The Concept of Promoter & Pre-incorporation Contract Dr. ZahiraMohd. Ishan JPP, FEP
Statutory Definition of Promoter • S. 4: in relation to a prospectus…. means ..a party to the preparation of the prospectus / of any relevant portion thereof; but does not include any person by reason only of his acting in a professional capacity.
Judicial definition • Twycross v. Grant(1877) :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 • Whaley Bridge Calico Printing Co. V. Green  5 QBD 109 at p. 111. The term promoter is a term not of law, but of business, … by which a company is generally brought into existence.
Judicial definition • Erlanger v. New Sombrero Phosphate Co.  AC 1218 • Mohd. Latiff Shah Mohd. & Ors. v. Tengku Abdullah Ibni Sultan Abu Bakar & Ors. & Other Cases  3 CLJ 77: a question of fact depending upon what the so called promoter really did ; Judge is not bound to define the term.
Summing up from the cases: • Has a role in the formation: active (Wheal Ellen Gold Mining Co NL v Read) or moderate part / “undisclosed joint adventurers (Emma Silver Mining Co Ltd) • May not be a professional • But not in professional duties, act merely in a purely ministerial or professional capacity (Re Great Wheal Polgooth Co Ltd)
Statutory requirements • Natural person / legal person Re Darby, ex parte Brougham : can be corporate person; Fairview schools Bhd v Indrani a/p Rajaratnam & Ors (No.2) (1998). • Form 48A lodged with RoC & Official Receiver before incorporation
Commencement & Termination • Question of fact: Re Cape Breton Co; Erlanger v NSPC • Upon commencement, fiduciary relationship towards company exists. • End not when the company is registered but when the company expects no obligations from promoter :Emma Silver Mining Co. Lewis(1879) 4 CPD 396.
Relationship with Company • Neither agent nor trustee • Stands in fiduciary relationship to the company: active influence & direct control over the company they created; capable of being abused: Erlanger v NSPC: Gluckstein v Barnes; Ladywell Mining Co v Brooks
Fiduciary Duty • Relationship between the parties to a contract is of a confidential or fiduciary nature • Utmost good faith • Erlanger: real circumstances not disclosed –directors removed & appointed new, & contract rescinded • Whaley Bridge Calico printing Co v Green & Smith: can receive benefit if not keep secret. secret profit /benefit yet to be paid can by claimed by company against promisor.
Full Disclosure by Promoter • Profit made known by promoter who receive as benefit or as owner of property sold. • Full, frank, explicit & material facts • Half / partial truth: Gluckstein v Barnes; New Brunswick & Canada Rlwy Co v Muggeridge.
Forms of disclosure • In MoA / AoA; • Communicate to an independent BOD; or • Communicating to the existing & intended members of company.
Remedies by Company • Promoters are jointly and severally liable: secret profit • Normally: 1. recission of contract 2. suit to recover sp 3. suit for damages for breach of fiduciary duty
Other remedy • If company choose to affirm: cause of action for deceit, fraud / negligent misrepresentation at c/l • Remedy of members: only to misstatement in prospectus particulars: claim compensation / damages in tort of deceit / negligent misstatement.
Payments for promotion service • Not entitled to reimbursement: Melhado & Ors v The Porto Alegre NHBRC; Re National Motor mail-Coach Co Ltd, Clinton’s Claim • Table A, Article 73 • No remuneration
Kontrak Pra-pemerbadanan • Kontrak yang dimasuki oleh syarikat atau wakil syarikat sebelum pemerbadanan. • Prinsip common law : Kelner v. Baxter; Newborne v. Sensolid (GB) Ltd. (1954) • Prinsip s.35(1) Akta Syarikat 1965: Cosmic Ins. Corp. Ltd. v. Khoo Chiang Poh (1980) 1 LNS 182,  1 MLJ 61; The Golf Cheque Book Sdn Bhd & Anor v. Nilai Springs Bhd  1 CLJ 259.
Remedi Kemungkiran T’jawab Penaja • s.35(2): jika syarikat tidak ratifikasi kontrak pra-pemerbadanan, individu itu bertanggungan sendirian • Penaja mempunyai tanggungjawab khusus kepada syarikat : perhubungan fidusiari: kewajipan menzahirkan kepada syarikat • Erlanger v. New Sombrero Phosphate Co (1878)