Company Law Reform Bill

Clause 199 applies to payments for loss of office made by any person to a director in connection with a transfer of shares in the company or a subsidiary of the company resulting from a takeover bid. The clause requires the payment to be approved by the holders of the class of shares to which the bid relates. This requirement is derived from Sections 314 and 315 of the Companies Act 1985. Currently these sections require any payment made to a director of the company by way of compensation for loss of office or as a consideration for or in connection with retirement from office in connection with the transfer to any person of all or any of the shares in a company resulting from certain kinds of offers to be approved by the holders of the class of shares to which the offer relates. It is therefore already a requirement that the holders of the class of shares to which the offer relates must approve the payment to the director. The reason for this is clear: it is to avoid the risk that directors may obtain advantageous payments from the persons launching the takeover bid which should in fact go towards the members in return for their shares. The Bill retains this requirement. However, the Bill does make a number of changes to the current regime in Sections 315 and 316 of the 1985 Act. In particular, the Bill does not retain the duty placed on the director to take all reasonable steps to secure that particulars of the proposed payment are sent with any notice of the offer made for the shares. The criminal offence of failing to comply with that duty has also been dropped. There are a number of reasons for this. First, the requirement seems over-regulatory, given that the shareholders must approve the payment in any event. The clause ensures that they are informed of the payment either by details being available at the meeting and for inspection at the company’s registered office, or by the details being circulated with a written resolution to approve the payment. Secondly, we have removed all the criminal offences applying in this chapter as the civil consequences of breach seem sufficient. For example, in this case if a payment is made to a director without the required approval from the shareholders, the payment is held on trust for those persons who have sold their shares as a result of the offer made, and the expenses incurred by the director in distributing that sum among those persons are to be borne by the director. Another change made by the clause is that neither the person making the offer, nor any associate of his, may vote on the resolution to approve the payment to the director. This implements a recommendation of the Law Commissions. We believe that this is the right approach as it provides essential protection for shareholders.