of £740 million of the Bank’s shares. The warrants are confirmed to be the warrants it has acquired during Barclays’ emergency capital raising in 2008. (Armitstead, 2012) Given that exercising of such warrants often, if not in this case, entitles decent financial return to Qatar, we may question the real motive of the original intention of Barclays lending to Qatar to invest back onto itself. Also, we may wonder, if there are any secret arrangements between Barclays and Qatar that directly inflicts with the financial interests about the transfer of shares. I would keep track on the investigation by the UK authority and see how things go in coming months.


    Armitstead, L. (2012, November 26). Qatar triggers sale of £740m Barclays stake. Retrieved from

    Rowley, E. (2013, February 1). Barclays investigated over claims it lent Qatar money to invest in itself. Retrieved from http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9841197/Barclays-investigated-over-claims-it-lent-Qatar-money-to-invest-in-itself.html

  2. Wan Xuan(2010521155) says:

    Thanks for sharing this fund raising issue which will be talked about after Chinese New Year. It makes us to think about it beforehand whether Barclays acted ethically in fund rasing in 2008.

    Firstly, we may think about the issue why Barclays didn’t want the massive state bailouts from the UK government. Basically there are two points related to this. 1. Barclays wants to maintain the signal of investors’ confidence in Barclays Group. 2. It wants to avoid the need for government intervenetion. Therefore, for the reasons why Barclays wants to raise capital privately is valid. Now, let’s see whether there was a fraud in capital raising.

    In Barclays Regulatory statement, it said that it raised 4.5bn pounds by issuing 1.576million new share in June 2008. This included a roughly £1.7m investment from the Qatar Investment Authority. Further, it raised 7.3bn pounds in November 2011 through the issue of debt instuments.These included the issue of £3bn of ‘reserve capital instruments’ to Qatar Holding. It also included a £2.8bn issue of ‘mandatory convertible notes’ to Qatar Holding.

    Qatar Holding would receive a commission of 4% of the amount of the MCNs they agreed to subscribe to and 2% of the amount of the RCIs they agreed to subscribe to. Also, Qatar Holding also received £66m for “having arranged certain of the subscriptions in the capital raising”, according to Barclays’ statement. It didn’t mention Barclays lent any money to Qatar Holding. As mentioned by Johnny above, Qatar Holding had instructed two investment banks to exercise Barclays’ warrants and immediately place 300 million shares with buyers and fund managers around the world. Certainly, they have some special relationship and more information must be disclosed to detemine whether there was a fraud existed.

    Partington, R. (2012, Jul 27). Barclays in 2008: The capital raisings.
    Retrieved from http://www.efinancialnews.com/story/2012-07-27/barclays-middle-east-deal-fsa-investigation

  3. Kim Mi Na (2010542161) says:

    Thank you for sharing a thought-provoking issue.

    I agree that it would be a serious fraud if the case actually involved shady dealings with Qatar Holding. I want to further add on the significance of this issue.

    Lending money to buy back its own shares can be one kind of market manipulations, which can affect the entire financial system. What Barclays might have done is double-counting capital on its books by recording the loan on one hand and the capital received from Qatar Holding on the other hand. This act distorts the assets of Barclays and leaves the bank at a very risky position which can potentially damage other shareholders.

    According to press, Barclays may get huge monetary penalties or even criminal charges for it. This could be another big business scandal after the Guinness share-trading fraud in 1980s, which involved manipulation of its stock price to assist a take-over bid for another Scottish drink company.

    Foxman, S. (2013, 2 4). Move over, libor. barclays has a juicy new scandal—and it could prove more damaging to its reputation. Quartz. Retrieved from http://qz.com/52478/makers-mark-waters-down-its-bourbon-to-meet-rising-demand/

    Askeland, E. (2013, 2 2). Barclays could face prosecution over qatar deal. Scotsman.com. Retrieved from http://www.scotsman.com/business/banking/barclays-could-face-prosecution-over-qatar-deal-1-2772079

  4. Aber Ahmed (2010524561) says:

    Thank you for shedding more light into this case. As you have mentioned in your post, this sort of action, if proven in court, is a clear violation of Section 47A of Companies Ordinance (HK), and must be treated as a fraud case. Barclays is already trying to rebuild its reputation after the LIBOR rate fixing scandal, and this investigation puts more pressure on the Chief executive Antony Jenkins, who pledged to help Barclays bounce back (Robinson, 2013). The lower rate made the banks financial health seem better than it actually was during the financial crisis. The scandal led to the resignation of the former Chief Executive, the Chairman and Chief Operating Officer. Peter Hann from the Cass Business School told the Financial Times ‘The concept of lending money to any investor to purchase your own shares raises a series of immediate questions about disclosure and other regulatory issues.’ This investigation will only hinder the reputation of Barclays, regardless of the allegations being true or not.

    Robinson, M. (2013, February 01). Barclays under investigation over claims it lent qatar £6bn to buy its own shares and avoid a government bailout at height of 2008 financial crisis read more: http://www.dailymail.co.uk/news/article-2271795/barclays-investigation-claims-lent-qatar-money-buy-shares-avoid-government-bailout-height-2008-financial-crisis.html

  5. Liu Siyan (2010800238) says:

    Thank you Law Chi for your sharing on this interesting piece of news. While the link between Barclays lending money to Qatar Holding and the share acquisition deal between the two parties is intuitive, it may be hard to prove, which is probably why the investigation started by SFO and FSA since July 2012 is still ongoing.

    Following subsection (1) of Section 678 quoted by Law Chi, there is a subsection (2) stating that Subsection (1) does not prohibit a company from giving financial assistance for the acquisition of shares in it or its holding company if—
    (a)the company’s principal purpose in giving the assistance is not to give it for the purpose of any such acquisition, or;
    (b)the giving of the assistance for that purpose is only an incidental part of some larger purpose of the company, and the assistance is given in good faith in the interests of the company.

    ‘Principal purpose’, ‘some larger purpose’, and ‘in good faith’ are all vague concepts and open to manipulation. What exactly was the main purpose of the financial assistance granted might not be easy to recover from the files. It is very likely that both parties, fully aware of the part of company law related to this deal (perhaps paid a lot for lawyers), intentionally evade the law. Barclays can simply argue that the loan made to Qatar Holding was not for the purpose of any acquisition. Therefore, the regulatory departments are now trying to make an issue of the disclosure, rather than the content of the deal. According to the bank’s financial statement, the FSA is looking at the sufficiency of disclosure in relation to fees payable under certain commercial agreements and whether these may have related to Barclays’ capital raisings. What makes this case more complicated is that the loan could even be made to another party instead of Qatar Holding. FT reported that the identity of the borrower and the size of Barclays’ loan remained unclear, but one person close to the situation said Qatar Holding was not its recipient.

    Furthermore, it remains a mystery whether the content of the deal was illegal at all. At around the same time of Barclay’s arrangements with its Middle East investors, Credit Suisse made a similar deal, giving a loan to Qatar for its SFr10bn capital raising in October 2008. The only difference is that it disclosed the deal and was granted permission by Switzerland’s regulators, who wanted to end the market’s uncertainty in the aftermath of UBS’s rescue package. According to analysts at Mediobanca, it is not uncommon to invite investors on board during the crisis in this way and Barclays was certainly not alone.


    Section 678

    FT article on Credit Suisse deal
    http://www.ft.com/intl/cms/s/0/e5b472f2-6c87-11e2-b73a-00144feab49a.html – axzz2KUWMtw2y

    • Konrad Wolkowski says:

      Thank you Law Chi for this post and thank you all for these insightful comments.

      The law was set in order to protect many parties affected by such a situation but it also perfectly illustrates the conflict between the directors and shareholders, which we have already covered in the previous classes. “Shareholders were angry Qatar was offered more attractive terms to invest than existing investors”, which hints that the directors were afraid of losing their positions if they were to be controlled by the government and might have had some additional incentives to help Qatar Holding.

      I have to say that in my opinion to a big extend Liu Siyan with her comment hit the nail in the head. The possible line of defense probably could go somewhere along these lines and this is exactly why Serious Fraud Office (SFO) and Financial Services Authority(FSA), are struggling to find some legitimate evidence.

      However, there is one more very important line of defense. As outline before Barclays might wish to prove that the loan was made “ in good faith of the company” and that it was neither a “larger purpose” nor “principal purpose” to assist the acquisition of shares but it is also of the utmost importance that the financial services rendered by Barclays to Qatar Holding were in fact after not before or during the acquisition. If neither FSA nor SFO are able to prove that it happened exactly before or during the acquisition there then Barclays is not going to face any problems. More often than not, it is very hard to establish the exact date and relevance of all cash flows between two bodies as large as Barclays Bank and Qatar Capital Group, which is yet another hindrance for the FSA and SFO. Most probably the combination of both of these arguments – relevance and timing of the cashflows between these two bodies is going to underlie the problem of this investigation.

      There is also one more issue that I wanted to raise. The investigation has been officially launched and made public in July 2012. Both Lucas and Harding are leaving Barclays much later, even though they allegedly said it to Jenkins(CEO) late last year, which to some extend proves that their resignation is not directly connected to the investigation, unless they were made to stay for a certain period in order to avoid further deterioration of Barclays image. However, this remains purely in the speculation sphere.

      Konrad Wolkowski UID: 3035027033


      Slater, S. & Pitas, C. (Feb,2013). UK authorities probe Barclays over Qatar loan. Retrived February 16, 2013 from

      Wilson, H. (Aug,2012). SFO launches investigation into Barclays payments to Qatar. Tetrived February 16, 2013 from http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9507102/SFO-launches-investigation-into-Barclays-payments-to-Qatar.html


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