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Correcting Directors Errors - Ratification of Directors Actions (s. 239)

 

Shareholders can ratify (approve) a breach of duty, breach of trust or other default by a director or directors, using the statutory procedure set out in section 239 of the Companies Act.

A ratification resolution is an ordinary resolution requiring a simple majority of shareholders attending a meeting, to pass. If a written resolution is circulated then all shareholders (save for the conflicted director and any connected parties) must sign that resolution.

If the director concerned is a shareholder, their vote cannot be counted, nor those from anyone connected with that director. Connected parties include close relations, connected companies and firms, connected trustees and partners.

If the rules preventing the relevant director and connected parties from voting mean that there are insufficient shareholders to form a quorum, then any conduct can be ratified by unanimous shareholder resolution (s.239(6)(a)).

The ratification procedure is often used when directors have inadvertently overstepped the authority granted to them either by the Board, or under the Articles.

Shareholders should bear in mind that ratification of improper acts could potentially be an act unfairly prejudicial to the interest of minority shareholders.

For more information on the article above contact Andrew Perkins.

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