Member Article

Ratification of Acts of Directors Under the Companies Act 2006

With Watson Burton LLP Law Firm

On 1 October 2007, new provisions came in force regarding the ratification of acts of Directors. The Companies Act 2006 (“the Act”) contains a significant restriction in the ability of a Company ratifying the acts of a Director, compared to the wider power previously afforded under Companies Act 1985.

Section 239 of the Act largely maintains the previous position under the Companies Act 1985 on the ratification of acts of Directors. However, from 1 October 2007, there is an important change in the way in which this can be done. Under the Act, any decision to ratify an act by a Director which amounts to a breach of duty, breach of trust, default or negligence must be taken by the members, without reliance on the votes in favour by the Director or any connected person (which may include fellow Directors). Previously, the votes of any person with an interest in a ratification could be counted.

Under section 239(3) the ratification must be by ordinary resolution of the members, unless the Company’s Articles contain a higher majority. If this takes place at a meeting, a member whose votes have to be disregarded under s.239 may still attend the meeting and be counted in the quorum. Alternatively, if it is undertaken by written resolution, a copy need not be sent to the Director or any connected persons, as they are prohibited from taking part in the process (s.239(3)).

Companies should note that any act by a Director before 1 October 2007 will be governed by the law in force at the time.

The need to achieve the necessary majority for a ratification is going to be more difficult under the new provisions, which could then have an impact on the number of derivative actions being taken.

If you have any queries relating to this article, or any other Corporate matter, please contact Caroline Rye at Watson Burton LLP on 0191 244 4444 or email caroline.rye@watsonburton.com.

This was posted in Bdaily's Members' News section by Ruth Mitchell .