302 Chapter 11Companies (2): Management, control and winding up
Section 232(1) provides that any provision that purports to exempt a director of a com-
pany (to any extent) from any liability that would otherwise attach to him in connection
with any negligence, default, breach of duty or breach of trust in relation to the company
is void. However, s. 239 retains the common law right of the members to pass a resolution
saying that the company is ratifying such conduct if it has already occurred. The director in
question, and any person associated with him, cannot vote on the resolution (s. 239(4)).
However, the director can count towards the quorum of any meeting and can speak at the
meeting. An ordinary resolution of the members is all that is required unless the company’s
articles require a higher majority or unanimity.
Under the common law, some types of acts can be ratified by ordinary resolution, some
by special resolution and some cannot be ratified at all. Generally the position is that if
the directors do exceed their powers or use them irregularly or negligently, the share-
holders may still ratify their acts at a general meeting, as long as the directors did not act
fraudulently, illegally or in bad faith.A director will not be liable to the company for the acts of other co-directors if he or she
did not know of the act and should not have suspected it. This is because directors do not
employ each other and are not each other’s agents.
If directors are liable together they are jointly and severally liable. This means that a
single director who is sued can be ordered to pay all of the damages which the directors
who are jointly and severally liable owe. However, the director who pays will be entitled
to a contribution from the other directors.Relief from the court
Section 1157 allows the court to grant relief to a director (or company secretary or auditor)
in breach of his duty if the director ‘acted honestly and reasonably and ought fairly to be
excused’.Disqualification of directors
In certain circumstances a person will be disqualified from directing or managing a
company. A person who is disqualified automatically ceases to hold office as a director.Bamford vBamford (1970) (Court of Appeal)The company was in danger of being taken over. To avoid this the directors issued an extra
500,000 shares to a business which distributed the company’s products. This might have
been contrary to the company’s articles. This point was never decided. The shareholders
approved the issue of the shares by passing an ordinary resolution at a general meeting.
HeldEven if the directors had irregularly exercised their powers, the ratification by the
shareholders made the contract a good one, and absolved the directors from all liability.
Harman LJ declared: ‘Directors can, by making a full and frank disclosure and calling
together the general body of the shareholders, obtain... forgiveness of their sins; and...
everything will go on as if it had been done right from the beginning. I cannot believe that
this is not a commonplace of company law. It is done every day. Of course, if the majority
of the general meeting will not forgive and approve, the directors must pay for it.’