Chapter 6Companiescontributions to money purchase pension schemes.
Small companies’ full and shorter form accounts can
show merely the total of the aggregate amounts;
■where the aggregate remuneration exceeds or is equal
to £200,000, companies will be required to show also
the figures attributable to the highest paid director
and the amount of his or her accrued retirement
benefits if he or she is a member of a defined benefit
pension scheme, i.e. a pension scheme in which the
rules specify the benefits to be paid, and the scheme
must be financed accordingly;
■companies are no longer required to show the num-
ber of directors whose emoluments fell within each
band of £5,000.
For listed companies, the regulations bring the Companies
Act into line with Greenbury and the Listing Rules. For
unlisted companies they streamline the former disclosure
requirements.
Exceptions for unlisted companies
The above requirements apply to companies listed on
the Stock Exchange and on the Alternative Investment
Market. Unlisted companies must comply with the require-
ments, with two important exceptions:
■unlisted companies do not have to disclose the amount
of gains made when directors exercise share options.
They have merely to disclose the number of directors
who have exercised their share options;
■unlisted companies do not have to disclose the net
value of any assets that comprise shares which would
otherwise be disclosed in respect of assets received
under long-term incentive schemes. Instead they dis-
close the number of directors in respect of whose
qualifying service shares were received or receivable
under long-term incentive schemes.
Enforcement of fair dealing by directors
Duration of contracts of employment
Under ss 188 and 189 contracts of employment with
directors which are for a period of more than two years
and cannot be terminated by the company by notice
must be approved by the members by ordinary resolu-
tion in general meeting. If this is not done the contract
can be terminated by reasonable notice, which is not
defined by the Act but which at common law would be
at least three months. (JamesvKent & Co Ltd(1950).)
This provision is also useful to those who want to
remove a director from office. In the past boards of
directors have given themselves long contracts without
consulting the members. This has made it difficult to
remove them because the compensation payable under
a long service contract which had been broken by re-
moval of the director concerned was sometimes more
than the company could afford. It can still be costly.Substantial property transactions
Sections 190–196 require the approval of the members
by ordinary resolution in general meeting (or written
resolution) of any arrangement to transfer to, or receive
from, a director (or connected person, see below) a non-
cash asset, e.g. land, exceeding £100,000 or exceeding
10 per cent of the company’s net assets, whichever is the
lower. The section does not apply, however, to non-cash
assets of less than £5,000 in value.
Thus, a company whose assets less its liabilities
amounted to £200,000 would have to comply with the
Act in respect of a transaction with a director for a non-
cash asset worth more than £20,500.
The Act is designed to prevent directors (at least
without member approval) from buying assets from the
company at less than their true value or transferring their
own property to the company at more than market value.
Transfers to and from connected persons are regarded
as transfers to and from a director himself. The main
category of connected persons is a director’s wife or hus-
band and children under 18, plus companies in which
the director, together with his connected persons, holds
one-fifth or more interest in the equity share capital. A
director’s partner is also included.
The rules apply to all companies and shadow directors
are included.
It should be noted that the Act refers to ‘arrangements’
rather than contracts and this will catch transactions where
they are not to be carried out under legally binding
agreements.
A major change under the 2006 Act is to allow the
company and the director to enter into a contract that is
conditional on member approval. This is to cope with
the case where the transacting company is a member of
a group and allows that company to enter into the con-
tract conditionally on the approval of members of its
holding company.Loans, quasi-loans and credit taken
by directors
Sections 197–214 deal with the above matters. The major
change in the CA 2006 is that it abolishes the prohibition181