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 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
25
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
35
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,
40
(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.
20
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
40
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,
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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.
30
(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
35
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
40
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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