Promoters/Pre incorporation contracts/Prospectus Flashcards
Tywcross v Grant
one who forms a company with reference to a given project and sets the wheels in motions
Erlanger v New Sombrero Phosphate Company - land
syndicate brought land with intention of creating a company. The company would buy from the syndicate at an increased price. Erlanger was a syndicate member and drafted a prospectus with solicitors. The document stated that the syndicate will appoint the directors - and once company formed only 2 directors could act as agents of the company to buy the land from the syndicate. Prospectus invited people to buy securities at with company - debentures. Purchase went ahead of land at hugely inflated price. An attempt to defraud people and getting people to invest in a normal looking contract - Held: Contract should be void as prospectus offered shares public but did not disclose promotion profit in memorandum of association and articles of incorporation so rescind contract
Gluckstein v Barnes - themselves
promoters of company acquired a property intending its resale through the sale of shares in the company. Original directors made substantial profit which they did not disclose. Company became insolvent and investors sought repayment on hidden profit. Directors who were syndicate said they had full disclosure to board of directors (themselves) - conflict of interest and breach of fiduciary duty. However according to Salomon they are a separate entity to company. Held: Disclosure could not be a defence as the promoter were under duty to make explicit declaration of profit they make for resale of property. - not enough from promoter to director.
Re National Motor Mail Coach - obligation to pay
Company called Motor Mail Coach syndicate promoted another company called Motor Mail Coach Ltd in order to to acquire business of a motor mail coach contracts. Promoters paid out promotion fees. Two companies wound up and the liquidator of the promoters, Clinton, requested promoters fees. Clinton’s claim not allowed as company not in existence when payments were made. The syndicate was not acting as the companys agent or its request - even tho company obtained benefit from syndicates promotional duties not enough to pay. Can put provision in articles to pay promotional expenses.
Kelner v Baxter - wine seller
Company formed to buy hotel in Graves end. During negotiation stage, sellers discussed with buyers and whether buyers wanted to buy contents of wine seller. Before company formed - people who were promoters agreed to buy wine cellar of hotel. Before Kelner was paid, the company went into liquidation. Kelner sued person acting as agent. Held: Baxter can t be agent of company as company did not exist. Company couldn’t ratify contract. Kelner could not sue Baxters personally as he did not think he was selling to Baxter - no liability.
Phonogram v Lane - Jelly music
Phonogram agreed to lend money to Jelly music so that JM could set up management company using money. Management company was never formed. JM tried to get money back. Lane (owner of management company) was personally liable and intended for the setting up of the company which never got set up (promoter). Held: under european communities act, a reincorporation contract, subject to any agreement to the contrary, as one made by a person acting as an agent, is personally liable accordingly.
Edgington v Fitzmaurice - money for creditors
company issued prospectus. Advert in the paper where the company ‘needed more investment’ in order to carry out future expansion. On the basis of that statement a debenture was taken up as it sounded like a promising investment. Firm did actually not want money for expansion - had existing creditors threatening to put company into liquidation. Directors were sued, they said it was not material fact but statement of opinion. Held: Material fact that would damage potential investors. Remedy under theft act to rescind contracts and according to CMSA have right to recover loss damages.
R v Kylsant - dividends
Lord Kyslant was on board of directors, company wanted to raise as much money as possible so it issued prospectus to issue debenture stock. Prospectus said had given out dividends over a decade apart from one year - assume in profit as giving out dividends. Had actually made losses over the last 7 years. Were actually depleting accumulation of profits - Kysant prosecuted and sent to prison as statement untrue and attempted to induce people to give money.
