Powers To Remunerate Directors Of Jersey Companies

AI Airports International Limited and PI Power International Limited v Pirrwitz [2013] JCA 177 (12 September 2013)

In a helpful judgment the Jersey Court of Appeal has upheld the decision of the Royal Court in Pirrwitz v AI Airports International Limited and PI Power International Limited [2013] JRC 017. The case raised questions regarding the remuneration of directors and in particular the scope of provisions in articles of association under which directors may be remunerated. An important point highlighted by the decision is that directors have no entitlement to remuneration out of company funds unless this is set out in the company's articles of association or approved by the company's members (the members being the shareholders in the case of a company having shares).

This Briefing considers the decision in relation to issues raised regarding the remuneration of directors. The judgment is also important in clarifying the duty of a director under Article 74(1)(a) of the Companies (Jersey) Law 1991 to "act honestly and in good faith with a view to the best interests of the company". That aspect of the case is considered in a separate Briefing.

Facts

Mr Pirrwitz was a director of two Jersey companies, AI Airports International Limited and PI Power International Limited, which held substantial investments in the airport and power sectors. Under his written terms of service he was entitled to certain payments in the event of his being removed from office or resigning on three months' notice. These exit payments were600,000 and700,000 respectively. The directors were expected by the hedge fund investors, who had procured their appointment, to realise the companies' investments and return cash to shareholders as soon as possible. The role was difficult and the board was unsupported by employees. Relations between the directors and the hedge fund investors became increasingly strained. Mr Pirrwitz was in due course removed by the investors as a director of both companies. As a result, he claimed the two lump sum payments. The companies resisted. They argued that the agreements were invalid and unenforceable because (a) neither company's articles of association contained power to agree to exit payments of this nature; (b) the terms of the payments had not in fact been authorised by either board; and (c) the agreements to make the exit payments had not been in the best interests of the companies and were therefore unenforceable. The Royal Court...