Introduction to this document

Shareholder written resolution to ratify director’s breach of duty

Even when a director has acted in breach of duty, their company may decide to excuse and legitimise their actions.

Shareholder approval

When a director is in breach of duty the company will often take action against them. On the other hand, the company may decide not to - perhaps the matter has been settled internally, or the company views the breach as “technical” or an honest mistake. In this situation the company may need to formally legitimise the director’s actions. For example, a director has signed a contract on behalf of the company without realising that they were not authorised to do so. The company is happy for the contract to stand, but the other party to the contract may need reassurance that the company will not try to avoid its obligations because the signatory acted outside their remit.

The company can give its consent to the director’s actions retrospectively by passing a shareholder resolution to ratify them. Our model takes the form of a written resolution. If the company prefers to hold a meeting to discuss the director’s conduct more fully, the information in the covering letter to the model needs to be included in the notice calling the meeting instead.

Eligible members

The director whose conduct is at issue, and anyone connected to them, is not eligible to receive a copy of the resolution or vote on it. The board or company secretary should therefore check who may be connected to the director before sending out the paperwork. This is explained to the shareholders in the covering letter, in case the company is unaware of a connection that disqualifies a shareholder from voting.