Compensation for loss of office - company management, Business Law and Ethics

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Compensation for Loss of Office:

(a) Section 192 makes it unlawful for a company to make a director any payment by way of compensation for loss of office, or  may as consideration in favour of or in connection with his retirement, unless particulars of the proposed payment, including the amount, are disclosed to the members of the company and the proposal is approved by the company in general meeting. If the payment is not disclosed and approved, the director to whom it is paid shall be deemed to have received it in trust for the company. The directors who paid the money are liable to repay the money to the company : Re: Duomatic.

(b) Section 193 makes it unlawful, in connection with the transfer of the whole or any part of the undertaking or property of a company, so therefore any payment to be made to any director of the company by way of compensation for loss of office or on retirement unless particulars are disclosed and approved. If such a payment is not disclosed the director holds it upon trust for the company.

(c) Section 194 deals with the situation where the shares of the company are being transferred. It applies where the transfer results from-

i. an offer made to the general body of shareholders;

ii. an offer made by another company with a view to the company becoming its subsidiary or a subsidiary of its holding company;

iii. an offer made by an individual with a view to his acquiring at least one-third of the voting power at any general meeting of the company; or

iv. any other offer which is conditional on acceptance to a given extent.

If a payment is made to a director as compensation for loss of office or on his retirement in any of the aforesaid circumstances, he must take reasonable steps to ensure that the particulars of the proposed payments are disclosed in the offer. If this is not done, the director holds the payment on trust for the persons who have sold their shares as a result of the offer.


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