avoiding liability for breach of duty

Question 1

s 239: ratification by the shareholders

Answer 1

• S239 CA allows the shareholders to ratify any conduct of a director which breached the director’s duty, as well as negligence, default and breach of trust
• If the shareholders ratify the director’s conduct then the company can’t take action against the director for breach
• the decision must be taken by a shareholder’s resolution (OR or WR)
• if the director is also a shareholder, their vote will not count by they will still form part of the quorum

Question 2

relief granted by court

Answer 2

court can relieve the director of liability if:
- if considers that the director acted honestly and reasonably;
- the director should be excused

the director can apply for relief before a claim is made against him (s 1157(2))

Question 3

insurance

Answer 3

the director cannot insure against liability for breach of duty (any such provision will be void)

but, a company may purchase insurance for directors to cover their own risk of liability

Question 4

authorisation of breach by directors

Answer 4

directors can only authorise s 175 breach (duty to avoid conflicts of interest)

articles need to not prohibit the directors from authorising this

director cannot vote or count in the quorum

where conduct is authorised by directors, there is not need for approval by shareholders and the transaction can’t be later set aside