B ratification the effect of the equitable doctrine

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B. Ratification The effect of the equitable doctrine of ratification is that the beneficiary of a fiduciary duty can prospectively authorise or retrospectively ratify conduct that would otherwise amount to a breach of fiduciary duty
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In the corporate law context, this means that they general meetings of members can, by resolution, excuse directors (and others, such as senior managers) from liability for conduct that would otherwise constitute a breach of duty It order for a ratification to be effective it must not be brought abut by unfair or improper means A central aspect of this requirement is that the general meeting is fully informed about the relevant conduct before the resolution is passed – failure to do so will mean that the ratifying resolution is ineffective (Note s 191 material personal interest requirements require further disclosure than normal) B.1 Circumstances where Ratification is Not Effective The circumstances where ratification is not effective can be summarised as follows: o Where the company is insolvent or nearing insolvency o Where the ratification would amount to misappropriation of company property o Where directors are benefiting themselves at the expense of the company o Where a member has a personal right Additionally (and more significantly) breaches of the codified directors and officer’s duties cannot be ratified B.2 Ratification of Breaches of Codified Directors’ Duties It has been stated in several cases that the shareholders of a company cannot release directors or officers from a breach of statutory duties under ss 180-184 Corporations Act This was further emphasised by {Santow J in Miller v Miller} where the view was expressed that the fact that the codification of directors’ and officers’ duties and the imposition of civil and some criminal sanctions for breach, recognises that breach of these duties have implications for a wide range of stakeholders than merely the company’s shareholders HOWEVER {Santow J in Miller v Miller} also noted that “the [most] ratification can do is remove from the scope of technical dishonesty such actions for issuing shares for a purpose which is not proper, in the sense of not being for the benefit of the company as a whole” o Purportedly His Honour is saying that ratification may be relevant in showing that the director acted honestly and ought to be fairly excused under s 1317S C. Indemnification Another means of obtaining relief from liability is indemnification However under {s 199A Corporations Act } there is a prohibition against a company or related company directly or indirectly exempting or indemnifying its officers or auditors against liabiliteis to the company Indemnities in relation to liability for pecuniary penalty orders under s 1317G or compensation order under s 1317H are also prohibited However indemnity is allowed where: o Liability is to a third party (ie. S 52 TPA could be covered) o Reimbursement for legal costs and expenses with successful defence or judicial relief
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