Topic_2_Promoter_PIC - UBML2013 COMPANY LAW Topic 2...

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UBML2013 COMPANY LAW Topic 2: Promoters and Pre- Incorporation Contracts
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LEARNING OUTCOMES Explain a promoter and his duties. Explain the remedies for breach of duties? Describe pre-incorporation contract and who is bound by it. Describe the role and functions of regulatory bodies such as CCM, SC, BM and FIC.
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PROMOTERS Define: A person who undertakes to form a company and takes the preliminary steps for its incorporation Twycross v Grant (1877) 2 CPD 469 Cockburn CJ said: A promoter, I apprehend 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 that purpose ’. Tengke Abdullah ibni Sultan Abu Bakar v Mohd Latiff bin Shah Mohd (1996) 2 MLJ 265 Gopal Sri Ram JCA, said: A promoter is one who starts off a venture – any venture – not solely for himself, but for others, of whom he may be one ’.
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Statutory Definition Sec 4(1) CA – 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 thereof; but does not include any person by reason only of his acting in a professional capacity
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Cont. Meaning: a. Person who takes steps to form co Tengku Abdullah ibni Sultan Abu Bakar v Mohd Latiff bin Shah Mohd [1996] 2 MLJ 265; Query? What steps? b. Person who is involved in preparing prospectus S.4(1); c. Person who is a party to pre-incorporation contract . Even if do not take active part but benefits from forming co, can be considered as promoter ‘passive promoter’– Tracy v Mandalay Pty Ltd (1953) 88CLR 215. Professionals (lawyers or accountants) who prepare documents for co formation are not promoters.
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cont A promoter of a registered company can be either a natural person or an artificial person – eg. setting up of a wholly owned subsidiary by a holding co. “Promoters” include controlling shareholders, persons connected to controlling shareholders and executive directors who are substantial shareholders of the issuer (Prospectus Guidelines – issued by SC)
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PROMOTERS’ DUTIES Fiduciary duty owed to co. Cannot make secret profit, must avoid conflict of interest and make full and frank disclosure – Fairview Schools Bhd v Indrani a/p Rajaratnam (No 2) [1998] 1 MLJ 110. Disclosure to BOD, existing SH or prospective SH i.e. via prospectus. If disclosure made to BOD, they must be independent Habib Abdul Rahman v Abdul Cader (1808-1890) 4 Ky 193. Query? What if promoter is also SH? Must be full disclosure and not partial – Gluckstein v Barnes [1900] AC 240.
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Cont Promoter must make full disclosure of all material facts when dealing with the company ( Erlanger v New Sombrero Phosphate Co Ltd (1878)) Must act honestly, for the benefit of the company. E.g. if there’s a profit, a promoter must DECLARE it for that particular of situation. ( Gluckstein v Barnes (1900))
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Cont.
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  • Summer '13
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