Is it legal for a director to stop another director’s salary?

Question from Fifi, Is it legal for a director to stop another director’s salary?

Answer from AI:

In the UK, company directors have certain duties and responsibilities under the Companies Act 2006. If your uncle is unilaterally stopping your mum’s salary and dividends without proper board approval, this could potentially be a breach of his duties as a director. Here’s a general overview of the relevant legal principles and steps you might consider:

Directors’ Duties Under the Companies Act 2006

Directors must adhere to several key duties, including:

• Duty to act within powers (Section 171): Directors must act in accordance with the company’s constitution and only exercise their powers for the purposes for which they were conferred.
• Duty to promote the success of the company (Section 172): Directors must act in a way they consider, in good faith, would most likely promote the success of the company for the benefit of its members as a whole.
• Duty to exercise independent judgment (Section 173): Directors must make their own decisions and not simply follow the will of others.
• Duty to avoid conflicts of interest (Section 175): Directors must avoid situations where they have, or could have, a direct or indirect interest that conflicts with the interests of the company.
• Duty to declare interest in proposed transaction or arrangement (Section 177): Directors must declare any interest in a proposed transaction or arrangement with the company.

Board Meetings and Decision-Making

Typically, decisions about salaries and dividends should be made collectively by the board of directors. If your uncle is making these decisions unilaterally, he may be acting outside his authority. Here are some steps you might consider:

1. Request a Board Meeting: Formally request a board meeting to discuss the issues. The company’s articles of association will usually outline the procedure for calling a meeting.
2. Review the Articles of Association: Check the company’s articles of association to understand the rules regarding decision-making and directors’ powers.
3. Document Everything: Keep detailed records of all communications and actions taken by your uncle. This documentation could be crucial if legal action becomes necessary.
4. Seek Mediation: Consider mediation as a way to resolve the dispute without going to court. Mediation can be a less adversarial and more cost-effective way to address conflicts.
5. Consult a Legal Professional: Given the complexity of the situation, it is advisable to consult with a solicitor who specializes in company law. They can provide personalized advice based on the specific circumstances of your case.

Legal Remedies

If your uncle’s actions are found to be in breach of his duties, there are several potential legal remedies:

• Injunction: You could seek an injunction to prevent your uncle from continuing his unilateral actions.
• Damages: If your mum has suffered financial loss as a result of your uncle’s actions, she may be able to claim damages.
• Removal of Director: In some cases, it may be possible to remove a director from their position. This usually requires a resolution passed by the shareholders.

Further Resources

For more detailed information, you can refer to the following resources:

• Companies Act 2006
• Companies House Guidance

Remember, this information is intended to provide a general overview and should not be taken as legal advice. For personalized advice, it is crucial to consult with a legal professional who can assess the specifics of your situation.