Paragraph 17(1) of Schedule 3 to the Third Commencement Order (SI 2007/2194) states that section 239 of the Companies Act 2006 (CA 2006) applies to conduct by a director on or after 1 October 2007. For conduct before that date, paragraph 17(2) provides that the law in force before that date will apply.

For pre-2007 ratification, the common law appeared to allow director shareholders to vote on ratification resolutions, provided that to do so did not constitute fraud or oppression. In Cook v Deeks [1916] 1 AC 554, the court found that ratification was not available where the directors misappropriated a business opportunity that was available to the company. As the directors constituted the holders of a majority of the shares, that misappropriation amounted to a fraud on the minority through the expropriation of business advantages at the expense of the minority. Section 239(7), CA 2006 expressly preserves, after 1 October 2007, any common law rule as to acts that are incapable of being ratified.

However, the actual position may depend on the particular facts of the case in question. In Regal (Hastings) Ltd v Gulliver [1042] 1 All ER 378, ratification was available as the business opportunity could not or should not have been made available to the company. Note however that this latter ruling may have been differently decided today, given that section 175(2), CA 2006 now imposes the duty to avoid conflicts whether or not the company could take advantage of the property, information or opportunity.

If the breach is not capable of ratification under section 239(1), the director shareholders could fall back on the ability of the company to ratify any breach (provided it is not ultra vires the company) through unanimity (section 239(6)(a), CA 2006, which I believe restates the common law position). Of course, no voting (or, for written resolutions, quorum) exclusions will apply, but such a resolution would require the co-operation of other non-director shareholders.

In any case where shareholder ratification of breach of duty is sought, a minority shareholder may, following a resolution to ratify the directors' conduct, be better placed to bring a claim in his own name for unfair prejudice under Part 30, CA 2006 (whether alone, or alongside a derivative action in the company's name).

With respect to ratification under section 239(1), CA 2006, the Company Law Review narrowed its original proposals for voting exclusions by deleting the draft exclusion of those shareholders having an indirect interest in the matter being ratified. As a result of the modification, only the votes of an affected director (if a shareholder) and his connected persons (under section 252, omitting section 252(3)) are to be disregarded on a ratification resolution. As such, if the breach is capable of ratification, it is arguable that, by crafting separate resolutions for each conflicted director, other directors committing the same breach would be able to vote on the resolutions relating to each of their colleagues. I am yet to find definitive authority for this position, but will keep looking and let you know if I find anything useful. Along similar lines, a pre-CA 2006 case found that a sole director/shareholder could ratify his own breaches as director (where those breaches were capable of ratification) and, in the absence of authority following the implementation of CA 2006, we believe that position also to represent the current law. In that case, it may be difficult to see why the position should change where there is another shareholder who is not also a director. Note, however, the possible availability to dissenting minority shareholders of an action for unfair prejudice.

On a related point, is there a shareholders', employment or other agreement in place containing restrictive covenants that may trigger a contractual claim for breach of covenant based on the facts with which you are faced?

I hope that helps your thinking.