Section 20 - Funding of director’s expenditure on defending proceedings
114.Sections 330-344 of the Companies Act 1985 place restrictions on a company’s power to make loans or quasi-loans to directors, or to enter into certain types of credit transaction with a director. The prohibition prevents a company from indemnifying a director on an ‘as incurred’ basis even against his legal expenses.
115.Section 20 therefore inserts a new section - section 337A - into these sections of the 1985 Act. New section 337A provides that a company is not prohibited from funding a director’s expenditure in defending any civil or criminal proceedings provided that the director:
repays any loan; or
discharges any other liability to the company
if he is convicted in any criminal proceedings or judgment is given against him in any civil proceedings, or he is unsuccessful in an application for relief from liability under the provisions for relief in the Companies Act. Under new section 309B, however, a company may permit a director not to repay a loan if all the circumstances for a QTPIP (see paragraph 110 above) are satisfied (particularly in a case in which judgement is given against him in proceedings brought by a third party).
