company law

Topics: Fiduciary, Stock market, Civil procedure Pages: 5 (1993 words) Published: April 6, 2014
Promoters, as defined in Twycross v Grant (1877) 2 CPD 469, are persons who involved in the incorporation of a company. And the common law has extended the scope of “promoter” further in Tracy v Mandalay Pty Ltd (1953) 88 CLR 215. In this case, the High Court held that the promoters are not just these persons who take an active part in the formation process, but also these who profits from the operation of the company with a passive role. Applying this doctrine to the case study, Alicia can be regarded as one of the promoters of Batco Ltd, since she had involved in the formation of the company and ranked as one of the three directors after the registration. It’s also noticeable that the other two directors, Adam and Robin, were former employees of Alicia. Thus, even though Alicia didn’t play an active role in the formation of the company, the connection between her and Batco before and after the registration was solid. According to Aequilas v AEFC (2011) 19T ACLC 1006, the legal consequence of a person being identified as a promoter is that such person owes stringent fiduciary duties to the company and its shareholders. They are required to act in good faith and place the company’s benefits over their own (Harris, Hargovan and Adams 2011). More specifically, in Erlanger v New Sombero Phosphate Co (1878) 3 CA 1218, the House of Lords held that promoters have the duty of fully disclosure to a board of independent directors of the material facts when they enter into contract relations with the company; Or, as stated in the in Aequilas v AEFC (2011) 19T ACLC 1006, the court also accepts an explicit disclosure made to shareholders. Taking these judgments into account, Alicia, as a director of Batco Ltd, as well as a promoter, breached her fiduciary duties. Because Alicia, as a party to the contract with Batco, didn’t make known the notification she received from a government clerk to the company before they entered into the contract. Although without official announcement, the rezoning of the area was only a speculation, the unveiling of this information could prevent Batco from buying the site at that price, as the reassigned area could have a change in value. What more, a secret profit was obtained by Alicia in the selling of property. Despite that she made a disclosure of the actual profit she earned to Adam and Robin, these two directors could not fall into the group of independent directors. Additionally, even after Alicia had informed them about her real gain, in the prospectus Batco Ltd made to its shareholders, the profit number was falsely presented. Thus, Alicia also contravened the promoter’s duty of disclosure to the company’s shareholders. Once the breach of fiduciaries is established, Batco Ltd and its shareholders can sue Alicia, Adam and Robin for remedies. Under s 729(1) in Corporation Act 2011(Cth), the damaged party has right to recover the amount of the loss or damage resulting from contravention of duty of disclosure. And under s 729(3), the time for taking a legal action under s 729(1) is limited to in 6 years after the happening of the breach of disclosure duty. In Erlanger v New Sombeoro Phosphate Co (1878) 3 CA 1218, the judgment rescinded the initial contract and the damaged party was allowed to recover the purchase price. Similarly, in Glukstein v Barnes (1900) AC 240, a promoter was required to account to the company on the secret profit he realized from the breach of fiduciary duties without voiding the contract. Therefore, one likely outcome in this case study is Batco and its shareholders suing Alicia to rescind the purchase contract within 6 years after the happening of the breach of disclosure duty. As a result, Batco can recover the purchase price and return the site to the vendor, Alicia. Another possibility is Batco suing Alicia for breach of fiduciary duties and only require her account to the company for the secret gain. However, considering the unpredictable...
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