Ratifying a director's negligence: votes of the director and connected persons (CA 2006 s.239)
Wexcombe Tiles Ltd is a private company limited by shares with 1,000 issued ordinary shares, each carrying one vote. Callum, a director, holds 400 shares. His wife, Mairead, who is not a director, holds 100 shares. The remaining 500 shares are held by three unconnected investors. Callum negligently approved a supply contract that has cost the company £60,000; he received no personal benefit and there is no suggestion of fraud. The board calls a general meeting to propose an ordinary resolution ratifying Callum's conduct. On a poll, Callum and Mairead vote all their shares in favour. Of the investors' shares, 300 are voted in favour and 200 against.
Is the ratification resolution passed?
Choose one answer to see the reasoning.
Worked answer
Correct answer E: Yes, because disregarding the votes in favour cast by Callum and his wife Mairead, 300 votes were cast for and 200 against.
THE RULE TO REMEMBER
On ratification at a meeting, the necessary majority must be reached disregarding votes in favour by the director and members connected with him, such as a spouse (CA 2006 s.239(4)).
Ratifying a director's negligence: votes of the director and connected persons (CA 2006 s.239)
Under s.239(2) CA 2006, ratification of a director's negligence or breach of duty must be by resolution of the members. Since no particular type is specified, an ordinary resolution suffices (s.281(3)). Where it is proposed at a meeting, s.239(4) provides that it is passed only if the necessary majority is obtained disregarding votes in favour cast by the director (if a member) and any member connected with him. A director's spouse is a member of his family (s.253(2)(a)) and so connected with him under s.252. Callum's 400 and Mairead's 100 votes in favour are therefore ignored. Of the remaining votes, 300 were cast for and 200 against, a simple majority of the votes that count. The resolution is passed. Callum could attend, be counted in the quorum and take part in the meeting (s.239(4)); only his and Mairead's votes in favour are excluded.
Why A is wrong: Section 239(4) requires the votes in favour of the director and connected members to be disregarded when deciding whether the majority is reached.
Why B is wrong: Section 239(2) requires a resolution of the members and nothing more is specified, so an ordinary resolution suffices (s.281(3)).
Why C is wrong: Section 239(4) expressly allows the director to attend, be counted in the quorum and take part in the proceedings.
Why D is wrong: Votes in favour by members connected with the director, including his spouse, must also be disregarded, not just his own.
A little more practice done.
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