Lecture slides - week 6 - Business School Business Entities...

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Business School Business Entities: Week 6 Promoters Corporate fundraising Debt securities Professor Pamela Hanrahan School of Taxation and Business Law April 2016
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Aims for today At the end of Class 6 you should be able to: Explain the role and liabilities of promoters in the formation of companies, and how pre-registration contracts work under CA s 131 (Chapter 8 of the textbook) Discuss the rules governing fundraising by companies – that is, what disclosure and other requirements apply when companies seek to raise capital from investors by offering and issuing securities (shares and debentures), and what investor protection mechanisms exist under CA Ch 6D (Chapter 9 of the textbook) Explain how companies borrow money and provide security to lenders, including the requirements for debenture issues under CA Ch 2L and for the creation of charges over company assets under the PPSA (Chapter 10 of the textbook)
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But first… From last week Some worked examples – are these contracts enforceable against the company? 1. Lisa is a non-executive director of Belle Ltd, named as a director in the ASIC register. She signs a contract ‘for and on behalf of Belle Ltd’ 2. Binh and Fiona are directors of First Pty Ltd, named as directors in the ASIC register. On a loan agreement, Fiona affixes the company seal, signs her name and forges Binh’s signature 3. In example 2, the bank knows that the loan is not to be used for First’s business and that Binh has is travelling out of the country 4. Clive is not named as a director in the ASIC register, but has effectively been acting as the managing director of Second Ltd for years, without any objection from the board of Second. He signs a new contract for the sale of nickel to a Chinese consortium 5. John works in the mailroom at Third Pty Ltd. As a joke, he orders some business cards with the title ‘Head of Logistics’ on them. The managing director thinks it is hilarious and goes around a client function introducing him to people that way. John later signs a contract with one of the clients to buy 10 laptop computers
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Promoters Promoters can seem like an old-fashioned notion now, with instantaneous incorporation No fixed definition, but the notion usually involves bringing together the legal and commercial elements that give birth to a new company The older cases have the flavour of a ‘booster’ about them Chicken and egg? The status and the duty?
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Twycross v Grant ‘one who undertakes to form a company with reference to a given project and to set it going’ Emma Silver Mines ‘the idea of exertion for the purpose of getting up and starting a company and also the idea of some duty towards the company’ Tracy v Mandalay – passive involvement Promoters
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Promoters’ duties Reflect the special vulnerability of the nascent company to be lumbered with a poor deal.
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