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Company Law Reform Bill [HL]


Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 4 — Transactions with directors requiring approval of members

89

 

196     

The person for whom a transaction or arrangement is entered into

For the purposes of sections 183 to 198 (loans etc) the person for whom a

transaction or arrangement is entered into is—

(a)   

in the case of a loan or quasi-loan, the person to whom it is made;

(b)   

in the case of a credit transaction, the person to whom goods, land or

5

services are supplied, sold, hired, leased or otherwise disposed of

under the transaction;

(c)   

in the case of a guarantee or security, the person for whom the

transaction is made in connection with which the guarantee or security

is entered into;

10

(d)   

in the case of an arrangement within section 187 (related

arrangements), the person for whom the transaction is made to which

the arrangement relates.

197     

Loans etc: civil consequences of contravention

(1)   

This section applies where a company enters into a transaction or arrangement

15

in contravention of section 183, 185 or 187 (requirement of members’ approval

for loans etc).

(2)   

The transaction or arrangement is voidable at the instance of the company,

unless—

(a)   

restitution of any money or other asset that was the subject-matter of

20

the transaction or arrangement is no longer possible,

(b)   

the company has been indemnified for any loss or damage resulting

from the transaction or arrangement, or

(c)   

rights acquired in good faith, for value and without actual notice of the

contravention by a person who is not a party to the transaction or

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arrangement would be affected by the avoidance.

(3)   

Whether or not the transaction or arrangement has been avoided, each of the

persons specified in subsection (4) is liable—

(a)   

to account to the company for any gain that he has made directly or

indirectly by the transaction or arrangement, and

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(b)   

(jointly and severally with any other person so liable under this section)

to indemnify the company for any loss or damage resulting from the

transaction or arrangement.

(4)   

The persons so liable are—

(a)   

any director of the company or of its holding company with whom the

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company entered into the transaction or arrangement in contravention

of section 183, 185 or 187,

(b)   

any person with whom the company entered into the transaction or

arrangement in contravention of any of those sections who is connected

with a director of the company or of its holding company,

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(c)   

the director of the company or of its holding company with whom any

such person is connected, and

(d)   

any other director of the company who authorised the transaction or

arrangement.

(5)   

Subsections (3) and (4) are subject to the following two subsections.

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(6)   

In the case of a transaction or arrangement entered into by a company in

contravention of section 183, 185 or 187 with a person connected with a director

 
 

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 4 — Transactions with directors requiring approval of members

90

 

of the company or of its holding company, that director is not liable by virtue

of subsection (4)(c) if he shows that he took all reasonable steps to secure the

company’s compliance with the section concerned.

(7)   

In any case—

(a)   

a person so connected is not liable by virtue of subsection (4)(b), and

5

(b)   

a director is not liable by virtue of subsection (4)(d),

   

if he shows that, at the time the transaction or arrangement was entered into,

he did not know the relevant circumstances constituting the contravention.

(8)   

Nothing in this section shall be read as excluding the operation of any other

enactment or rule of law by virtue of which the transaction or arrangement

10

may be called in question or any liability to the company may arise.

198     

Loans etc: effect of subsequent affirmation

   

Where a transaction or arrangement is entered into by a company in

contravention of section 183, 185 or 187 (requirement of members’ approval for

loans etc) but, within a reasonable period, it is affirmed—

15

(a)   

in the case of a contravention of subsection (1) of that section, by

resolution of the members of the company, and

(b)   

in the case of a contravention of subsection (2) of that section, by

resolution of the members of the holding company,

   

the transaction or arrangement may no longer be avoided under section 197.

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Payments for loss of office

199     

Payments for loss of office

(1)   

In this Chapter a “payment for loss of office” means a payment made to a

director or past director of a company—

(a)   

by way of compensation for loss of office as director of the company,

25

(b)   

by way of compensation for loss, while director of the company or in

connection with his ceasing to be a director of it, of—

(i)   

any other office or employment in connection with the

management of the affairs of the company, or

(ii)   

any office (as director or otherwise) or employment in

30

connection with the management of the affairs of any

subsidiary undertaking of the company,

(c)   

as consideration for or in connection with his retirement from his office

as director of the company, or

(d)   

as consideration for or in connection with his retirement, while director

35

of the company or in connection with his ceasing to be a director of it,

from—

(i)   

any other office or employment in connection with the

management of the affairs of the company, or

(ii)   

any office (as director or otherwise) or employment in

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connection with the management of the affairs of any

subsidiary undertaking of the company.

(2)   

The references to compensation and consideration include benefits otherwise

than in cash and references in this Chapter to payment have a corresponding

meaning.

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Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 4 — Transactions with directors requiring approval of members

91

 

(3)   

For the purposes of sections 201 to 205 (payments requiring members’

approval)—

(a)   

payment to a person connected with a director, or

(b)   

payment to any person at the direction of, or for the benefit of, a

director or a person connected with him,

5

   

is treated as payment to the director.

(4)   

References in those sections to payment by a person include payment by

another person at the direction of, or on behalf of, the person referred to.

200     

Amounts taken to be payments for loss of office

(1)   

This section applies where in connection with any such transfer as is

10

mentioned in section 202 or 203 (payment in connection with transfer of

undertaking, property or shares) a director of the company—

(a)   

is to cease to hold office, or

(b)   

is to cease to be the holder of—

(i)   

any other office or employment in connection with the

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management of the affairs of the company, or

(ii)   

any office (as director or otherwise) or employment in

connection with the management of the affairs of any

subsidiary undertaking of the company.

(2)   

If in connection with any such transfer—

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(a)   

the price to be paid to the director for any shares in the company held

by him is in excess of the price which could at the time have been

obtained by other holders of like shares, or

(b)   

any valuable consideration is given to the director by a person other

than the company,

25

   

the excess or, as the case may be, the money value of the consideration is taken

for the purposes of those sections to have been a payment for loss of office.

201     

Payment by company: requirement of members’ approval

(1)   

A company may not make a payment for loss of office to a director of the

company unless the payment has been approved by a resolution of the

30

members of the company.

(2)   

A company may not make a payment for loss of office to a director of its

holding company unless the payment has been approved by a resolution of the

members of each of those companies.

(3)   

A resolution approving a payment to which this section applies must not be

35

passed unless a memorandum setting out particulars of the proposed payment

(including its amount) is made available to the members of the company whose

approval is sought—

(a)   

in the case of a written resolution, by being sent or submitted to every

eligible member at or before the time at which the proposed resolution

40

is sent or submitted to him;

(b)   

in the case of a resolution at a meeting, by being made available for

inspection by the members both—

(i)   

at the company’s registered office for not less than 15 days

ending with the date of the meeting, and

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(ii)   

at the meeting itself.

 
 

Company Law Reform Bill [HL]
Part 10 — Company directors
Chapter 4 — Transactions with directors requiring approval of members

92

 

(4)   

No approval is required under this section on the part of the members of—

(a)   

a body corporate that is not—

(i)   

a company as defined in section 1 of this Act, or

(ii)   

a body registered under the Companies Acts by virtue of

section 694 (bodies not formed under Companies Acts but

5

authorised to register);

(b)   

a body corporate that is a wholly-owned subsidiary of another body

corporate.

202     

Payment in connection with transfer of undertaking etc: requirement of

members’ approval

10

(1)   

No payment for loss of office may be made by any person to a director of a

company in connection with the transfer of the whole or any part of the

undertaking or property of the company unless the payment has been

approved by a resolution of the members of the company.

(2)   

No payment for loss of office may be made by any person to a director of a

15

company in connection with the transfer of the whole or any part of the

undertaking or property of a subsidiary of the company unless the payment

has been approved by a resolution of the members of each of the companies.

(3)   

A resolution approving a payment to which this section applies must not be

passed unless a memorandum setting out particulars of the proposed payment

20

(including its amount) is made available to the members of the company whose

approval is sought—

(a)   

in the case of a written resolution, by being sent or submitted to every

eligible member at or before the time at which the proposed resolution

is sent or submitted to him;

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(b)   

in the case of a resolution at a meeting, by being made available for

inspection by the members both—

(i)   

at the company’s registered office for not less than 15 days

ending with the date of the meeting, and

(ii)   

at the meeting itself.

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(4)   

No approval is required under this section on the part of the members of—

(a)   

a body corporate that is not—

(i)   

a company as defined in section 1 of this Act, or

(ii)   

a body registered under the Companies Acts by virtue of

section 694 (bodies not formed under Companies Acts but

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authorised to register);

(b)   

a body corporate that is a wholly-owned subsidiary of another body

corporate.

(5)   

A payment made in pursuance of an arrangement—

(a)   

entered into as part of the agreement for the transfer in question, or

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within one year before or two years after that agreement, and

(b)   

to which the company whose undertaking or property is transferred, or

any person to whom the transfer is made, is privy,

   

is presumed, except in so far as the contrary is shown, to be a payment to which

this section applies.

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