Directors who award themselves excessive remuneration may create a shareholder claim for unfair prejudice under s994 of the Companies Act 2006.
In the case of Maidment v Attwood and Others the Court of Appeal held that the company’s only director had breached his duties as a director by setting his salary in accordance with his own interests, as opposed to his duty as a director.
The court said that this amounted to unfair prejudice under s994 of the Companies Act 2006.
What can directors do to protect themselves when awarding remuneration?
Where it is practical, IFAC recommend that companies appoint a non-executive director. Where this isn’t practical, we would recommend that companies with minority shareholders ensure that there is more than one director appointed. The directors should then approve each other’s remuneration whilst considering their duty to act in the best interest of the company as a whole. And if you are the director taking excessive remuneration then you as director must ensure that they are able to justify their remuneration and in doing so consider the duties of directors set out in the Companies Act 2006.