Richards Layton & Finger
 

The Equitable Case for Ratification

March 27, 2013

Among the many significant proposed changes to Delaware's General Corporation Law that were submitted to the corporation law section of the Delaware State Bar Association this March for approval, the sections dealing with ratification of defective corporate acts stand out as particularly noteworthy. Although the proposed sections, which would become effective in April 2014 if enacted, are somewhat procedurally complex, the general idea of the proposed sections is that defective corporate acts may be subsequently validated through board (and, in some cases, stockholder) approval. The new sections would not provide the exclusive means of ratifying defective corporate acts, and acts that are susceptible to cure under the existing common law of ratification may still be effectively ratified through such means, regardless of compliance with the new ratification sections. While a properly ratified act would be given retroactive legal effect and would therefore be insulated from challenge on the grounds of the original defect in authorization after a specified period, it would not be immune from equitable attacks. Accordingly, despite ratification, these acts would remain subject to the "twice tested" rule mentioned in the Delaware Chancery Court's recent opinion in Carsanaro v. Bloodhound Technologies, -- A.3d --, C.A. No. 7301-VCL, (Del. Ch. Mar. 15, 2013).