Whitewash Resolution

A whitewash resolution is a shareholder-approved condition that allows a target company to provide financial assistance to an acquiring company while protecting the target’s creditors and solvency. It is commonly used in mergers and acquisitions to prevent buyers from exploiting a target’s assets and leaving it unable to meet its obligations.

How it works

• The target company proposes a whitewash resolution when it intends to give the acquirer financial assistance (for example, funding that helps the buyer purchase the target’s shares).
• Shareholders of the target must vote to approve the resolution.
• Directors must confirm that, after providing assistance, the company will remain solvent and able to pay its debts for at least 12 months.
• An independent auditor (or similar insolvency confirmer, where required) is brought in to verify the company’s solvency before the directors authorize the assistance.
• If shareholder approval and any required solvency certification are obtained, the target may proceed with the assistance and the acquisition can continue.

Purpose and typical use

• Protects creditors and minority shareholders by ensuring acquisitions are not used to strip assets or push the target into insolvency.
• Commonly used by financially distressed companies that seek a buyer as a rescue option; the whitewash lets them provide limited support to enable the sale while preserving short‑term viability.
• Often appears in jurisdictions whose company laws regulate financial assistance in M&A (historically associated with UK company law).

Role of the auditor

The auditor’s role is to independently confirm that, after the proposed financial assistance, the target company will remain solvent for the period specified (commonly 12 months). This verification gives shareholders and directors confidence that the assistance will not imminently endanger creditors or the company’s continued operations.

Special considerations by jurisdiction

In some markets (for example, Hong Kong and Singapore), a “whitewash” can refer instead to a waiver by independent shareholders of certain mandatory takeover rights. In that context:
* The whitewash is a shareholder-approved waiver allowing an investor or bidder to proceed without triggering compulsory bid obligations.
* Approval processes and regulatory requirements vary by jurisdiction and often require separate shareholder votes and regulator notification.

Example

Company ABC is financially strained and agrees to provide funding to Company XYZ so XYZ can buy ABC’s shares. ABC’s board proposes a whitewash resolution stating that ABC will remain solvent for at least 12 months after providing the assistance. ABC’s shareholders approve the resolution and an auditor confirms solvency. With those steps complete, ABC can legally provide the assistance and the acquisition proceeds.

Key takeaways

• A whitewash resolution lets a target company provide financial assistance to an acquirer only after shareholder approval and solvency confirmation.
• It is designed to prevent acquisitions from being used to drain a target’s assets and to protect creditors and minority shareholders.
• Requirements (voting thresholds, solvency period, auditor involvement, and regulatory treatment) vary by jurisdiction, so legal and financial advice is essential in practice.