Excessive Directors Remuneration And Expenses – Court Guidance

We often see directors in receipt of generous remuneration packages. At what point could they be challenged by a liquidator as a transaction at an undervalue and therefore repayable?

For example, the spouse of the main working director that earns £75,000 as a bookkeeper? Does this sound reasonable? As an auditor, I once asked a director what his wife did to warrant a salary of £67,000. “Oh she stays away from the office” was the sincere response!

A recent case has provided clarity in this area;

Excessive directors remuneration and expenses – court guidance:

A remuneration package can be so far in excess of the commercial value of the services provided that it amounts to a transaction at an undervalue. An assessment would need to be made of the whole of the value of the package and the services provided. Clearly, a job description and contract of employment would be helpful.

Lump sum and other such payments would be easier to challenge and would need to have adequate evidence to support their legitimacy.

Directors therefore beware!

 

Griffin & King have been insolvency practitioners since 1986 – that’s 30 years of helping people in financial difficulties – that’s what we do, that’s all we do. We get most of our referrals from local professionals. Have a look at some of our recent testimonials.

If you have a client that needs insolvency advice please call me, Tim Corfield or any one of my team. We’d be pleased to help.

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