Companies (Audit, Investigations and Community Enterprise) Act 2004

Valid from 06/04/2005

19Relaxation of prohibition on provisions protecting directors etc. from liabilityE+W+S

(1)After section 309 of the Companies Act 1985 (c. 6) insert—

“309AProvisions protecting directors from liability

(1)This section applies in relation to any liability attaching to a director of a company in connection with any negligence, default, breach of duty or breach of trust by him in relation to the company.

(2)Any provision which purports to exempt (to any extent) a director of a company from any liability within subsection (1) is void.

(3)Any provision by which a company directly or indirectly provides (to any extent) an indemnity for a director of—

(a)the company, or

(b)an associated company,

against any liability within subsection (1) is void

This is subject to subsections (4) and (5).

(4)Subsection (3) does not apply to a qualifying third party indemnity provision (see section 309B(1)).

(5)Subsection (3) does not prevent a company from purchasing and maintaining for a director of—

(a)the company, or

(b)an associated company,

insurance against any liability within subsection (1).

(6)In this section—

• “associated company”, in relation to a company (“C”), means a company which is C’s subsidiary, or C’s holding company or a subsidiary of C’s holding company;

• “provision” means a provision of any nature, whether or not it is contained in a company’s articles or in any contract with a company.

309BQualifying third party indemnity provisions

(1)For the purposes of section 309A(4) a provision is a qualifying third party indemnity provision if it is a provision such as is mentioned in section 309A(3) in relation to which conditions A to C below are satisfied.

(2)Condition A is that the provision does not provide any indemnity against any liability incurred by the director—

(a)to the company, or

(b)to any associated company.

(3)Condition B is that the provision does not provide any indemnity against any liability incurred by the director to pay—

(a)a fine imposed in criminal proceedings, or

(b)a sum payable to a regulatory authority by way of a penalty in respect of non-compliance with any requirement of a regulatory nature (however arising).

(4)Condition C is that the provision does not provide any indemnity against any liability incurred by the director—

(a)in defending any criminal proceedings in which he is convicted, or

(b)in defending any civil proceedings brought by the company, or an associated company, in which judgment is given against him, or

(c)in connection with any application under any of the following provisions in which the court refuses to grant him relief, namely—

(i)section 144(3) or (4) (acquisition of shares by innocent nominee), or

(ii)section 727 (general power to grant relief in case of honest and reasonable conduct).

(5)In paragraph (a), (b) or (c) of subsection (4)the reference to any such conviction, judgment or refusal of relief is a reference to one that has become final.

(6)For the purposes of subsection (5) a conviction, judgment or refusal of relief becomes final—

(a)if not appealed against, at the end of the period for bringing an appeal, or

(b)if appealed against, at the time when the appeal (or any further appeal) is disposed of.

(7)An appeal is disposed of—

(a)if it is determined and the period for bringing any further appeal has ended, or

(b)if it is abandoned or otherwise ceases to have effect.

(8)In this section “associated company” and “provision” have the same meaning as in section 309A.

309CDisclosure of qualifying third party indemnity provisions

(1)Subsections (2) and (3) impose disclosure requirements in relation to a directors' report under section 234 in respect of a financial year.

(2)If —

(a)at the time when the report is approved under section 234A, any qualifying third party indemnity provision (whether made by the company or otherwise) is in force for the benefit of one or more directors of the company, or

(b)at any time during the financial year, any such provision was in force for the benefit of one or more persons who were then directors of the company,

the report must state that any such provision is or (as the case may be) was so in force.

(3)If the company has made a qualifying third party indemnity provision and—

(a)at the time when the report is approved under section 234A, any qualifying third party indemnity provision made by the company is in force for the benefit of one or more directors of an associated company, or

(b)at any time during the financial year, any such provision was in force for the benefit of one or more persons who were then directors of an associated company,

the report must state that any such provision is or (as the case may be) was so in force.

(4)Subsection (5) applies where a company has made a qualifying third party indemnity provision for the benefit of a director of the company or of an associated company.

(5)Section 318 shall apply to—

(a)the company, and

(b)if the director is a director of an associated company, the associated company,

as if a copy of the provision, or (if it is not in writing) a memorandum setting out its terms, were included in the list of documents in section 318(1).

(6)In this section—

• “associated company” and “provision” have the same meaning as in section 309A; and

• “qualifying third party indemnity provision” has the meaning given by section 309B(1).”

(2)In section 310 of that Act (provisions exempting officers and auditors from liability), the following provisions cease to have effect—

(a)in subsection (1), the words “any officer of the company or”, and

(b)in subsection (3)—

(i)the words “officer or” (in both places), and

(ii)the words from “section 144(3)” to “nominee) or”;

and in the sidenote, for “exempting officers and” substitute “ protecting ”.