A whitewash resolution is an important aspect of the acquisition process. It is designed to protect acquired companies from being financially drained by the acquirers. The resolution is a way to ensure that a target company will remain solvent in the event of acquisition.

Before a target company can offer any kind of financial assistance to the buyer, a whitewash resolution must be passed by its directors. This resolution is a simple statement by the directors promising to pay the company’s debts for at least one year and in many cases, this must be confirmed by an internal or external auditor.

The purpose of the whitewash resolution is to prevent companies from using acquisitions as a means of financing and draining the assets of the target companies. The resolution averts certain risks in the acquisition process by making sure the buyer has enough money and resources to sustain the newly acquired target company for at least one year.

Most times, a new independent auditor is appointed by the directors in accordance with the Companies Act 2006. The auditor will usually carry out a detailed review of the target company’s books of accounts, evaluate the company’s asset base, and assess the anticipated financial commitments related to the acquisition. Meanwhile, the buyer may appoint its own auditor to ensure the target company’s solvency requirements.

Once all audit procedures have been performed to the satisfaction of the directors, the buyer will then be able to sign the whitewash resolution. This resolution allows the target company to offer financial assistance to the buyer and is a crucial step to the final completion of an acquisition.

The whitewash resolution is a very important assurance given by the directors of the target company to the buyers of a company. The resolution ensures that the target company is financially capable of supporting the acquisition for at least a year and allows for an easy and safe transition of the target company’s assets. This is a key step to a successful acquisition as it helps to protect both the acquirer as well as the target company involved in the process.