Company Law Reform Bill

This clause defines what is meant by reference to a ““directors’ service contract”” in this part of the Bill. In our view, it makes two significant improvements to the relevant provisions in the Companies Act 1985. First, it provides a common definition of a service contract for the whole part. This is in contrast to the 1985 Act, which sometimes made different provisions depending on whether the relevant contract was one of service—that is, an employment contract—or one for services. For example, Section 318 of the 1985 Act, under which directors’ contracts must be open to inspection, applies only to contracts of service, while Section 319, which makes provisions in relation to the duration of contracts, applies to contracts for services as well. The Law Commissioners considered that was anomalous and that both provisions should cover contracts for services as well as employment contracts. The drafting of the Bill achieved that objective. Secondly, in line with the recommendations of the Law Commissioners and the Company Law Review, the definition of ““service contracts”” is expressly extended so that, in addition to covering contracts of service and contracts for services, it includes letters of appointment to the office of director. As a result, it covers the terms under which a director is appointed to that office alone. The clause operates as follows; subsection (1)(a) covers contracts of service such as any employment contract that the director may hold with a company or a subsidiary of the company of which he is director, for example, as an executive director, or any contract for services that he personally undertakes to perform as such. Subsection (1)(b) covers the case where those services are made available to the company through a third party such as a personal services company. In either case, the contract must require the director personally to perform the service or services in question. Subsection (2) brings within the definition of a service contract letters of appointment to the office of director. Many directors will have no contract of service or for services with the company. Historically, as the Committee may know, an office has been regarded as a kind of property, with the fees attaching to that office being regarded as incident of that office. The second sentence of subsection (2) ensures that the definition of ““service contracts”” includes arrangements under which the director performs duties within the scope of the ordinary duties of the director, as well as contracts to perform duties outside the scope of the ordinary duties of a director. Without that, the term ““service contract”” might be interpreted as applying only to the latter type of contract. I hope that makes clear what is said in the clause and that the noble Lord can withdraw the amendment.