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CMA Final · Corporate Financial Reporting · Absorptions, Amalgamations, External Reconstruction

Under the Companies Act, 2013, a managing director of Sigma Ltd resigns because of the amalgamation of Sigma Ltd with Tau Ltd and is appointed as managing director of the amalgamated company. Which statement is correct regarding compensation for loss of office?

No compensation can be paid. Section 202 prohibits payment for loss of office where a director resigns because of an amalgamation or reconstruction and is appointed as managing or whole-time director, manager or other officer of the resulting company. The remuneration caps apply only where payment is permitted.

  1. ACompensation may be paid, capped at three years' average remuneration
  2. BNo payment can be made as compensation for loss of office in this caseCorrect
  3. CCompensation may be paid if approved by the Tribunal
  4. DCompensation may be paid but only for the remainder of his term

Explanation

Section 202(2)(a) bars payment where a director resigns as a result of reconstruction or amalgamation and is appointed as managing or whole-time director, manager or other officer of the resulting company. The cap in sub-section (3) applies only where payment is otherwise allowed, so the first option is wrong.

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