Companies Act 2014 section 254

"Existing legal obligation" — definition and other provisions in relation to sections 251 to 253

Section 254 defines "existing legal obligation" and provides supplementary rules to prevent disguised payments to directors that would circumvent the requirements of sections 251 to 253 regarding loss of office and retirement payments.

• An "existing legal obligation" is one that was not created in connection with, or as a consequence of, the event triggering a loss-of-office payment or a property/share transfer — thereby distinguishing genuine pre-existing commitments from arrangements designed to sidestep approval requirements.
• Where a director receives an inflated price for shares above what other shareholders would receive, or receives other valuable consideration in connection with a transfer, the excess or its monetary value is automatically treated as a loss-of-office or retirement payment subject to the approval rules.
• Payments made under arrangements connected to a transfer agreement — entered into up to one year before or two years after the agreement or offer — are presumed to fall within the approval requirements if the company or transferee was aware of the arrangement, unless evidence to the contrary is produced.
• Genuine payments for breach of contract damages or pensions in respect of past services (including superannuation allowances and gratuities) are excluded from the loss-of-office payment rules, and references to "director" throughout sections 251 to 253 include past directors.