It would appear that many of us think that directors are automatically entitled to be remunerated for their time and trouble in running companies. This is not the case.

Directors are not entitled to remuneration as a matter of law or as a matter of equity.

No-one forces a director to hold office and consequently Article 4 of Schedule 1 of the Human Rights Act 1998 does not appear to enable a director to claim remuneration on grounds of for example enslavement.

Directors can be remunerated by the companies they oversee if the Articles of Association (“Articles”) make provision for the same. It is therefore a privilege not a right.

The Articles generally will provide for the directors to have an entitlement to remuneration. Indeed at Schedule 1 paragraph 19 of The Companies (Model Articles) Regulations 2008 laid down by the Secretary of State, provision to enable directors to be remunerated is made. However, Section 19 of the Companies Act 2006 affords members considerable discretion on adoption of these Model Articles and Section 21 of the Companies Act 2006 enables the members to amend the Articles.

Even if the Articles provide for directors to be remunerated, the Companies Act 2006 requires evidence of the same to be recorded and retained in writing. No doubt this is to demonstrate that the members have properly applied their minds to the question of directors remuneration.

The case of Guinness Plc v Saunders [1990] 2 AC 663 is a leading decision on directors remuneration and remains good law. This case demonstrates that without provision for directors to be remunerated in the Articles, that there is no entitlement for them to receive remuneration. The Guinness case demonstrates that the courts generally will not seek to overrule the Articles and impose reasonable remuneration on a quantum meruit basis on an implied contract.

This position is somewhat consistent with the case law on dividends as set out in Bairstow v Queen’s Moat Houses plc [2001] 2 BCLC 531, in which it was held that compliance with certain mandatory legal requirements such as the need for dividends to be drawn with reference to relevant accounts, is necessary before a dividend could be deemed intra vires.

In the Bairstow case, as in the Guiness one, it can be inferred that due to the mandatory nature of certain requirements in the Companies Act 2006, that the Duomatic principle as set out in Re Duomatic Ltd [1969] 2 Ch 365 will not assist directors in obtaining remuneration if the same is neither provided for in the Articles nor if the same is not recorded properly in the company’s books.

Directors should take every step to ensure that they are complying with the rules on taking remuneration, failing which they may encounter an unwelcome and for them arguably an unpleasant surprise if called upon to repay monies they have taken from the company.

This entry was posted on Saturday, January 30th, 2010 at 12:37 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.