Company Law Reform Bill [HL] (105-111)

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL] (105-111)

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 10 — A company’s directors
Chapter 4 — Transactions with directors requiring approval of members
105

225
Cases where approval is required under more than one provision
(1)
Approval may be required under more than one provision of this Chapter.
(2)
If so, the requirements of each applicable provision must be met.
(3)
This does not require a separate resolution for the purposes of each provision.
226
Requirement of consent of Charity Commission: companies that are charities
5
For section 66 of the Charities Act 1993 (c. 10) substitute—
“66
Consent of Commission required for approval etc by members of
charitable companies
(1)
Where a company is a charity—
(a)
any approval given by the members of the company under any
10
provision of Chapter 4 of Part 10 of the Company Law Reform
Act 2006 (transactions with directors requiring approval by
members) listed in subsection (2) below, and
(b)
any affirmation given by members of the company under
section 197 or 213 of that Act (affirmation of unapproved
15
property transactions and loans),

is ineffective without the prior written consent of the Commission.
(2)
The provisions are—
(a)
section 189 (directors’ long-term service contracts);
(b)
section 191 (substantial property transactions with directors
20
etc);
(c)
section 198 (loans and quasi-loans to directors etc);
(d)
section 200 (credit transactions for benefit of directors etc);
(e)
section 202 (related arrangements);
(f)
section 216 (payments to directors for loss of office);
25
(g)
section 217 (payments to directors for loss of office: transfer of
undertaking etc).
66A
Consent of Commission required for certain acts of charitable
company
(1)
A company that is a charity may not do an act to which this section
30
applies without the prior written consent of the Commission.
(2)
This section applies to an act that—
(a)
does not require approval under a listed provision of Chapter 4
of Part 10 of the Company Law Reform Act 2006 (transactions
with directors) by the members of the company, but
35
(b)
would require such approval but for an exemption in the
provision in question that disapplies the need for approval on
the part of the members of a body corporate which is a wholly-
owned subsidiary of another body corporate.
(3)
The reference to a listed provision is a reference to a provision listed in
40
section 66(2) above.
(4)
If a company acts in contravention of this section, the exemption
referred to in subsection (2)(b) shall be treated as of no effect in relation
to the act.”.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 10 — A company’s directors
Chapter 5 — Directors’ service contracts
106

Chapter 5
Directors’ service contracts
227
Directors’ service contracts
(1)
For the purposes of this Part a director’s “service contract”, in relation to a
company, means a contract under which—
5
(a)
a director of the company undertakes personally to perform services (as
director or otherwise) for the company, or for a subsidiary of the
company, or
(b)
services (as director or otherwise) that a director of the company
undertakes personally to perform are made available by a third party
10
to the company, or to a subsidiary of the company.
(2)
The provisions of this Part relating to directors’ service contracts apply to the
terms of a person’s appointment as a director of a company.

They are not restricted to contracts for the performance of services outside the
scope of the ordinary duties of a director.
15
228
Copy of contract or memorandum of terms to be available for inspection
(1)
A company must keep available for inspection—
(a)
a copy of every director’s service contract with the company or with a
subsidiary of the company, or
(b)
if the contract is not in writing, a written memorandum setting out the
20
terms of the contract.
(2)
All the copies and memoranda must be kept available for inspection at—
(a)
the company’s registered office;
(b)
the place where its register of members is kept available for inspection
(if not at its registered office); or
25
(c)
its principal place of business (if that is situated in the part of the United
Kingdom in which the company is registered).
(3)
The copies and memoranda must be retained by the company for at least one
year from the date of termination or expiry of the contract and must be kept
available for inspection during that time.
30
(4)
The company must give notice to the registrar—
(a)
of the place at which the copies and memoranda are kept available for
inspection, and
(b)
of any change in that place,

unless they have at all times been kept at the company’s registered office.
35
(5)
If default is made in complying with subsection (1), (2) or (3), or default is made
for 14 days in complying with subsection (4), an offence is committed by every
officer of the company who is in default.
(6)
A person guilty of an offence under this section is liable on summary
conviction to a fine not exceeding level 3 on the standard scale and, for
40
continued contravention, a daily default fine not exceeding one-tenth of level
3 on the standard scale.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 10 — A company’s directors
Chapter 6 — Contracts with sole members who are directors
107

(7)
The provisions of this section apply to a variation of a director’s service
contract as they apply to the original contract.
229
Right of member to inspect and request copy
(1)
Every copy or memorandum required to be kept under section 228 must be
open to inspection by any member of the company without charge.
5
(2)
Any member of the company is entitled, on request and on payment of such
fee as may be prescribed, to be provided with a copy of any such copy or
memorandum.

The copy must be provided within seven days after the request is received by
the company.
10
(3)
If an inspection required under subsection (1) is refused, or default is made in
complying with subsection (2), an offence is committed by every officer of the
company who is in default.
(4)
A person guilty of an offence under this section is liable on summary
conviction to a fine not exceeding level 3 on the standard scale and, for
15
continued contravention, a daily default fine not exceeding one-tenth of level
3 on the standard scale.
(5)
In the case of any such refusal or default the court may by order compel an
immediate inspection or, as the case may be, direct that the copy required be
sent to the person requiring it.
20
230
Directors’ service contracts: application of provisions to shadow directors

A shadow director is treated as a director for the purposes of the provisions of
this Chapter.
Chapter 6
Contracts with sole members who are directors
25
231
Contract with sole member who is also a director
(1)
This section applies where—
(a)
a limited company having only one member enters into a contract with
the sole member,
(b)
the sole member is also a director of the company, and
30
(c)
the contract is not entered into in the ordinary course of the company’s
business.
(2)
The company must, unless the contract is in writing, ensure that the terms of
the contract are either—
(a)
set out in a written memorandum, or
35
(b)
recorded in the minutes of the first meeting of the directors of the
company following the making of the contract.
(3)
If a company fails to comply with this section an offence is committed by every
officer of the company who is in default.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 10 — A company’s directors
Chapter 7 — Directors’ liabilities
108

(4)
A person guilty of an offence under this section is liable on summary
conviction to a fine not exceeding level 5 on the standard scale.
(5)
For the purposes of this section a shadow director is treated as a director.
(6)
Failure to comply with this section in relation to a contract does not affect the
validity of the contract.
5
(7)
Nothing in this section shall be read as excluding the operation of any other
enactment or rule of law applying to contracts between a company and a
director of the company.
Chapter 7
Directors’ liabilities
10
Provision protecting directors from liability
232
Provisions protecting directors from liability
(1)
Any provision that purports to exempt a director of a company (to any extent)
from any liability that would otherwise attach to him in connection with any
negligence, default, breach of duty or breach of trust in relation to the company
15
is void.
(2)
Any provision by which a company directly or indirectly provides an
indemnity (to any extent) for a director of the company, or of an associated
company, against any liability attaching to him in connection with any
negligence, default, breach of duty or breach of trust in relation to the company
20
of which he is a director is void, except as permitted by—
(a)
section 233 (provision of insurance),
(b)
section 234 (qualifying third party indemnity provision),
(c)
section 235 (qualifying pension scheme indemnity provision).
(3)
This section applies to any provision, whether contained in a company’s
25
articles or in any contract with the company or otherwise.
(4)
Nothing in this section prevents a company’s articles from making such
provision as has previously been lawful for dealing with conflicts of interest.
233
Provision of insurance

Section 232(2) (voidness of provisions for indemnifying directors) does not
30
prevent a company from purchasing and maintaining for a director of the
company, or of an associated company, insurance against any such liability as
is mentioned in that subsection.
234
Qualifying third party indemnity provision
(1)
Section 232(2) (voidness of provisions for indemnifying directors) does not
35
apply to qualifying third party indemnity provision.
(2)
Third party indemnity provision means provision for indemnity against
liability incurred by the director to a person other than the company or an
associated company.

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 10 — A company’s directors
Chapter 7 — Directors’ liabilities
109


Such provision is qualifying third party indemnity provision if the following
requirements are met.
(3)
The provision must not provide any indemnity against—
(a)
any liability of the director to pay—
(i)
a fine imposed in criminal proceedings, or
5
(ii)
a sum payable to a regulatory authority by way of a penalty in
respect of non-compliance with any requirement of a regulatory
nature (however arising); or
(b)
any liability incurred by the director—
(i)
in defending criminal proceedings in which he is convicted, or
10
(ii)
in defending civil proceedings brought by the company, or an
associated company, in which judgment is given against him, or
(iii)
in connection with an application for relief (see subsection (6))
in which the court refuses to grant him relief.
(4)
The references in subsection (3)(b) to a conviction, judgment or refusal of relief
15
are to the final decision in the proceedings.
(5)
For this purpose—
(a)
a conviction, judgment or refusal of relief becomes final—
(i)
if not appealed against, at the end of the period for bringing an
appeal, or
20
(ii)
if appealed against, at the time when the appeal (or any further
appeal) is disposed of; and
(b)
an appeal is disposed of—
(i)
if it is determined and the period for bringing any further
appeal has ended, or
25
(ii)
if it is abandoned or otherwise ceases to have effect.
(6)
The reference in subsection (3)(b)(iii) to an application for relief is to an
application for relief under—
section 1123 (general power of court to grant relief in case of honest and
reasonable conduct), or
30
section 144(3) or (4) of the Companies Act 1985 (c. 6) (power of court to
grant relief in case of acquisition of shares by innocent nominee).
235
Qualifying pension scheme indemnity provision
(1)
Section 232(2) (voidness of provisions for indemnifying directors) does not
apply to qualifying pension scheme indemnity provision.
35
(2)
Pension scheme indemnity provision means provision indemnifying a director
of a company that is a trustee of an occupational pension scheme against
liability incurred in connection with the company’s activities as trustee of the
scheme.

Such provision is qualifying pension scheme indemnity provision if the
40
following requirements are met.
(3)
The provision must not provide any indemnity against—
(a)
any liability of the director to pay—
(i)
a fine imposed in criminal proceedings, or

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 10 — A company’s directors
Chapter 7 — Directors’ liabilities
110

(ii)
a sum payable to a regulatory authority by way of a penalty in
respect of non-compliance with any requirement of a regulatory
nature (however arising); or
(b)
any liability incurred by the director in defending criminal proceedings
in which he is convicted.
5
(4)
The reference in subsection (3)(b) to a conviction is to the final decision in the
proceedings.
(5)
For this purpose—
(a)
a conviction becomes final—
(i)
if not appealed against, at the end of the period for bringing an
10
appeal, or
(ii)
if appealed against, at the time when the appeal (or any further
appeal) is disposed of; and
(b)
an appeal is disposed of—
(i)
if it is determined and the period for bringing any further
15
appeal has ended, or
(ii)
if it is abandoned or otherwise ceases to have effect.
(6)
In this section “occupational pension scheme” means an occupational pension
scheme as defined in section 150(5) of the Finance Act 2004 (c. 12) that is
established under a trust.
20
236
Qualifying indemnity provision to be disclosed in directors’ report
(1)
This section requires disclosure in the directors’ report of—
(a)
qualifying third party indemnity provision, and
(b)
qualifying pension scheme indemnity provision.

Such provision is referred to in this section as “qualifying indemnity
25
provision”.
(2)
If when a directors’ report is approved any qualifying indemnity provision
(whether made by the company or otherwise) is in force for the benefit of one
or more directors of the company, the report must state that such provision is
in force.
30
(3)
If at any time during the financial year to which a directors’ report relates any
such provision was in force for the benefit of one or more persons who were
then directors of the company, the report must state that such provision was in
force.
(4)
If when a directors’ report is approved qualifying indemnity provision made
35
by the company is in force for the benefit of one or more directors of an
associated company, the report must state that such provision is in force.
(5)
If at any time during the financial year to which a directors’ report relates any
such provision was in force for the benefit of one or more persons who were
then directors of an associated company, the report must state that such
40
provision was in force.
237
Copy of qualifying indemnity provision to be available for inspection
(1)
This section has effect where qualifying indemnity provision is made for a
director of a company, and applies—

Company Law Reform Bill [HL] (changed to Companies Bill [HL])
Part 10 — A company’s directors
Chapter 7 — Directors’ liabilities
111

(a)
to the company of which he is a director (whether the provision is made
by that company or an associated company), and
(b)
where the provision is made by an associated company, to that
company.
(2)
That company or, as the case may be, each of them must keep available for
5
inspection—
(a)
a copy of the qualifying indemnity provision, or
(b)
if the provision is not in writing, a written memorandum setting out its
terms.
(3)
The copy or memorandum must be kept available for inspection at—
10
(a)
the company’s registered office;
(b)
the place where its register of members is kept available for inspection
(if not at its registered office); or
(c)
its principal place of business (if that is situated in the part of the United
Kingdom in which the company is registered).
15
(4)
The copy or memorandum must be retained by the company for at least one
year from the date of termination or expiry of the provision and must be kept
available for inspection during that time.
(5)
The company must give notice to the registrar—
(a)
of the place at which the copy or memorandum is kept available for
20
inspection, and
(b)
of any change in that place,

unless it has at all times been kept at the company’s registered office.
(6)
If default is made in complying with subsection (2), (3) or (4), or default is made
for 14 days in complying with subsection (5), an offence is committed by every
25
officer of the company who is in default.
(7)
A person guilty of an offence under this section is liable on summary
conviction to a fine not exceeding level 3 on the standard scale and, for
continued contravention, a daily default fine not exceeding one-tenth of level
3 on the standard scale.
30
(8)
The provisions of this section apply to a variation of a qualifying indemnity
provision as they apply to the original provision.
(9)
In this section “qualifying indemnity provision” means—
(a)
qualifying third party indemnity provision, and
(b)
qualifying pension scheme indemnity provision.
35
238
Right of member to inspect and request copy
(1)
Every copy or memorandum required to be kept by a company under section
237 must be open to inspection by any member of the company without charge.
(2)
Any member of the company is entitled, on request and on payment of such
fee as may be prescribed, to be provided with a copy of any such copy or
40
memorandum.

The copy must be provided within seven days after the request is received by
the company.