The Enterprise and Regulatory Reform Act 2013 (ERRA) received Royal Assent on 25 April 2013 and contain amendments to the Companies Act 2006 relating to quoted companies' disclosure of directors' remuneration and shareholder approval of quoted company directors' remuneration reports.
The relevant sections of the ERRA are sections 79 to 82 and these sections make changes to relevant provisions of the Companies Act 2006. Sections 79 to 82 of the ERRA will come into force on a date to be confirmed by statutory instrument but is expected to be 1 October 2013. They will apply to quoted companies with financial years commencing on or after that date.
The new requirements brought in by ERRA include:
- There must be a separate forward-looking policy (covering remuneration payments and payments for loss of office) in the directors' remuneration report. ERRA provides that further regulations will set out the content requirements of this policy.
- The Companies Act 2006 will have a new section inserted on revisions to the directors' remuneration policy.
- The directors' remuneration policy will require shareholder approval (which is binding) by ordinary resolution at least every 3 years. This approval must be obtained before the expiry of the 3 year period if the company wishes to change the policy or if the shareholders did not approve the advisory vote on the non-policy part of the directors' remuneration report at the company's previous AGM. The non-policy part of the directors' remuneration report will continue to be subject to an annual advisory vote.
- The Companies Act 2006 will have new sections dealing with restrictions on payments to directors and remuneration payments for loss of office. The company will be prohibited from making a remuneration or loss of office payment to a current, former or future director, unless it is consistent with the most recently approved remuneration policy. Any payment which is inconsistent with an approved policy will be held by the recipient in trust and can be recovered by way of a derivative action. Directors who approve payments outside the scope of the approved remuneration policy will be liable to jointly and severally indemnify the company against any loss resulting from the payment, which will be subject to a statutory trust in favour of the company. There is a provision allowing a court to grant relief from liability to a director who authorised a payment that is not consistent with the shareholder-approved directors' remuneration policy. Relief will be available if the director shows that he acted honestly and reasonably and the court considers that, in all the circumstances, relief ought to be granted.
- There are some transitional provisions on payments to directors.
- There are some new definitions for the purposes of the new Chapter 4A of the Companies Act 2006, including "directors’remuneration policy" (the policy of a quoted company with respect to the marking of remuneration payments and payments for loss of office), “quoted company”, “remuneration payment” and “payment for loss of office”.
To see the full ERRA, click here: