Commentary Chapter 9: Supplementary Provisions Section 247: Power to make provision for employees on cessation or transfer of business
457.This section confers a power on the directors to make provision for the benefit of employees (including former employees) of the company or its subsidiaries on the cessation or transfer of the whole or part of the undertaking of the company or the subsidiary (subsection (1)).
458.The directors may exercise this power, even if it will not promote the success of the company. The directors’ general duty under section 172 to act in the way they consider would be most likely to promote the success of the company for the benefit of its members as a whole, does not apply when the directors exercise this power to make provision for employees (subsection (2)).
459.There are a number of conditions to the exercise of this power. It must be authorised by a resolution of the members or, if the articles of the company allow it, by the board of directors. The company’s articles may also impose further conditions on its use (subsection (6)).
460.Any payments made by the directors using the power conferred by this section must be made before the commencement of the winding up of the company and can only be made out of profits available for dividend. Section 187 of the Insolvency Act 1986 confers power to make provision for employees once the company has commenced winding up.
461.This section replaces section 719 of the 1985 Act. In a change from that section, the directors can no longer use the power conferred by this section to make payments to themselves or to former directors or to shadow directors, unless the payments are authorised by the members. The CLR recommended that directors should be prevented from abusing the power by making excessive payments to themselves.