# Regulatory Compliance Category > Labour Relations and Legislation Forum >  Interest due on unpaid salary & declared dividends

## duncan2011

I have resigned from my position as a director in a company in which I hold 15% shares.

I have some questions regarding several months of incomplete salary payment, and several dividend payments which have been declared, but have been paid to me;

1. Is there interest due on these non-payments? rate?
2. From what date is this calculated - the incomplete salaries payments happened several times over the last 15 months?
3. Is there interest due on the dividend non-payments? rate?

Thank you for your assistance,
Duncan

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## Justloadit

Hi Duncan,

It all depends on what the minutes of the directors were some time ago dealing with this particular situation.

If no meeting was ever held, then, quite frankly, you have no case, and can only sue for the unpaid salary. But then again it also depends on the minutes of any meeting which may have been held dealing with this specific point.

In most cases, with PTY's the auditor usually gets all directors to sign a letter stating that they will not call all loans in to be paid immediately, or else the company will be insolvent, and that loans will be repaid, based on the directors discretion, both in time and interest rate.

Not being a director now, will mean that you will never see your money again, as the current directors can declare no profit, infinatum, and even if there is a profit, shift the profit to other expenses to ensure that there is no profit. Been in this one before, and in the end, the only way I got my money was to sell my shares for the value of the loan account. Had I not done this, and taken the PTY to court, to get my loan account back, they would have simply liquidated, and I would not have seen a penny, and they could start again under a new name.

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## duncan2011

Hi Justloadit,

Thank you. I hope, for all parties, that it doesn't come down to liquidation. I doubt they would sacrifice the brand for this money - but I realise it is a possibility.
Is the unpaid salary not a fairly straight forward labour issue? Unfortunately (for them), my loan account is negligible, whereas the unpaid salary and share value is likely not. 

I'll keep you posted,
Duncan.

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## Dave A

:Hmmm:  It's fairly common practice for unpaid salaries of directors to be transferred to their loan account.

The unpaid declared dividends is an interesting one. Ordinarily no dividends are declared unless all loan accounts are paid up.
Also, dividends should only be declared on *distributable* profits, which has to take liquidity into account.

I expect it would be a contravention of the Companies Act if some dividends were paid and others were not.

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## sterne.law@gmail.com

A director who draws a salary is an employee and thus the BCEA applys. Directors fees would not be salary and are treated differently. This means you are also entitled to leave pay.
Dividends - much will depend on the Articles of Association. Interest on loan accounts is normally also handled in this document.

In terms of the New Company's Act you can now declare dividends that eat into capital, provided the Solvency/Liquidity test is met. I am not 100% sure if it is retrospective. (And also a company may not use up 755 or more of the capital)

In terms of shares, they need to pay you, they cannot merely hold on forever. Even if the company did not have the money they cant rely on that as a defence. 

You probably have to answer the question as to if they have not paid because of spite or cash flow and that may determine the best course of action.
Your original post says "in which you hold shares" - does this mean you are still hanging on to them? (It may be the ideal bargaining chip)

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## duncan2011

> It's fairly common practice for unpaid salaries of directors to be transferred to their loan account.


My loan account stands at zero. They claim that any unpaid salary / declared divided will go into my loan account - and thus dramatically changes the terms of repayment. Can they do this?

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## sterne.law@gmail.com

It sounds like nasty and spite are the overiding factors, and not cash flow. By your comments the business is a good one and your departure then indicates some unhappiness.
By the same token we can this to mean that you are not going to be paid without some sort of fight.
Haul out your employment contract (if any) and the Articles of Assoc. I doubt that without at least a lawyers letter and some correspondence that you will get anywhere.
Depending on amount of money involved, the cost of litigation and any threat of liquidation may be deterrents to them to dragging it out. Of course, in turn you have the same dilemma of the cost, but it may be possible, depending on existing documenattion, to at least get the salary and leave issue sorted, especially if you can bring it into the jurisdiction of the CCMA.

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duncan2011 (12-Apr-11)

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## Dave A

> They claim that any unpaid salary / declared divided will go into my loan account - and thus dramatically changes the terms of repayment. Can they do this?


A rather predictable next move to duck a claim for interest  :Sorry: 
You were a director so I expect you'll be aware of the sort of thing that goes on in a boardroom at moments like these.

I'm afraid unbundling the affairs of a resigning director is commonly more complex than closing out matters on a resigning employee, which means it normally takes longer to finalise all the details. I can but hope they're being thorough and cautious rather than being obstructive or wilfully slowing things down.

Just how long ago did you resign?

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## Yvonne

This is exceptionally interesting, and as a service to all members should be debated further.

Our auditor had told us (a long time ago!), that immediately a person became a director/shareholder of the company, labor law requirements (guaranteed earnings, leave etc.) no longer applied to them? 
Only for SITE/PAYE and SDL etc. purposes were the directors or shareholders employees?

Sadly, just like a marriage ANC agreement, a partnership agreement is just as vital yet most of us don't get around to it, just too busy trying to earn a living?

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## sterne.law@gmail.com

The issue of shareholders and directors and employment is interesting.

In short because you are a shareholder or director does not automatically make you an employee. If you are an employee, by contract, incorporation agreement etc, then you have the same protection as an employee even if you are a shareholder.

There would be some room to use a shareholder position as a defence for say overtime and not paying the rate or Sunday work in that as a company shareholder you have duty and obligation to act in best interest and tehrefore such time is not as an employee but in the role of shareholder. Each case and the facts would determine which side the gavel would fall.

The other common situation is where an employment position is via shareholding or where certain director positions are automatically assigned to certain employment positions, eg Financial manager and CEO automatically become directors or board members. Consequently the person resigns as Director but wants to continue the position of employent.

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## Dave A

> ...or where certain director positions are automatically assigned to certain employment positions, eg Financial manager and CEO automatically become directors or board members. Consequently the person resigns as Director but wants to continue the position of employent.


But surely in that instance being a director is a condition of employment. You're not a director in your personal capacity, but by virtue of your employment post. To resign as a director, you would have to resign from the employment post that obliges you to be a director.

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## wynn

Another point, slightly off topic but important never the less, is to cancell any sureties that you may have signed in the company's name.
If they do liquidate they may leave you 'in the bath with the baby water'  :Wink:

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## Justloadit

> Another point, slightly off topic but important never the less, is to cancell any sureties that you may have signed in the company's name.
> If they do liquidate they may leave you 'in the bath with the baby water'


Easier said than done!

In most instances if you have an account with a supplier, it may require that the account be settled in full immediately, which may place the company in a financial predicament, requiring another director to immediately take over for surety. This may or may not happen. In the case it does not happen, you are left up the creek with out a paddle. Be very wary about signing sureties on a company's behalf, especially if it is not your company - I certainly will not sign a surety if the company is not solely mine, why should I be taking all the risk?

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## paulnixon

As i know In most cases, with PTY's the auditor usually gets all directors to sign a letter stating that they will not call all loans in to be paid immediately, or else the company will be insolvent, and that loans will be repaid, based on the directors discretion, both in time and interest rate.Now you are not a director you 'll never seen a money. the option to get the money you 'll sell your shares and get the money back thats the only way will be left.

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