WRITTEN BY Riley Berry
It seems only logical: your company is in severe financial trouble, so you and your co-directors agree to reduce or even forego your wages payable by the company, to assist its financial position for the time being. But be warned that this logic comes at a cost – it is unlikely that you will be repaid those foregone wages. This is because your employment contract may be deemed to be varied by reason of the doctrine of ‘practical benefits’, which is explored in the case of Hill v Forteng Pty Ltd  FCAFC 105, below.
Mr Hill was an employee, director and shareholder of the company, Forteng Pty Ltd (“Forteng”), which was experiencing ongoing financial difficulties. As a result, between the period of January 2013 and December 2013, Mr Hill along with the other directors of Forteng agreed that they would receive reduced or no remuneration as employees, in order to improve the financial position of the company.
A few years later, Mr Hill resigned as a director of Forteng and well after that, Mr Hill brought proceedings against Forteng, seeking to be repaid the amount of his salary withheld between January and December 2013 and unpaid superannuation totalling $154,876.63. Mr Hill argued that Forteng’s failure to repay him amounted to a breach of his employment contract and oppressive conduct, such that he was entitled to relief under section 233 of the Corporations Act 2001 (Cth).
The judge at first instance found in favour of Forteng, which was upheld on appeal by the Full Bench of the Federal Court. Ultimately it was held that there was sufficient consideration in the form of a ‘practical benefit’ in order to vary the contract, such that Mr Hill was not entitled to relief or repayment by Forteng.
The Court held that Mr Hill received consideration for his remuneration foregone by way of ‘practical benefits’. This is because his reduced or foregone salary was invested back into the company, thereby:
As such, Mr Hill’s decision to reduce or forego remuneration was to ‘ensure the survival, future growth and enhanced value of Forteng,’ for which Mr Hill stood to benefit from indirectly.
If you are seeking advice on any contractual matters, or advice on corporate governance issues, talk to our Business & Commercial team today.
 Hill v Forteng Pty Ltd  FCAFC 105 .
 Ibid .
Written by Riley Berry with the assistance of Maxine Viertmann.