Raising Capital and Financial Assistance
February 7, 2013 6 Comments
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