Are you a Director concerned about your money?
Director Remuneration and Dividends or Russian Roulette? If you are a Director of an insolvent company, Oliver Elliot can help you address your claim and concerns arising from the insolvency.
Do Directors Have Any Entitlement To Remuneration?
Directors of owner managed businesses often draw money out of their companies, intending it to be remuneration without apparently realising the gamble they may have taken when things go wrong. The problem is that when remuneration is wrongly drawn they may at sometime in the future have to pay these drawings back to the company, for example on the request of a future Liquidator or some other successor.
The belief of many directors is that they have an absolute entitlement to the monies they draw from their companies. However, unless express provision has been made within the company’s Articles of Association for the directors to be remunerated, then the case of Guinness plc v Saunders [1990] 2 AC 663 evidences they have no entitlement whatsoever to receive any salary at all.
It may seem harsh but the reality is in such circumstances where there is no express provision in the Articles, the fruits of such a director’s labour can only be rewarded via their ability as shareholders to take dividends. Drawing dividends has its own issues as they are strictly subject to the existence of sufficient distributable reserves and the implementation of the proper procedures for declaring the same.
Unfortunately for many directors, the drawing of monies from a company during a financial year results in their loan account becoming overdrawn. Consequently, the regrettable temptation to backdate a dividend to clear an overdrawn account can arise but also can lead to problems later as the same is ultra vires and not permitted. The case of First Global Media Group Limited v Larkin [2003] EWCA Civ 1765 demonstrates that directors cannot take monies in advance of dividend declarations and then later claim the drawings were in fact dividends.
So if you do not want your trip to the roulette table to result in the banker winning all the time, perhaps look to ensure that you take professional advice on all matters of remuneration and be mindful of how you might draw the same. Certainly do not backdate dividends or documents to try to legitimise ultra vires acts. After all, this is not your Saturday night punt on red or black, this is your livelihood.
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Disclaimer: Director Remuneration and Dividends
This page: Director Remuneration and Dividends is not legal advice and not to be relied upon as such. If in doubt you should take independent professional advice on the facts of your case. This guide is just a guide, for information purposes only. No liability is accepted for any reliance placed upon it.
