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Company Law contracts - Essay Example

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In order to answer this question it is necessary to know about the term of promoter. Although the Companies Act 1985 does not define the term promoter, the judges have framed tests for determining whether a person's activities relate to the promotion of a company.
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Company Law contracts

Download file to see previous pages... However, in Twycross v Grants1, Cockburn CJ went so far to state that a promoter is one who undertakes to form a company with reference to a given project, and to set it going, and who takes the necessary steps to accomplish their purpose2. In Whaley Bridge Calico Printing Co v Green3 Bowen J explained that the term promoter is a term not of law, but of business, usefully summing up in a single word a number of business operations familiar to the commercial world by which a company is generally bought in to existence.
A promoter is an agent of the Company, as someone cannot be an agent of a non-existent principal Kelner v Baxter4. He is not a trustee (Re Leads). However, a promoter can be regarded as a Fiduciary (Finn, Fiduciary obligations 1977)5. Fiduciary obligations are duties owed to a third party to act with 'loyalty and good faith in dealings which affect that person' (Penner 2006). This means that the duty to act more than just acting honestly and fairly but rather the fiduciary 'must act to secure his principal's best interests and must not follow his interests. Lord Cairns LC explained the particular position of promoters as opposed to other type of fiduciaries such as trustees and directors in Erlanger v New Sombrero Phosphate Co (1878):
They stand on my opinion, undoubtedly in a fiduciary position. ...
They has in their hands the creation and mounding of the company; they have the power of defining how, and when, and in what shape, and under what supervision, it shall start into existence and begin to act as a trading corporation.

The core duty of a promoter is not to make a secret profit from his position. In Kelner v Baxter6 promoters of a hotel company entered into a contract on its behalf for the purchase of wine the company, when incorporated, ratified. The wine was consumed but before payment was made the company went to liquidation.7 The promoters, as agents, were sued on the contract. Erle CJ, rejecting this argument and holding the promoters personally liable. It was exemplified by Natal Land & Colonization Co v Pauline Colliery Syndicate8, which the court from enforcing a pre-incorporation contract prevented the company made on its behalf.

In Erlanger v New Sombrero Phosphate Co, a syndicate purchased a mine for 55,000.The syndicate then formed a company an through a nominees sold the mine for it for 100,000 without disclosing their interest in the contract. The mining operations were fruitless and the shareholders removed the original Directors and the new board successfully brought an action to have the sale rescinded. In Salomon v Salomon & Co Ltd9, the House of Lords took the view that if the Board was not independent, disclosure to all material facts should be made to the original shareholder. But note that in Gluckstein v Barnes10 the House of lords refined the duty further by holding that disclosure to original shareholders will not be sufficient if they are not truly independent and the scheme as a whole is designed to defraud the investing public11.

As with directors, a promoter of a company selling property ...Download file to see next pagesRead More
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