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;
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!
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You may also find our recent article on A Guide To Buying An Insolvent Business interesting.