Is it legal for a director to withhold salary and dividends?

Question from Fifi, Is it legal for a director to withhold salary and dividends?

Answer from AI:

In the UK, directors of a company have certain legal duties and responsibilities under the Companies Act 2006. If your uncle, as a director, is acting unilaterally and withholding salary and dividends, there may be several legal issues at play. Here’s a general overview of the relevant laws and steps you might consider:

Directors’ Duties and Responsibilities

Directors must adhere to specific duties outlined in the Companies Act 2006, 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 not fetter their discretion unless authorized by the company’s constitution.
• Duty to exercise reasonable care, skill, and diligence (Section 174): Directors must perform their roles with the care, skill, and diligence that would be exercised by a reasonably diligent person.
• 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.

Withholding Salary and Dividends

If your uncle has stopped your mum’s salary and dividends without proper authorization or justification, this could be a breach of his duties. Here are some steps you might consider:

1. Review the company’s articles of association: Check the company’s constitution to understand the rules regarding directors’ powers and decision-making processes.
2. Request a board meeting: As directors, you have the right to request a board meeting to discuss these issues. The company’s articles of association should outline the procedure for calling a meeting.
3. Access to company records: Directors have the right to access the company’s financial records. If your uncle is refusing to share these, it may be a breach of his duties.
4. Seek mediation or arbitration: If internal discussions do not resolve the issue, consider mediation or arbitration as a way to resolve disputes without going to court.
5. Legal action: If the situation cannot be resolved internally, you may need to seek legal advice. A solicitor can help you understand your options, which may include taking legal action against your uncle for breach of his duties.

Filing False Accounts

Filing false accounts is a serious matter. If your uncle has filed accounts with Companies House that state dividends have been paid when they have not, this could be considered fraudulent. The Companies Act 2006 and the Fraud Act 2006 outline the legal implications of such actions.

When to Seek Legal Advice

Given the complexity and potential legal ramifications of this situation, it is crucial to seek legal advice. A solicitor specializing in company law can provide personalized guidance based on the specifics of your case.

Resources

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

• Companies Act 2006
• Companies House

Remember, this information is intended to provide a general overview. For personalized advice, please consult with a legal professional.