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Extension Of Section 26 Of 1967 Act

Volume 979: debated on Tuesday 26 February 1980

The text on this page has been created from Hansard archive content, it may contain typographical errors.

`(1) In subsection (1) of section 26 of the 1967 Act (disclosure of director's service contract with company) the following paragraph shall be inserted after paragraph ( b)—

"(c) in the case of each director who is employed under a contract of service with a subsidiary of the company, a copy of that contract or, if it is not in writing, a written memorandum setting out the terms of that contract;".

(2) The following subsection shall be inserted after subsection (3) of that section—

"(3A) Subsection (1) above shall not apply in relation to a director's contract of service with the company or with a subsidiary of the company if that contract required him to work wholly or mainly outside the United Kingdom, but the company shall keep a memorandum—
  • (a) in the case of a contract of service with the company, setting out the name of the director and the provisions of the contract relating to its duration;
  • (b) in the case of a contract of service with a subsidiary of the company, setting out the name of the director, the name and place of incorporation of the subsidiary and the provisions of the contract relating to its duration,
  • at the same place as copies and the memorandums are kept by the company in pursuance of subsection (1) above.".

    (3) Each reference in subsections (4), (5) and (7) of that section to subsection (1) shall be construed as including a reference to subsection (3A) of that section; the reference in subsection (7) of that section to a contract of service with a company shall be construed as including a contract of service with a subsidiary of a company; and in subsection (8) of that section, paragraph ( a) shall cease to have effect.'.—[ Mr. Eyre.]

    Brought up, and read the First time.

    With this it will be convenient to take Government amendments Nos. 302 and 247.

    Section 26 of the 1967 Act provides for the disclosure of directors' contracts of service with the company. Clause 47 of the Bill, which will prevent directors from entering into long-term service agreements with their company without the approval of the general meeting, covers a wider category of employment agreements. This includes contracts of service which are the usual basis on which people are employed and contracts for service, for instance, where a director makes his services available through his own private company or as a consultant.

    The disclosure provisions of these two sorts of service contracts are to be effected in different ways. Contracts for service which are not at present required to be disclosed as such will in future fall for disclosure under clause 54. A director will be required to declare his interest in such contracts by virtue of section 199 as amended by clause 59 of this Bill. Under clause 54, the principal terms of the contract and the nature of the director's interest in it must be disclosed in the company accounts.

    Contracts of service are already largely provided for in section 26 of the 1967 Act, which requires details of directors' service contracts to be open to inspection by members of the company at an appropriate place. This section needs amendment, however, to bring it into line with the Bill in two respects.

    First, we need to ensure that a director's service contract with a subsidiary company is disclosed in the same way as his service contract with the holding company, of which he is a director, is already required to be disclosed. The effect of this is achieved by subsection (1) of new clause 20.

    Secondly, we need to restrict the exemption embodied in subsection (8) of section 26 for the disclosure of service contracts which require directors to work wholly or mainly overseas. Companies will now be required, by virtue of subsection (2) of this new clause, to disclose the existence of such a contract and those terms of the contract relating to duration in the same manner as those for non-overseas contracts.

    Subsection (3) is merely consequential on subsections (1) and (2). It applies the provisions in section 26 relating to the inspection of service contracts, fines for default, and variation of service contracts to contracts of service with subsidiaries. It disapplies the present total exemption from disclosure of foreign service contracts.

    Amendments Nos. 247 and 302 are also consequential. The latter extends the exemption from the disclosure requirements in clause 54 to contracts of service between a company and a director of its holding company, as this is now provided for in the amendment to section 26.

    I concede that I have not looked up the reports of the Committee stage of the 1967 Bill. I should like to know what is the rationale for the exclusion of the contract of service that is to be wholly or mainly performed abroad. The Minister must have been impressed by that qualification in the 1967 Act, as he has incorporated it in the Bill.

    4.30 pm

    I understand that the effect of the clause is to provide for disclosure of such contracts, but there are no sanctions similar to those which are provided subsequently in the Bill in relation to breaches of the contract of service provisions. I content myself with asking the Minister to reply to those specific points.

    To build on what my hon. Friend the Member for Hackney, Central (Mr. Davis) said, there must be very cogent reasons for exempting overseas service contracts, because the benefit in respect of a director who has an overseas service contract is no less than that applying to any other contract. If it appears that there is no need to disclose in respect of overseas contracts, greater use might be made of overseas service contracts for the purpose of evading the disclosure provisions applying to domestic contracts.

    Having listened to the hon. Members for Hackney, Central (Mr. Davis) and Swansea, East (Mr. Anderson), I can only think that they misunderstood what I said. I emphasised that we needed to restrict the exemption embodied in clause 26(8) for the disclosure of service contracts which require directors to work wholly or mainly overseas. Companies will now be required by virtue of subsection (2) to disclose the existence of such a contract—

    I did not misunderstand it. I think the Minister must have misunderstood what I said. I conceded that there was disclosure, but I said that there were no sanctions.

    It was the hon. Member for Swansea, East who misunderstood me, then. I am sorry if I misunderstood the hon. Member for Hackney, Central.

    Companies will now be required, by virtue of subsection (2) of the new clause, to disclose the existence of such a contract and the terms of the contract relating to duration in the same manner as those for non-overseas contracts. The exclusion of foreign service contracts in the 1967 Act was to prevent the disclosure of details which might be embarrassing to the holder of the contract.

    The hon. Member for Hackney, Central went on to raise the question of sanctions—

    There are, of course, sanctions for breach of the provisions which appear in the relevant clauses, but they do not apply in this instance, as I read the clause.

    I remind the hon. Gentleman that under section 26 of the 1967 Act companies and any officers of companies in default are liable to a fine. There are, therefore, adequate means within the Bill for the enforcement of the requirement.

    Question put and agreed to.

    Clause read a Second time, and added to the Bill.