Before the target company can offer financial assistance to the buyer, a depreciation decision must be made.
The directors must take an oath that the company will be able to pay off debts for at least a year, and many times the auditor must confirm the solvency of the company.
The whitewashing resolution is designed to prevent companies from using acquisitions as a means of financing and depleting the assets of target companies.
The decision is designed to protect the acquired companies from financial exhaustion on the part of the acquirer.
A whitewashing resolution means that the buyer promises through the resolution that the target company will be solvent for at least a year and the auditor’s role is to make sure this is financially feasible.