Company Law Reform Bill [HL] (93-97)

House of Commons

Session 2005 - 06
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Company Law Reform Bill [HL] (93-97)

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
93

the arrangement must also have been approved by a resolution of the members
of the holding company.
(3)
A resolution approving an arrangement to which this section applies must not
be passed unless a memorandum setting out the matters mentioned in
subsection (4) is made available to members—
5
(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;
(b)
in the case of a resolution at a meeting, by being made available for
inspection by members of the company both—
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(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.
(4)
The matters to be disclosed are—
(a)
the matters that would have to be disclosed if the company were
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seeking approval of the transaction to which the arrangement relates,
(b)
the nature of the arrangement, and
(c)
the extent of the company’s liability under the arrangement or any
transaction connected with it.
(5)
No approval is required under this section on the part of the members of—
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(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 1006 (bodies not formed under Companies Acts but
authorised to register);
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(b)
a body corporate that is a wholly-owned subsidiary of another body
corporate.
(6)
In determining for the purposes of this section whether a transaction is one that
would have required approval under section 198 or 200 if it had been entered
into by the company, the transaction shall be treated as having been entered
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into on the date of the arrangement.
203
Exception for expenditure on company business
(1)
Approval is not required under section 198 or 200 (requirement of members’
approval for loans etc) for anything done by a company—
(a)
to provide a director of the company or of its holding company, or a
35
person connected with any such director, with funds to meet
expenditure incurred or to be incurred by him—
(i)
for the purposes of the company, or
(ii)
for the purpose of enabling him properly to perform his duties
as an officer of the company, or
40
(b)
to enable any such person to avoid incurring such expenditure.
(2)
This section does not authorise a company to enter into a transaction if the
aggregate of—
(a)
the value of the transaction in question, and
(b)
the value of any other relevant transactions or arrangements,
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exceeds £50,000.

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
94

204
Exception for expenditure on defending proceedings etc
(1)
Approval is not required under section 198 or 200 (requirement of members’
approval for loans etc) for anything done by a company—
(a)
to provide a director of the company or of its holding company with
funds to meet expenditure incurred or to be incurred by him—
5
(i)
in defending any criminal or civil proceedings in connection
with any alleged negligence, default, breach of duty or breach
of trust by him in relation to the company, or
(ii)
in connection with an application for relief (see subsection (5)),
or
10
(b)
to enable any such director to avoid incurring such expenditure,

if it is done on the following terms.
(2)
The terms are—
(a)
that the loan is to be repaid, or (as the case may be) any liability of the
company incurred in connection with the matter is to be discharged, in
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the event of—
(i)
the director being convicted in the proceedings,
(ii)
judgment being given against him in the proceedings, or
(iii)
the court refusing to grant him relief on the application; and
(b)
that it is to be so repaid or discharged not later than—
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(i)
the date when the conviction becomes final,
(ii)
the date when the judgment becomes final, or
(iii)
the date when the refusal of relief becomes final.
(3)
For this purpose a conviction, judgment or refusal of relief becomes final—
(a)
if not appealed against, at the end of the period for bringing an appeal;
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(b)
if appealed against, when the appeal (or any further appeal) is disposed
of.
(4)
An appeal is disposed of—
(a)
if it is determined and the period for bringing any further appeal has
ended, or
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(b)
if it is abandoned or otherwise ceases to have effect.
(5)
The reference in subsection (1)(a)(ii) 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
35
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).
205
Exception for expenditure in connection with regulatory action or
investigation
Approval is not required under section 198 or 200 (requirement of members’
40
approval for loans etc) for anything done by a company—
(a)
to provide a director of the company or of its holding company with
funds to meet expenditure incurred or to be incurred by him in
defending himself—
(i)
in an investigation by a regulatory authority, or
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(ii)
against action proposed to be taken by a regulatory authority,

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
95


in connection with any alleged negligence, default, breach of duty or
breach of trust by him in relation to the company, or
(b)
to enable any such director to avoid incurring such expenditure.
206
Exceptions for minor and business transactions
(1)
Approval is not required under section 198 for a company to make a loan or
5
quasi-loan, or to give a guarantee or provide security in connection with a loan
or quasi-loan, if the aggregate of—
(a)
the value of the transaction, and
(b)
the value of any other relevant transactions or arrangements,

does not exceed £10,000.
10
(2)
Approval is not required under section 200 for a company to enter into a credit
transaction, or to give a guarantee or provide security in connection with a
credit transaction, if the aggregate of—
(a)
the value of the transaction (that is, of the credit transaction, guarantee
or security), and
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(b)
the value of any other relevant transactions or arrangements,

does not exceed £15,000.
(3)
Approval is not required under section 200 for a company to enter into a credit
transaction, or to give a guarantee or provide security in connection with a
credit transaction, if—
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(a)
the transaction is entered into by the company in the ordinary course of
the company’s business, and
(b)
the value of the transaction is not greater, and the terms on which it is
entered into are not more favourable, than it is reasonable to expect the
company would have offered to, or in respect of, a person of the same
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financial standing but unconnected with the company.
207
Exceptions for intra-group transactions
(1)
Approval is not required under section 198 for—
(a)
the making of a loan or quasi-loan to an associated body corporate, or
(b)
the giving of a guarantee or provision of security in connection with a
30
loan or quasi-loan made to an associated body corporate.
(2)
Approval is not required under section 200—
(a)
to enter into a credit transaction as creditor for the benefit of an
associated body corporate, or
(b)
to give a guarantee or provide security in connection with a credit
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transaction entered into by any person for the benefit of an associated
body corporate.
208
Exceptions for money-lending companies
(1)
Approval is not required under section 198 for the making of a loan or quasi-
loan, or the giving of a guarantee or provision of security in connection with a
40
loan or quasi-loan, by a money-lending company if—
(a)
the transaction (that is, the loan, quasi-loan, guarantee or security) is
entered into by the company in the ordinary course of the company’s
business, and

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
96

(b)
the value of the transaction is not greater, and its terms are not more
favourable, than it is reasonable to expect the company would have
offered to a person of the same financial standing but unconnected with
the company.
(2)
A “money-lending company” means a company whose ordinary business
5
includes the making of loans or quasi-loans, or the giving of guarantees or
provision of security in connection with loans or quasi-loans.
(3)
The condition specified in subsection (1)(b) does not of itself prevent a
company from making a home loan—
(a)
to a director of the company or of its holding company, or
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(b)
to an employee of the company,

if loans of that description are ordinarily made by the company to its
employees and the terms of the loan in question are no more favourable than
those on which such loans are ordinarily made.
(4)
For the purposes of subsection (3) a “home loan” means a loan—
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(a)
for the purpose of facilitating the purchase, for use as the only or main
residence of the person to whom the loan is made, of the whole or part
of any dwelling-house together with any land to be occupied and
enjoyed with it,
(b)
for the purpose of improving a dwelling-house or part of a dwelling-
20
house so used or any land occupied and enjoyed with it, or
(c)
in substitution for any loan made by any person and falling within
paragraph (a) or (b) above.
209
Other relevant transactions or arrangements
(1)
This section has effect for determining what are “other relevant transactions or
25
arrangements” for the purposes of any exception to section 198 or 200.

In the following provisions “the relevant exception” means the exception for
the purposes of which that falls to be determined.
(2)
Other relevant transactions or arrangements are those previously entered into,
or entered into at the same time as the transaction or arrangement in question
30
in relation to which the following conditions are met.
(3)
Where the transaction or arrangement in question is entered into—
(a)
for a director of the company entering into it, or
(b)
for a person connected with such a director,

the conditions are that the transaction or arrangement was (or is) entered into
35
for that director, or a person connected with him, by virtue of the relevant
exception by that company or by any of its subsidiaries.
(4)
Where the transaction or arrangement in question is entered into—
(a)
for a director of the holding company of the company entering into it,
or
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(b)
for a person connected with such a director,

the conditions are that the transaction or arrangement was (or is) entered into
for that director, or a person connected with him, by virtue of the relevant
exception by the holding company or by any of its subsidiaries.
(5)
A transaction or arrangement entered into by a company that at the time it was
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entered into—

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
97

(a)
was a subsidiary of the company entering into the transaction or
arrangement in question, or
(b)
was a subsidiary of that company’s holding company,

is not a relevant transaction or arrangement if, at the time the question arises
whether the transaction or arrangement in question falls within a relevant
5
exception, it is no longer such a subsidiary.
210
The value of transactions and arrangements
(1)
For the purposes of sections 198 to 213 (loans etc)—
(a)
the value of a transaction or arrangement is determined as follows, and
(b)
the value of any other relevant transaction or arrangement is taken to
10
be the value so determined reduced by any amount by which the
liabilities of the person for whom the transaction or arrangement was
made have been reduced.
(2)
The value of a loan is the amount of its principal.
(3)
The value of a quasi-loan is the amount, or maximum amount, that the person
15
to whom the quasi-loan is made is liable to reimburse the creditor.
(4)
The value of a credit transaction is the price that it is reasonable to expect could
be obtained for the goods, services or land to which the transaction relates if
they had been supplied (at the time the transaction is entered into) in the
ordinary course of business and on the same terms (apart from price) as they
20
have been supplied, or are to be supplied, under the transaction in question.
(5)
The value of a guarantee or security is the amount guaranteed or secured.
(6)
The value of an arrangement to which section 202 (related arrangements)
applies is the value of the transaction to which the arrangement relates.
(7)
If the value of a transaction or arrangement is not capable of being expressed
25
as a specific sum of money—
(a)
whether because the amount of any liability arising under the
transaction or arrangement is unascertainable, or for any other reason,
and
(b)
whether or not any liability under the transaction or arrangement has
30
been reduced,

its value is deemed to exceed £50,000.
211
The person for whom a transaction or arrangement is entered into
For the purposes of sections 198 to 213 (loans etc) the person for whom a
transaction or arrangement is entered into is—
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(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
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
40
transaction is made in connection with which the guarantee or security
is entered into;
(d)
in the case of an arrangement within section 202 (related
arrangements), the person for whom the transaction is made to which
the arrangement relates.
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