Director's service contract over two years without members' approval (CA 2006 ss.188-189)

Section 188 CA 2006 applies where the guaranteed term of a director's employment is, or may be, longer than two years. Tobiah's contract runs for four years and cannot be ended by notice during that period, so its guaranteed term exceeds two years. The company may not agree to such a provision unless it has been approved by resolution of the members (s.188(2)). Osterley Freight Ltd is not a wholly-owned subsidiary, so the exemption in s.188(6) does not apply. Because the board alone approved it, s.189 applies: the provision is void to the extent of the contravention, and the contract is deemed to contain a term entitling the company to terminate it at any time by giving reasonable notice. The rest of the contract survives. The company may therefore end Tobiah's employment by giving him reasonable notice rather than paying out the remainder of the four-year term.

Why A is wrong: Section 189 avoids only the offending provision, to the extent of the contravention; the rest of the contract, including salary already earned, is unaffected.

Why B is wrong: Section 188(2) removes the board's ability to agree such a term without a resolution of the members.

Why D is wrong: The current threshold under s.188(1) is a guaranteed term longer than two years, not five.

Why E is wrong: Section 189 makes the provision void and implies a reasonable-notice term; it does not give Tobiah an election.