Companies Act 2006

Service contracts

188 Directors' long-term service contracts: requirement of members' approval

(1) This section applies to provision under which the guaranteed term of a director’s employment—

(a) with the company of which he is a director, or

(b) where he is the director of a holding company, within the group consisting of that company and its subsidiaries,

is, or may be, longer than two years.

(2) A company may not agree to such provision unless it has been approved—

(a) by resolution of the members of the company, and

(b) in the case of a director of a holding company, by resolution of the members of that company.

(3) The guaranteed term of a director’s employment is—

(a) the period (if any) during which the director’s employment—

(i) is to continue, or may be continued otherwise than at the instance of the company (whether under the original agreement or under a new agreement entered into in pursuance of it), and

(ii) cannot be terminated by the company by notice, or can be so terminated only in specified circumstances, or

(b) in the case of employment terminable by the company by notice, the period of notice required to be given,

or, in the case of employment having a period within paragraph (a) and a period within paragraph (b), the aggregate of those periods.

(4) If more than six months before the end of the guaranteed term of a director’s employment the company enters into a further service contract (otherwise than in pursuance of a right conferred, by or under the original contract, on the other party to it), this section applies as if there were added to the guaranteed term of the new contract the unexpired period of the guaranteed term of the original contract.

(5) A resolution approving provision to which this section applies must not be passed unless a memorandum setting out the proposed contract incorporating the provision is made available to members—

(a) in the case of a written resolution, by being sent or submitted to every eligible member at or before the time at which the proposed resolution is sent or submitted to him;

(b) in the case of a resolution at a meeting, by being made available for inspection by members of the company both—

(i) at the company’s registered office for not less than 15 days ending with the date of the meeting, and

(ii) at the meeting itself.

(6) No approval is required under this section on the part of the members of a body corporate that—

(a) is not a UK-registered company, or

(b) is a wholly-owned subsidiary of another body corporate.

(7) In this section “employment” means any employment under a director’s service contract.

189 Directors' long-term service contracts: civil consequences of contravention

If a company agrees to provision in contravention of section 188 (directors' long-term service contracts: requirement of members' approval)—

(a) the provision is void, to the extent of the contravention, and

(b) the contract is deemed to contain a term entitling the company to terminate it at any time by the giving of reasonable notice.