Company Law Reform Bill [HL]

House of Commons

Session 2005 - 06
Internet Publications
Other Bills before Parliament

Company Law Reform Bill [HL]

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 9 — Supplementary provisions
107

(2)
A person is not to be regarded as a shadow director by reason only that the
directors act on advice given by him in a professional capacity.
(3)
A body corporate is not to be regarded as a shadow director of any of its
subsidiary companies for the purposes of—
Chapter 2 (general duties of directors),
5
Chapter 4 (transactions requiring members’ approval), or
Chapter 6 (contract with sole member who is also a director),

by reason only that the directors of the subsidiary are accustomed to act in
accordance with its directions or instructions.
Other definitions
10
235
Persons connected with a director
(1)
This section defines what is meant by references in this Part to a person being
“connected” with a director of a company (or a director being “connected” with
a person).
(2)
The following persons (and only those persons) are connected with a director
15
of a company—
(a)
members of the director’s family (see section 236);
(b)
a body corporate with which the director is connected (as defined in
section 237);
(c)
a person acting in his capacity as trustee of a trust—
20
(i)
the beneficiaries of which include the director or a person who
by virtue of paragraph (a) or (b) is connected with him, or
(ii)
the terms of which confer a power on the trustees that may be
exercised for the benefit of the director or any such person,

other than a trust for the purposes of an employees’ share scheme or a
25
pension scheme;
(d)
a person acting in his capacity as partner—
(i)
of the director, or
(ii)
of a person who, by virtue of paragraph (a), (b) or (c), is
connected with that director;
30
(e)
a firm that is a legal person under the law by which it is governed and
in which—
(i)
the director is a partner,
(ii)
a partner is a person who, by virtue of paragraph (a), (b) or (c)
is connected with the director, or
35
(iii)
a partner is a firm in which the director is a partner or in which
there is a partner who, by virtue of paragraph (a), (b) or (c), is
connected with the director.
(3)
References in this Part to a person connected with a director of a company do
not include a person who is himself a director of the company.
40
236
Members of a director’s family
(1)
This section defines what is meant by references in this Part to members of a
director’s family.
(2)
For the purposes of this Part the members of a director’s family are—

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 9 — Supplementary provisions
108

(a)
the director’s spouse or civil partner;
(b)
any other person (whether of a different sex or the same sex) with
whom the director lives as partner in an enduring family relationship;
(c)
the director’s children or step-children;
(d)
any children or step-children of a person within paragraph (b) (and
5
who are not children or step-children of the director) who live with the
director and have not attained the age of 18;
(e)
the director’s parents.
(3)
Subsection (2)(b) does not apply if the other person is the director’s
grandparent or grandchild, sister, brother, aunt or uncle, or nephew or niece.
10
237
Director “connected with” a body corporate
(1)
This section defines what is meant by references in this Part to a director being
“connected with” a body corporate.
(2)
A director is connected with a body corporate if, but only if, he and the persons
connected with him together—
15
(a)
are interested in shares comprised in the equity share capital of that
body corporate of a nominal value equal to at least 20% of that share
capital, or
(b)
are entitled to exercise or control the exercise of more than 20% of the
voting power at any general meeting of that body.
20
(3)
The rules set out in Schedule 1 (references to interest in shares or debentures)
apply for the purposes of this section.
(4)
References in this section to voting power the exercise of which is controlled by
a director include voting power whose exercise is controlled by a body
corporate controlled by him.
25
(5)
Shares in a company held as treasury shares, and any voting rights attached to
such shares, are disregarded for the purposes of this section.
(6)
For the avoidance of circularity in the application of section 235 (meaning of
“connected person”) —
(a)
a body corporate with which a director is connected is not treated for
30
the purposes of this section as connected with him unless it is also
connected with him by virtue of subsection (2)(c) or (d) of that section
(connection as trustee or partner); and
(b)
a trustee of a trust the beneficiaries of which include (or may include) a
body corporate with which a director is connected is not treated for the
35
purposes of this section as connected with a director by reason only of
that fact.
238
Director “controlling” a body corporate
(1)
This section defines what is meant by references in this Part to a director
“controlling” a body corporate.
40
(2)
A director of a company is taken to control a body corporate if, but only if—
(a)
he or any person connected with him—
(i)
is interested in any part of the equity share capital of that body,
or

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 9 — Supplementary provisions
109

(ii)
is entitled to exercise or control the exercise of any part of the
voting power at any general meeting of that body, and
(b)
he, the persons connected with him and the other directors of that
company, together—
(i)
are interested in more than 50% of that share capital, or
5
(ii)
are entitled to exercise or control the exercise of more than 50%
of that voting power.
(3)
The rules set out in Schedule 1 (references to interest in shares or debentures)
apply for the purposes of this section.
(4)
References in this section to voting power the exercise of which is controlled by
10
a director include voting power whose exercise is controlled by a body
corporate controlled by him.
(5)
Shares in a company held as treasury shares, and any voting rights attached to
such shares, are disregarded for the purposes of this section.
(6)
For the avoidance of circularity in the application of section 235 (meaning of
15
“connected person”)—
(a)
a body corporate with which a director is connected is not treated for
the purposes of this section as connected with him unless it is also
connected with him by virtue of subsection (2)(c) or (d) of that section
(connection as trustee or partner); and
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(b)
a trustee of a trust the beneficiaries of which include (or may include) a
body corporate with which a director is connected is not treated for the
purposes of this section as connected with a director by reason only of
that fact.
239
Associated bodies corporate
25
(1)
For the purposes of this Part bodies corporate are associated if one is a
subsidiary of the other or both are subsidiaries of the same body corporate.
(2)
References to an “associated company” have a corresponding meaning.
240
References to company’s constitution
(1)
References in this Part to a company’s constitution include—
30
(a)
any resolution or other decision come to in accordance with the
constitution, and
(b)
any decision by the members of the company, or a class of members,
that is treated by virtue of any enactment or rule of law as equivalent to
a decision by the company.
35
(2)
This is in addition to the matters mentioned in section 17 (general provision as
to matters contained in company’s constitution).
General
241
Power to increase financial limits
(1)
The Secretary of State may by order substitute for any sum of money specified
40
in this Part a larger sum specified in the order.

Company Law Reform Bill [HL]
Part 11 — Derivative claims and proceedings by members
Chapter 1 — Derivative claims in England and Wales or Northern Ireland
110

(2)
An order under this section is subject to negative resolution procedure.
(3)
An order does not have effect in relation to anything done or not done before
it comes into force.

Accordingly, proceedings in respect of any liability incurred before that time
may be continued or instituted as if the order had not been made.
5
242
Transactions under foreign law

For the purposes of this Part it is immaterial whether the law that (apart from
this Act) governs an arrangement or transaction is the law of the United
Kingdom, or a part of it, or not.
Part 11
10
Derivative claims and proceedings by members
Chapter 1
Derivative claims in England and Wales or Northern Ireland
243
Derivative claims
(1)
This Chapter applies to proceedings in England and Wales or Northern Ireland
15
by a member of a company—
(a)
in respect of a cause of action vested in the company, and
(b)
seeking relief on behalf of the company.

This is referred to in this Chapter as a “derivative claim”.
(2)
A derivative claim may only be brought—
20
(a)
under this Chapter, or
(b)
in pursuance of an order of the court in proceedings under section 459
of the Companies Act 1985 (c. 6) (proceedings for protection of
members against unfair prejudice).
(3)
A derivative claim under this Chapter may be brought only in respect of a
25
cause of action arising from an actual or proposed act or omission involving
negligence, default, breach of duty or breach of trust by a director of the
company.

The cause of action may be against the director or another person (or both).
(4)
It is immaterial whether the cause of action arose before or after the person
30
seeking to bring or continue the derivative claim became a member of the
company.
(5)
For the purposes of this Chapter—
(a)
“director” includes a former director;
(b)
a shadow director is treated as a director; and
35
(c)
references to a member of a company include a person who is not a
member but to whom shares in the company have been transferred or
transmitted by operation of law.