Directors Duties and Breaches

Question 1

Structure of analysis for whether a director is in breach of directors’ duties (e.g., CMA question)

Answer 1

1. What is the breach? Which directors’ duty has been breached?
2. Breaches of duty can be ratified. Explain ratification
3. Options for a client in light of breach

Question 2

Ratification for breach of duty

Answer 2

Shareholders can by ordinary resolution (subject to any amendments in the company’s articles) ratify the following conduct of directors:
- negligence
- default
- breach of duty
- breach of trust

Question 3

What breaches cannot be ratified?

Answer 3

• Unlawful acts CANNOT be ratified
• CANNOT ratify a breach of fiduciary duty in insolvency situations

Question 4

Can a director who is also a shareholder vote to ratify their breach?

Answer 4

No - a director who is a shareholder cannot vote to ratify their own breach

Question 5

What are the options for a company following a director’s breach of duty?

Answer 5

1. Bring proceedings against the director
   - This is brought on behalf of the company and remedies are awarded to the company
   - Possible remedies include setting aside the transaction or damages or an injunction
2. Grounds to terminate a director’s service contract - need to check if the director has a service contract
3. Could be a basis for disqualification of the director under Company Directors Disqualification Act 1986