Undrawn salary

We act for a company that is engaged in the development of new technology and has spent the last few years trying to bring a particular product to market. It has been reliant principally on funding from two shareholder investors with only negligible other income.

The managing director’s service contract provides that he is entitled to receive a fixed annual salary but it also stipulates that only a proportion of this will be paid while the company is in its development stage and while there are insufficient funds to cover this.

The board meets at certain times of the year to assess progress based on which a sum of remuneration is agreed between the board and the managing director and the two investors/directors introduce sufficient funds to cover the agreed payment.

To date the sums of salary paid are significantly less than the original ‘fixed salary’....