Re Halt Garage (1964) Ltd

Mr and Mrs Charlesworth started Halt Garage (1964) Ltd. After Mrs Charlesworth became ill, the business declined, from £106,000 turnover in 1967 to voluntary liquidation in 1971. From 1968 to 1971 Mr Charlesworth worked full time and got £3500 as a director, while Mrs Charlesworth did not work due to her illness but was still paid £500 to £1500. The liquidator claimed this represented an illegal reduction of capital.

Oliver J said that creditors are entitled to assume that what is paid as remuneration is so in substance, and not a disguised distribution to shareholders. Here it was a genuine payment of remuneration to Mr Charlesworth. For Mrs Charlesworth, the facts were more problematic. There was nothing as a matter of construction to prevent someone being paid during absences for illness, but although it was irrelevant that she was paid when the company was unprofitable, it appeared that some of the sums could not really be considered remuneration and she would have to restore the excessive sums. Those were not "a genuine award of remuneration" but rather a "disguised gift out of capital".

I do not think that, in the absence of evidence that the payments made were patently excessive or unreasonable, the court can or should engage on a minute examination of whether it would have been more appropriate or beneficial to the company to fix the remuneration at £X rather than £Y, so long as it is satisfied that it was indeed drawn as remuneration. That is a matter left by the company’s constitution to its members... I find it really impossible on the facts to hold that the whole of these sums… can be treated as genuine director’s remuneration in any real sense of the term...

• UK company law
• Bednash v Hearsey [2001] EWCA Civ 787