The competition framework Summary and Background Section 80: Restrictions on payments to directors
547.Section 80 makes provision about the effect of the shareholder resolution on the directors’ remuneration policy provided for by section 79. It inserts a new Chapter 4A into the part of the CA 2006 which deals with payments to directors.
548.Section 226A defines the type of remuneration payments to people who are directors, are to be directors, or have been directors, and payments for directors’ loss of office, to which the rest of the Chapter applies.
549.Sections 226B and 226C place restrictions on the remuneration payments and payments for loss of office that can be made to directors of quoted companies. All such payments to directors will need to be consistent with the directors’ remuneration policy of the company of which the person is a director. Alternatively, payments will need to be approved by a separate shareholder resolution.
550.Section 226D specifies the process by which a company must approve a remuneration payment or payment for loss of office as part of a separate shareholder resolution under section 226B(1)(b) or 226C(1)(b). The details of any proposed payment, including an explanation of how it is inconsistent with the approved directors’ remuneration policy, will need to be set out in a memorandum made available to shareholders. Subsection (6) of section 226D will mean that the restrictions on payments to directors contained in the new Chapter 4A will not apply to a payment made by a company until the earlier of the end of the financial year which begins on or after the day on which it becomes a quoted company or the date on which the company decides the first directors’ remuneration policy approved under section 439A is to take effect for the purpose of Chapter 4A.
551.Section 226E clarifies the consequences of making payments which are not either consistent with the last directors’ remuneration policy to have been approved by shareholders, or approved by a specific shareholder resolution. In doing so, it makes provision comparable to existing section 222 of the CA 2006 (Payments made without approval: civil consequences) relating to the consequences of making unapproved payments to directors.
552.Section 226E, subsection (1), will mean that any legal obligation, such as a contract with a director, which gives rise to a payment to a director which would be deemed unauthorised under section 226B or 226C, is unenforceable.
553.Section 226E, subsection (5), provides a court the discretion to decide, having regard to all the circumstances of the case, to relieve a director from liability in proceedings brought under section 226E if that director can prove that he or she acted honestly and reasonably.
554.Certain transactions such as substantial property transactions, loans and certain credit transactions require approval by a resolution of members under Chapter 4 of Part 10 of the CA 2006. Section 226F has been included because of the possibility that a transaction dealt with in Chapter 4 might also be regarded as a remuneration payment or loss of office payment for the purposes of Chapter 4A. In a case where approval under Chapter 4 and approval under section 226B(1)(b) or 226C(1)(b) would otherwise be required, section 226F(2) ensures that approval under Chapter 4 is sufficient for both purposes. The company will not be required to seek approval through two separate resolutions.