The company was a husband-and-wife business running a garage. They worked hard to build up the business, which included recovering broken-down vehicles from the nearby M1. They paid themselves modest remuneration as directors. In 1967 the wife became seriously ill and the couple decided to move to the Isle of Wight. They failed to sell the business and the husband was commuting between the Isle of Wight and Bedfordshire looking after his wife and the ailing business. Other misfortunes followed and the company went into insolvent liquidation in 1971. The liquidator challenged the propriety of director’s remuneration paid to the husband and wife during the company’s decline.
Held: The court upheld the husband’s remuneration but disallowed most of the wife’s last two years’ remuneration.
The amount of remuneration awarded to a director is a matter of company management, and that provided there has been a genuine exercise of the company’s power to award remuneration, it is not for the court to determine if, or to what extent, the remuneration awarded was reasonable. However,, if the director’s remuneration was excessive or unreasonable, it would not avail him to argue that the matter had been decided by the company as a matter of company management.
Oliver J said: ‘The real question is, were these payments genuinely director’s remuneration? If your intention is to make a gift out of the capital of the company, you do not alter the nature of that by giving it another label and calling it ‘remuneration’.’ If the label of remuneration does not square with the facts, the facts will prevail and the result may be an unlawful distribution, even if the directors in question intended no impropriety. Oliver J said: ‘In the absence of any evidence of actual motive, the court must, I think, look at the matter objectively and apply the standard of reasonableness.’
and ‘But it is said that Parke’s case and the cases which preceded it were all cases where what the court had to consider was the test to be applied where reliance was being placed, either by directors or by a general meeting, on an implied power, whereas the power in the instant case, which is written into the company’s constitution and is not subject to any expressed limitation, is an express power.’
Judges:
Oliver J
Citations:
[1982] 3 All ER 1016
Jurisdiction:
England and Wales
Citing:
Cited – Parke v Daily News Ltd 1962
The company which had sold its business, through its Board of Directors, had resolved to pay 1 million pounds to its former workers and the widows of such former workers. A shareholder sought to prevent this happening on the ground that such a . .
Cited by:
Cited – Progress Property Company Ltd v Moorgarth Group Ltd SC 8-Dec-2010
The appellants appealed against rejection of their claim that there had been an unlawful distribution of capital when the appellant had sold the share capital of a subsidary at an undervalue to the respondent purchaser. The valuation had . .
Lists of cited by and citing cases may be incomplete.
Company
Updated: 02 May 2022; Ref: scu.427162