DIRECTORS' FEES

Evening Post, Volume CXVIII, Issue 53, 31 August 1934, Page 13

DIRECTORS' FEES

RECENT APPEAL CASE

ACCOUNTANTS' COMMENT

Very many business men are naturally interested in the recent judgment of Now. Zealand's. Court of Appeal; m regard to the payment of'fees1 of directors of companies. Here is tho main matter, of the decision: "A director is not, from the ■ mere fact of being a director, entitled to any remuneration for his services. • His position is not that of a servant, but a managing partner. To recover remuneration a director must show a contract; otherwise the fees ■ are -in 4he vi)aturo ; -of-;-a- gratuity voted." . ■ . :

This judgment follows the lead given by the. English Court Of Appeal in a case heard in 1895: '^Directors haVe-nq 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 tho shareholders themselves. . . . M 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 past few years," tho writer ..remarks, "the-majority of companies have not been able to earil profits, and m many cases not only reserves but a goqftly 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 tradine conditions were normal. Yet, as the law stands, they are not entitled to remuneration unless the articles so provide It is unreasonable to ask competent people to act without payment and particularly wbero a great deal of time and attention is requisite in the interests''of the company. No doubt tho in-justice 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 tho articles. In the case of new companies tho framcrs of tho 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 otten in the past. While it, is desirabje that creditors and others interested should bo protected against the dissipation ot capital assets in payments to directors who may not be worthy of such payments it is also .ueSdful that under, certain circumstances remuneration should bo available for expert knowledge anrl service even though, because, of adverse economic conditions, immediate profits arc not being' earned.