The sections, word for word
Every section on this subject, exactly as printed in the Official Gazette (Act No. 3 of 2020). The explanation follows beneath.
Section 293. Remuneration of directors
(1) The remuneration of the directors is determined by the company in general meeting and such remuneration is deemed to accrue from day-to-day.
(2) The directors may also be paid travelling, hotel and other expenses properly incurred by them in attending and returning from meetings of the directors, committee of the directors, general meetings of the company or in connection with the business of the company.
(3) Where remuneration has been fixed by the articles, it is alterable only by a special resolution.
(4) A company is not bound to pay remuneration to directors, but where the company agrees to pay, the directors shall be paid such remuneration out of the fund of the company.
(5) The amount of remuneration is a debt from the company so that if directors take office on the basis of the articles, they shall be able to sue the company on account of the debt or prove it in liquidation.
(6) A director who receives more money than he is entitled to, is guilty of misfeasance and is accountable to the company for such money.
(7) The remunerations of directors is apportionable.
Section 294. Remuneration of a managing director
(1) A managing director receives such remuneration (whether by way of salary, commission, participation in profits, or partly in one way and in another) as the directors may determine.
(2) Where a managing director is removed for any reason under section 288 of this Act, he may claim for breach of contract if there is any or where a contract could be inferred from the terms of the articles.
(3) Where he performs some services without a contract, he is entitled to payment on a quantum merit.
Section 295. Prohibition of tax-free payments to directors
(1) It is not lawful for a company to pay a director remuneration (whether as director or otherwise) free of income tax, or calculated by reference to or varying with the amount of his income tax, or at or with the rate or standard rate of income tax, except under a contract which was in effect at the commencement of this Act, and provides expressly, and not by reference to the articles, for payment or remuneration.
(2) Any provision contained in a company’s articles or in any contract other than such a contract as mentioned in subsection (1), or in any resolution of a company or of a company’s directors for payment to a director of remuneration as mentioned in subsection (1), shall have effect as if it provided for payment, as a gross sum subject to income tax, of the net sum for which it actually provides.
(3) This section does not apply to remuneration due before this Act comes into effect or in respect of a period before it comes into effect.
Section 296. Prohibition of loans to directors in certain circumstances
(1) It is not lawful for a company to make a loan to any person who is its director or a director of its holding company, or to enter into any guarantee or provide any security in connection with a loan made to such a person as earlier mentioned by any other person : Provided that nothing in this section applies—
(a) subject to subsection (2), to anything done to provide any such person as mentioned in this subsection with funds to meet expenditure incurred or to be incurred by him for the purposes of the company or for the purpose of enabling him to properly discharge his duties as an officer of the company ; or
(b) in the case of a company whose ordinary business includes the lending of money or the giving of guarantees in connection with loans made by other persons, to anything done by the company in the ordinary course of that business.
(2) Subsection (1) (a) does not authorise the making of any loan, or the entering into any guarantee, or the provision of any security except—
(a) with the prior approval of the company given at a general meeting at which the purposes of the expenditure, the amount of the loan or the extent of the guarantee or security, are disclosed ; or
(b) on condition that, if the approval of the company is not given as in subsection (2)(a) at or before the next annual general meeting, the loan shall be repaid or the liability under the guarantee or security shall be discharged, within six months from the conclusion of that meeting.
(3) Where the approval of the company is not given as required by any such condition, the directors authorising the making of the loan, the entering into the guarantee or the provision of the security, are jointly and severally liable to indemnify the company against any loss arising from it.
Section 297. Payment by company for loss of office to be approved
A company shall not make to any director of the company any payment by way of compensation for loss of office, or as consideration for or in connection with his retirement from office, unless particulars with respect to the proposed payment and the amount have been disclosed to members of the company and the proposal is approved by the company.
Section 298. Payment to director for loss of office, or transfer of property illegal
(1) If in connection with the transfer of the whole, or any part of the undertaking or property of a company, it is proposed to make any payment to a director of the company by way of compensation for loss of office, or as consideration for or, in connection with his retirement from office, the payment is unlawful unless particulars with respect to the proposal and the amount have been disclosed to members of the company and the proposal is approved by the company.
(2) Where a payment declared by this section to be illegal is made to a director of a company, the amount received is deemed to have been received by him in trust for the company.
Section 299. Directors to disclose payment for loss of office in certain cases
(1) Where, in connection with the transfer to any person of all or any of the shares in a company, being a transfer resulting from—
(a) an offer made to the general body of shareholders,
(b) an offer made by or on behalf of some other body corporate with a view to the company becoming its subsidiary or a subsidiary of its holding company,
(c) an offer made by or on behalf of an individual with a view to his obtaining the right to exercise or control the exercise of at least one-third of the voting power at any general meeting of the company, or
(d) any other offer which is conditional on acceptance to a given extent payment is to be made to a director of the company by way of compensation for loss of office, or as consideration for or in connection with his retirement from office, it is the duty of that director to do all things reasonably necessary to secure that particulars with respect to the proposed payment and the amount, are included in or sent with any notice of the offer made for their shares which is given to any shareholder.
(2) If—
(a) any such director fails to do all things reasonably necessary as mentioned in this section, or
(b) any person who has been properly required by any such director to include the said particulars in or send them with any such notice fails so to do, he is liable to a penalty in such amount as the Commission shall specify in its regulations.
(3) If—
(a) the requirements of subsection (1) of this section are not complied with in relation to any such payments ; or
(b) the making of the proposed payment is not, before the transfer of any share in pursuance of the offer, approved by a meeting summoned for the purpose of the holders of the shares to which the offer relates and of other holders of shares of the same class as any of the said shares, any sum received by the director on account of the payment is deemed to have been received by him in trust for any person who has sold his shares as a result of the offer made, and the expenses incurred by him in distributing that sum amongst those persons shall be borne by him and not retained out of that sum.
(4) Where the shareholders referred to in subsection (3) (b the members of the company and no provision is made by the articles for summoning or regulating such a meeting as is mentioned in that paragraph, the provisions of this Act and of the company’s articles relating to general meetings of the company, for that purpose, apply to the meeting either without modification or with such modification as the Commission on the application of any person concerned may direct for the purpose of adapting them to the circumstances of the meeting.
(5) If at a meeting summoned for the purpose of approving any payment as required by subsection (3) (a), a quorum is not present and, after the meeting has been adjourned to a later date, a quorum is again not present, the payment is, for the purposes of that subsection be deemed to have been approved.
Section 300. Provisions supplementary to sections 298 and 299
(1) Where, in proceedings for the recovery of any payment which has been received by any person in trust by virtue of section 298 and 299 (1) and (3) of this Act, it is shown that—
(a) the payment was made in pursuance of any arrangement entered into as part of the agreement for the transfer in question, or within one year but before two years after that agreement or the offer leading thereto ; and
(b) the company or any person to whom the transfer was made was privy to that arrangement, the payment is deemed, except in so far as the contrary is shown, to be one to which the subsections apply.
(2) If in connection with any such transfer mentioned in sections 298 and 299 of this Act—
(a) the price to be paid for any share held by a director of the company whose office is to be abolished or who is to retire from office in the company held by him is in excess of the price obtainable at the time by other holders of the like shares ; or
(b) any valuable consideration is given to any such director, the excess or the money value of the consideration, as the case may be, shall, for the purposes of that section, be deemed to have been a payment made to him by way of compensation for loss of office, or as consideration for or in connection with his retirement from office.
(3) References in sections 297-299 of this Act to payments made to any director of a company by way of compensation for loss of office or as consideration for or in connection with his retirement from office does not include any bona fide payment by way of damages for breach of contract or by way of pension in respect of past services and for the purposes of this subsection, “pension” includes any superannuation allowance, superannuation gratuity or similar payment.
(4) Nothing in section 298 or 299 of this Act shall be taken to prejudice the operation of any rule of law requiring disclosure to be made with respect to any such payments as are mentioned there, or with respect to any other like payments made, or to be made, to the directors of a company.
What this means
Short answer
The company sets directors’ pay in general meeting (section 293(1)). It may not pay directors free of income tax (section 295). It may not lend to a director, or guarantee his loan, except in limited cases with approval (section 296). Payments for loss of office must be disclosed to members and approved (section 297).
How directors are paid
- The company in general meeting decides directors’ remuneration, and it accrues from day to day (section 293(1)).
- Directors can also be paid travel, hotel and other expenses properly incurred on company business (section 293(2)).
- Where the articles fix the remuneration, only a special resolution can change it (section 293(3)).
- A company is not bound to pay directors, but if it agrees to, the amount is a debt that the director can sue for or prove in a liquidation (section 293(4) and (5)).
- A director who receives more than he is entitled to is guilty of misfeasance and must account to the company for it (section 293(6)).
A managing director’s remuneration, whether salary, commission, profit share or a mix, is set by the directors (section 294).
No tax-free pay
Section 295 makes it unlawful to pay a director free of income tax, or by reference to his income tax. The one exception is a contract already in effect when the Act commenced that provides for it expressly. Any other provision, in the articles, a contract or a resolution, takes effect as a gross sum subject to income tax, equal to the net sum it actually states.
Loans to directors
Section 296(1) makes it unlawful for a company to lend to a director of the company or of its holding company, or to give a guarantee or security for such a loan. There are two exceptions. The first is funds to meet expenditure incurred, or to be incurred, for the company’s purposes or to let the director properly perform his duties. The second is a company whose ordinary business includes lending or giving guarantees, acting in the ordinary course of that business.
The first exception has conditions (section 296(2)). The loan, guarantee or security must either have the company’s prior approval at a general meeting where the purpose and amount are disclosed, or be conditional on repayment, or discharge of the liability, within six months of the end of the next annual general meeting if approval is not given. If approval is not obtained as required, the directors who authorised it are jointly and severally liable to indemnify the company for any loss (section 296(3)).
Payments for loss of office
A company may not pay a director compensation for loss of office, or in connection with retirement, unless the details and amount have been disclosed to the members and the proposal approved by the company (section 297). Where the payment is connected with a transfer of the company’s undertaking or property, it is unlawful without that disclosure and approval, and the director holds the money in trust for the company (section 298).
Where the payment is connected with a takeover offer for the company’s shares, the director must take reasonable steps to make sure the details go to every shareholder with the offer. A sum received in breach is held in trust for the shareholders who sold (section 299). Genuine damages for breach of contract and pensions for past service are not caught by these rules (section 300(3)).
Questions and answers
Can a company lend money to a director?
Not generally. Section 296(1) makes it unlawful, with two exceptions, and the first exception needs prior approval at a general meeting or repayment within six months of the next annual general meeting (section 296(2)).
Who decides how much directors are paid?
The company in general meeting. Where the articles fix the remuneration, only a special resolution can change it (section 293).
Can a company pay a director a retirement or loss-of-office payment?
Only if the details and amount are disclosed to the members and the proposal is approved (section 297). Genuine damages and pensions for past service are outside these rules (section 300(3)).
Can a director be paid free of income tax?
No. Section 295 makes this unlawful, subject to a narrow exception for a contract already in force when the Act commenced.
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