DIRECTORS' FEES

Press, Volume LXX, Issue 21256, 30 August 1934, Page 11

DIRECTORS' FEES

RECENT APPEAL CASE ACCOUNTANTS' COMMENT Very many business men are naturally interested in. the recent judgment of the New Zealand Court of Appeal in regard to the payment of fees of directors of companies. Here is the main matter of the decision:— "A director is not, from the mere fact of being a director, entitled to. any remuneration for liis services. His position is not that of a servant, but of a managing partner. To recover remuneration a director must show a contract; otherwise, the fees are in too nature of a gratuity voted." This judgment follows the lead given by the English Court of Appeal, in a case heard in 1895: "Directors have no right to be paid for their services, and cannot pay themselves or each other, or make presents to themselves out of the company's assets unless authorised to do so by the instrument which regulates the company or by the shareholders at a properly-convened meeting. The shareholders . . . can, if they think proper, remunerate directors for their trouble- or make presents to them for their services out of assets properly divisible amongst the shareholders themselves. ... If the company is a going concern the majority can bind the minority. . . . But to make presents out of profits is one thing and to make them out of capital or out of money borrowed by the company is a very different matter. Such money cannot be lawfully divided amongst the shareholders themselves, nor can it be given away by them for nothing to their directors so as to bind the company in its corporate capacity. The New Zealand case is reviewed editorially in the current issue of the "Accountants' Journal." "During the last few years," the writer remarks, "the majority of companies have not been able to earn profits, and in many cases not only reserves but a goodly proportion of capital has disappeared. The directors of these concerns have had greater worries and more trouble and their duties have been far more onerous than would be the case if trading conditions were normal. Yet. ' as the law stands, they are not entitled to remuneration unless the articles bo provide. It is unreasonable to ask competent people to act without payment and particularly where a great deal of time and attention is requisite in the interests of the company. No doubt the injustice of not being able to remunerate the directors for valuable services, which the shareholders realise should be paid for, will be corrected in most instances by a suitable addition to the articles. In the case of new companies the framers of the articles will perhaps profit by the weakness disclosed In this recent New Zealand decision, and not allow the position to be as vague as has been the case too often in the past. While it is desirable that creditors and others interested should be protected against the dissipation of capital asset* in payments to directors who may not be worthy of such payments, it is also needful that under certain circumstances remuneration should be available for expert knowledge and service even though, because of adverse economic conditions, immediate profits are not being earned." AUSTRALIAN RECOVERY STOCK EXCHANGE GUIDE Several bank balance-sheets were published towards the close of lasU month, states the July summary of Australian conditions published by the National Bank of Australasia, and generally showed slightly reduced profits, a natural corollary to a period of low interest rates, especially as the banks are paying relatively high interest on some fixed contracts which have not yet come to maturity. Nevertheless, owing to the conservative policy of previous years, dividends were maintained at the low rates which have been paid since 1930. In contrast to the earnings of the banks, balance-sheets of trading companies nearly all disclosed improved results, and several companies were able to announce increased dividends. News from Great Britain was to the effect that the upward trend in trading and the consequent mitigation of unemployment was continuing, and despite the uneasiness in international circles which was created by events in Austria, prices of Australian securities m London held very well. In Australia a decided turn for the better in the seasonal outlook occurred, and, although the wool position showed little or no improvement, a material advance in wheat prices was decidedly encouraging to farmers and the community generally. As a result, although the volume of business was restricted, prices of industrial and trading shares, on balance, held steady to a shade firmer throughout the month. WAR LOAN STOCK (BRITISH omcur. wirelbss ) RUGBY, August 28. British 3J per cent. War Loan stock

is quoted as follows:— £ s. d. August 28 104 10 0 August 27 104 8 9 August 24 104 8 0 August 22 104 7 6 August 21 104 7 6 August 20 104 8 9 August 16 104 3 9