March 29, 2019

Ratification of Defective Corporate Acts -- Delaware, the Model Business Corporation Act and Beyond

The program will describe the background of Sections 204 and 205 of the Delaware General Corporation Law (DGCL), which provide statutory procedures for ratifying and validating defective corporate acts.  These statutory provisions eliminated the problems under prior case law in distinguishing between void and voidable corporate acts and the serious consequences created by corporate acts that were void and thus could not be subsequently ratified.  The program will also cover the provisions of the Model Business Corporation Act (MBCA) and the common law of ratification in jurisdictions other than Delaware and discuss practice pointers and recent Delaware cases on ratification of defective corporate acts. 

Identifying a “defective corporate act” and a “failure of authorization” are essential to understanding Sections 204 and 205.  The program will explain the elements of a defective corporate act, the distinctions between “acts” and “intentions” and review the recent case law interpreting these concepts.  The presenters will provide examples of defective corporate acts and provide practical guidance on how to ratify such defects under the Delaware statutory provisions and the comparable sections of the MBCA and will discuss recent judicial decisions in the area. 

The program will also discuss how to determine whether the corporation has valid directors and a valid board and the quorum and voting requirements for ratification and how these requirements are interpreted and applied where the proposed ratification relates to the election of the initial board.  The quorum and voting requirements are the greater of (i) those at the time of the act and (ii) those at the time of ratification, subject to certain specified exceptions such as the presence or approval of any director elected or appointed by the holders of any class or series where no shares of such class or series are outstanding at the time of ratification.  The presenters will also discuss situations where defective corporate acts create uncertainty regarding board composition and whether to “fix” board composition before the board adopts the ratifying resolutions or later seek judicial validation under Section 205 or the comparable provision of the MBCA.

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