2.1 Promoter and Constitution
2.1 Promoter and Constitution
2.1 Promoter and Constitution
• 1. Rescission
• When a contract is rescinded, the contract between the
company and the promoter is cancelled and any money will be
repaid and property returned.
• Erlanger v New Sombrero Phosphate- the company successful
in rescinding the contract for the purchase of an island and
recovered the purchase consideration of £110,000 from the
promoters.
• Rescission of a contract is the remedy that a company will
seek where it has entered into a contract in which a promoter
has an interest which was not disclosed.
• 2. Recovery of secret profit
• Where a promoter makes secret profit at the expense of
the company promoted, the company can make the
promoter account for that profit unless the promoter has
disclosed that profits to the company.
• Gluckstein v Barnes-the promoters were in breach of their
duties and the company was entitled to recover the sum of
£20, 000 as secret profit which was not fully disclosed by the
promoters.
• 3. Constructive trust order
• Fairview Schools Bhd V Indrani a/p Rajaratnam [1998] 1
MLJ 110 –the company may obtain a constructive order
and require the promoter to hand it over at cost in the case
where a promoter, during the course of promotion,
acquires property for his or her personal gain instead of
the company promoted. In this case, the court held that the
permit which was applied and issued to operate the school
was held in trust for the company.
• 4. Damages
• Re Leeds & Hanley Theatres of Varieties Ltd (1902) Ch
809
• Facts: The claim was for breach of duty of care in the
promoter selling property to the company at an
overvaluation.
• Held: The court held that the promoters who had acted in
breach of their fiduciary duties were liable for damages to
the company. The measure of damages was the same as the
profit made by the promoter.
• 5. Disqualification under the CA 2016
• Pursuant to section 199 of the CA 2016, it gives power for
the court to disqualify persons from acting as director or
promoter due to certain circumstances.
• Section 199 paragraph 2, An application arising from the
circumstances referred to in paragraph (1)(a) may be made
by the Official Receiver and the Registrar shall be made a
party to the proceedings.
Pre- incorporation contract
• Sec 35(1)
(a) The objects of the co. ( So, companies have full capacity to
achieve the objects unless the constitution provides
otherwise).
(b) The capacity, rights, powers or privileges of the co if the
provision restricts such capacity, rights, powers or privileges
(c) Matter contemplated under this Act to be included in the
constitution
(d) Any other matters as the company wishes to include in the
constitution
• Sec 38 (1)- A company limited by guarantee shall have a
constitution
• Sec 38 (3)- The constitution shall state
(a) The company is a company limited by guarantee
(b) Objects
(c) Capacity, rights, powers and privileges of the company
(d) Number of proposed members for the incorporation
(e) Matters contemplated in the Act to be included in the
constitution
(f) Any other matters as the company wishes to be included
in the constitution
DOCTRINE OF ULTRA VIRES
• The doctrine of ultra vires is no longer relevant ( Previously, the
doctrine is embedded in sec 20 of Companies Act 1965).
• Reason: - Companies have the full capacity of a natural person
under the Companies Act 2016.
• However, discussion as to the effect of an ultra vires transaction
is still relevant for :-
(a) companies that choose to have the objects clause
(b) companies limited by guarantee which must have the object
clause
• The co. shall be restricted from carrying on any business or
activity which is not within those objects [Sec. 35 (2)]