PROMOTERS & PRE-INCORPORATION CONTRACT

Application for Incorporation (Section 14)

(a) The application shall be accompanied by a statement from each promoter or director confirming

Who may be a promoter?

What does a promoter a do?

  1. One of those who are interested in the company
  1. May also be a professional promoter
  1. Finding the management team
  1. Raising capital for the company
  1. Finding the shareholders
  1. Purchasing or leasing the necessary premises
  1. Preparation of the company’s constitutional documents
  1. Preparation of prospectus
  1. Registration of the company

Duties of a promoter;

  1. secures property for the company and makes deals on its behalf
  2. stands in a fiduciary relation to the company he promotes
  1. Duty not to be a party to contracts with the company
  1. Disclosure of all material facts
  1. The company shareholders in a general meeting.

  1. An Independent board of directors as the proper representative of the company.

Case: Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218

Case: Gluckstein v Barnes [1900] AC 240

  1. Duty not to make a secret profit

Case: Whaley Bridge Calico Printing Co v Green & Smith (1879) 5 QBD 109

Case: Habib Abdul Rahman v Abdul Cader (1886) 4 Ky 193

Remedies for breach of contarct

  1. Recovery of secret profit
  1. Payment of damages
  1. Rescission of contract

rescission may not be granted, IF;

  1. The company must quickly to institute action for rescission.
  1. Rights of third party
  1. Affirmation of the contract

Main duty: act in good faith

Case: Gluckstein v Barnes

Case: Whaley Bridge Calico Printing Co. v Green & Smith

Case: Re Leeds & Hanley Theatres of Varieties Ltd

Section 2 of CA 2016
“promoter”- in relation to a prospectus issued by or in connection with a corporation, means a promoter of the corporation who was a party to the preparation of the prospectus or of any relevant portion of the prospectus; but does not include any person by reason only of his acting in a professional capacity.

section 14(4) a promoter is required to file to the Registrar a statement before the incorporation of a company.

Disqualification (Section 199) (1)

(b)due to his contravention of the duties of a director

(a) within the last five years, the person has been a director of two or more companies which went into liquidation resulting from the company being insolvent due to his conduct as a director which contributed wholly or partly to the liquidation

(c) due to his habitual contravention of this Act

  1. Anyone, including a corporation, may become a promoter, unless prohibit by the law

Case:

Whaley Bridge Calico Printing Co v Green

Twycross v Grant

  1. Parties cannot be restored to the original position

Case: Lagunas Nitrate Co v Lagunas Syndicate [1899] 2 Ch 392

b) that he is not disqualified under this Act to act as a promoter or a director, as the case may be

Pre-Incorporation Contracts

  • made before a company is incorporated

The Position in English Law

  • english law does not recognize
    pre-incorporation contracts

Case: Kelner v Baxter

The position in Malaysia

  • legal status of pre-incorporation contracts can be ratified and the company will be bound by the contract after ratification.

1. Section 65(1)
2. Section 65(2)

In order to bind the company, these two conditions must be satisfied;

i. the contract must be purportedly made on the company's behalf.

ii. the company must ratify the contract after its incorporation

  • The promoter or agent must make the contract on behalf of the company, not in his personal capacity.

Case: Ahmad bin Salleh & Ors v Rawang Hills Resort Sdn Bhd

  • Once incorporated, a company must take steps to ratify the contract

Ratification of contract:

  1. An express ratification occurs when the company passes a resolution either at a general meeting or at a board meeting; to specifically endorse a particular contract.
  2. It is implied when the company does any act showing acceptance of the contract such as making use of the goods in the contract or the failure to return the goods within a reasonable period.

Case: Cosmic Insurance Corporation Ltd v Khoo Chiang Poh

Effects: the co is bound by the contract and is entitled to the benefit of the contract.

Case: Thai Hwa Realty Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri

Liability of Agent

Company has the option to ratify but is not obliged to ratify any contracts made before its incorporation

Statutory Remedy

  • for misstatement in the prospectus

Sec 167: Penalty - damages

Sec 168: Penalty: imprisonment or fine or both

Ratification by Principle

  • principle has the option to ratify any unauthorized act or contract made by his agent

Case: Newborne v Sensolid (Great Britian) Ltd

Fatin Nur Qamarina Binti Mohd Shahrulnizam (2018684236)
Rhea Manniesya Binti Ardhie Jarry Abdullah (2018231738)
Ruzalya Binti Zakaria (2018678492)