Section 227. Payment to directors for loss of office, etc.

(1) It shall not be lawful—

(a) for a company to make to any director any payment by way of compensation for loss of office as an officer of that company or of a subsidiary of that company or as consideration for or in connection with his retirement from any such office; or

(b) for any payment to be made to any director of a company in connection with the transfer of the whole or any part of the undertaking or property of the company,

unless particulars with respect to the proposed payment including the amount, have been disclosed to the members of the company and the resolution for the proposal has been approved by the members and when any such payment has been unlawfully made the amount received by the director shall be deemed to have been received by him in trust for the company.

(2) In the case of a public company, the director who is interested in the proposed payment referred to in paragraph (1)(a) or (b) and persons connected with the director shall abstain from voting on the resolution.

(3) Where a payment is to be made to a director in connection with the transfer to any person as a result of an offer made to shareholders of all or any of the shares in the company, the director shall take all reasonable steps to secure that particulars with respect to the proposed payment, including the amount of the proposed payment, shall be included in or sent with any notice of the offer made for their shares which is given to any shareholders, unless those particulars are furnished to the shareholders in accordance with the relevant law applicable to takeovers.

(4) If in connection with any such transfer the price to be paid to a director of the company whose office is to be abolished or who is to retire from office for any shares in the company held by the director is in excess of the price which could at the time have been obtained by other shareholders or any valuable consideration is given to any such director, the excess or the money value of the consideration, as the case may be, shall be deemed to have been a payment made to him by way of compensation for loss of office or as a consideration for or in connection with his retirement from office.

(5) Any reference in this section to payments 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 shall not include—

(a) any payment under an agreement entered into before the commencement of this Act;

(b) any payment under an agreement, where particulars have been disclosed to and approved by special resolution of the company;

(c) any bona fide payment by way of damages for breach of contract;

(d) any bona fide payment by way of pension or lump sum payment in respect of past services including any superannuation or retiring allowance, superannuation, gratuity or similar payment, where the value or amount of the pension or payment, except so far as it is attributable to contributions made by the director, does not exceed the total remuneration of the director in the three years immediately preceding his retirement or death; or

(e) any payment to a director under an agreement made between the company and the director before he became a director of the company as a consideration or part of a consideration for the director agreeing to serve the company as a director.

(6) This section shall be in addition to and not in derogation of any rule requiring disclosure to be made with respect to any such payments or any other like payment.

(7) In this section, “director” includes any person who has at any time been a director of the company or of a corporation which is by virtue of section 7 deemed to be related to the company.

(8) In this section—

(a) a person who contravenes subsection (2) commits an offence; and

(b) a director who contravenes subsection (3) and a person who has been properly required by a director to include in or send with any notice under this section the particulars required by subsection (3) and who fails to do so, commits an offence, and if the requirements of this section are not complied with any sum received by the director on account of the payment shall be deemed to have been received by him in trust for any person who has sold his shares as a result of the offer made.