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I am a director. What are my rights concerning the reimbursement of expenses that I have incurred?

In most cases the relevant articles will be consistent with Reg. 83 of Table A. This states:

'The directors may be paid all travelling, hotel, and other expenses properly incurred by them in connection with their attendance at meetings of directors or committees of directors or general meetings or separate meetings of the holders of any class of shares or of debentures of the company or otherwise in connection with the discharge of their duties.'

'May' means 'must' if properly incurred and claimed.

This is suitably comprehensive and it should mean that directors can be reimbursed for all reasonable expenses incurred in connection with their duties. However, it is worth pausing at the words 'properly incurred'. A bus fare and a cheese sandwich is one thing, but a chartered helicopter and a six course gourmet luncheon is something else. Of course circumstances alter cases and even these apparently extravagant expenses may have been properly incurred. Perhaps a representative of the Saudi Arabian government was being taken to the ceremony where a multimillion pound contract was to be signed.

It is possible, but unlikely, that the relevant articles are constructed in a narrower way, but the new model articles have a similar effect to Table A.

Must a director have a service contract?

No, there is no such requirement and numerous directors do not have service contracts. An executive director is an employee and is therefore entitled to the minimum statutory employment rights.

I am an executive director and I do not have a service contract. Should I have one?

In one sense you are mistaken in thinking that you do not have a service contract, though you might not have seen it and you might not be happy with its terms. As an executive director you are an employee and all employees have contracts which, in the absence of an agreement to the contrary, consist of minimum standards fixed by law. These cover such things as periods of notice, sickness and paid holidays. Other things may have been informally agreed and effectively become part of your unwritten contract.

You probably mean to say that you do not have a contract that makes provision over and above this. It is probably a good idea that you should have one, probably good for you and the company too. Nevertheless, do not forget that its provisions may be designed to suit both parties and not just you.

I am a non-executive director and I do not have a service contract. Should I have one?

You are not an employee so you do not automatically have minimum terms like an executive director. It is unlikely that you would have forgotten something as important as a service contract, so we will assume that you are correct. Yes it probably is a good idea that you should have a service contract. It would be good for the company and good for you that the details be written down and kept in an easy-to- check document. It promotes certainty and avoids the possibility of arguments. The act of negotiating the contract compels both parties to consider important issues that may not have occurred to them, or that they may have avoided.

Are there any limits on the directors' powers to agree the terms of directors' service contracts?

Directors only have such powers if they are permitted by the articles, but it is almost always the case that they are so permitted. Directors should remember their general duties which are considered in the next chapter. Section 172 of the Act states 'A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of the members as a whole.'

 
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