Re Halt Garage (1964) Ltd [1982] 3 All ER 1016
Citation:Re Halt Garage (1964) Ltd [1982] 3 All ER 1016
Link to case on WorldLII (reference).
Rule of thumb:What happens if a director is paying themselves far too big a salary from the company bank account? If it is grossly excessive then they can be sued for breach of duties – it has to be clearly excessive however.
Judgment:
Where an agent excessively remunerates themselves, or someone else, then the agent can be required to pass this back. The facts of this case were that a female director was given a renewed, extended an director’s contract when she was ill. The Court held that this was not a valid remuneration and that this could be reclaimed, ‘I do not think that, in the absence of evidence that the payments made were patently excessive or unreasonable, the court can or should engage on a minute examination of whether it would have been more appropriate or beneficial to the company to fix the remuneration at £X rather than £Y, so long as it is satisfied that it was indeed drawn as remuneration. That is a matter left by the company’s constitution to its members... I find it really impossible on the facts to hold that the whole of these sums… can be treated as genuine director’s remuneration in any real sense of the terms...’ 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.’ Oliver J
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.