DIRECTORS’ FEES

Nelson Evening Mail, Volume LXVI, 1 September 1934, Page 10

DIRECTORS’ FEES

RECENT APPEAL CASE ACCOUNTANTS’ COMMENT Very many business men are naturally interested in the recent judgment of New Zealand’s 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 his 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 the 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 past few .years.” the writer remarks, “the majority of companies have not been able to earn profits, and jn many cases not only reserves but a goodly proportion of capital had 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. Vet. as the Jay stands, they are not entitled tb remuneration unless the articles so provide. It js unreasonable to ask competent people to act without payment, and particularly where a great deal of time and attention is roouisifce 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 instance' bv a suitable addition to the articles. In the ease 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 ir. the past. While it is desirable, that creditors and others interested should be protected against the dissipation of capital assets in payments to directors who may not be worthy of such payments, it is also need Iu! that under certain circumstances remuneration should be available for expert knowledge and service even though, because- jf adverse economic conditions, immediate profits are not, being earned.”