Director’s fees are compensation paid for services performed as a company director. These are usually paid in three ways:
Salary: executive directors who work in the company are paid a regular salary or agree executive remuneration for their service.
Fee: non-executive directors, or those who do not perform employee duties, are paid fees.
Dividend: a director can also receive compensation in the form of shares, and consequently, dividends.
A recent court decision (Zelbree Investments (Pty) Ltd & Others v Theunissen [2022] ZAGPJHC 877), dealt with remuneration paid to a director. In terms of section 66(9) of the Companies Act, a special resolution approved by the shareholders within the previous two years is required to authorise directors’ remuneration.
Mr Theunissen, a CA, was appointed co-director of five related companies and subsequently removed in terms of a court order. He issued summons for payment of R500 000 in respect of both directors’ fees and professional fees rendered to the five companies in his capacity as CA. His claim for director’s fees was denied on the basis that his remuneration was not approved by a special resolution passed by the shareholders of the relevant companies.
Judge Adams added that a director is not an employee of a company and is not entitled to the standard rights flowing from an employment contract. However, if the director concludes an employment contract with a company, he will be entitled tot the rights that flow from the employment contract as he would stand in the position of both employee and a director in relation to that company.
The Judge went as far as to recommend to directors that they refuse to undertake their duties until the shareholders have passed such a special resolution authorising their director’s fees.
Section 66(9) places the decision on directors’ remuneration exclusively in the hands of the shareholders and not the board of directors or any other party as a policy. This is to encourage good corporate governance and helps curtail paying excessive remuneration to directors.
It is unfortunate that if directors continue to render their services without the resolution, like Mr Theunissen, they will not have a right to claim payment until such time as the resolution has been passed, and payment may only be made in accordance with the resolution.
By Tafadza Magoda and Trudie Broekmann