left36195000 Corporate Law Assignment Group

left36195000
Corporate Law Assignment
Group: DAC Y2S3
Lecturer Name:
Group member: Loong Jeng Yong (Group Leader)
Lu Fang Yan
Nah Jie Yin
Yeow Jia Sing
Ng Tian Han
Visalam

Question 1
Fixed Charge
Definition of fixed charge:
Fixed charge is also called as the fixed debenture. It is the lien or mortgage over the fixed asset such as the land or building as the secure for the repayment of the loan. The lender can take the asset as their own asset and full control over the asset, the company only can repossess back the asset until paid out all the debt.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

When the company want to borrow the money from bank or other financial institution, the lender will ask for the security such as fixed or floating charge, to ensure that if the company is bankrupt or enter into liquidated and cannot repay the money to them, they can take over the fixed charge and sell them to recover the debt. Fixed charge is a protection of the risk of non-repayment from the borrower.
Besides that, the company that enter into liquidated, the lender that holding the fixed charged had the priority of repayment over other creditor, the company should repaid to lender first when sell out the asset of company, then only can repaid to other creditor. The company cannot sell the fixed charge without the permission of the lender that holding the fixed charge
Affin Bank Bhd v Malayan Banking Bhd (2009)
A charge over all shares “is a charge that fastens on ascertained and definite property”- is a specific fixed charge.
There can be a specific fixed charge over future property such as the share that will be purchase at future.

Holroyd v Marshall 1862
The debtor not only charge the existing machine in his factory as the security to the creditor but also want to charge all the machine which will be placed in the factory in the future. The court held that it can be charge the security at the future property.
Seah Eng Lim v P&O Banking Corporation LTD (1993)
Facts: Seah Eng Lim borrowed money form the broker Rose MacPhail & Penman by sell the shares to the brokers with a lower price compare to market price and said that will repurchase back the share after three month at a higher price. But the broker then use the share as the security under P&O Bank. Seah argued that the share is charge as the security under the broker and did not state that the broker can sell the share, and so the broker cannot use it as the charge to the bank as the property right are haven’t transferred to the broker.
Held: Since the share value is higher that the money borrowed by Seah Eng Lim and sell it at a specified lower price to the broker without the intention that the broker can sell or pledge to the shares. The bank should transfer back the shares to Seah Eng Lim.

Thai Chee Ken v Banque Paribas (1993) ?
Pan El borrow money form Banque Paribas by sales of share in Pan El subsidiary company, Orchard Hotel Pte Ltd. However, it cannot be a straight loan because it already breached a negative pledge that PanvEl had given it to other bank.The transaction is recorded as a loan under the bank. Pan El agreed to repurchases the share back after three month with a higher price. The sales price of the share did not related to the value of share. Pan El then went into liquidation and Thai Chee Ken was his liquidator. Thai challenged thee bank right of having the share. The charge over the subsidiary company should register under S131, but the bank did not register it. The court then rejected the agreement that it can be created as a charge, it was held that it is the contract of sales and buy back.

Differences between fixed charge and floating charge

Basis of comparison Fixed charge Floating charge
Definition is a mortgage on a specific fixed-asset to secure the repayment of loan mortgage on an asset that changes in quantity or value from time to time to secure the repayment of loan
Registration of charges Voluntary Compulsory
What is it? A legal charge A equitable charge
Preference First Second
Asset type Non-current asset Current asset
Dealing in asset The company had no right to deal or sell the property, but it also had exceptions. The company can use it until the charges crystallization.
Ability to dispose the asset Very limited ability, need the consent of the creditor. Company is free to dispose the asset.

Example Land , buildings Inventory

Floating Charges
A floating charges defined as a type of security that a creditor undertakes on the entire company’s asset, in respect of a particular debt. Then, a floating charge allows a commerce to lend even when it does not own a certain asset such as constructions, which can act as a security. Under a floating charge, a commerce can lend against its assets namely plant and equipment, machinery, vehicles and so on.
Then, the primary reason why the floating charge came into existence was to allow purchase inputs needed in the business and sell its stock without influencing their day-to-day operations. They can get funding by keeping a charge on their inventories as security without obstructing their trade operations.

161925493395″a charge over a category of assets in the present and future” ;
“the category of the asset is one that, in the ordinary course of commerce with constantly changing” ;
“the corporate has the freedom to dispose of the subject matter of the charge in the ordinary course in the commerce or may sell, charge or else deal with the assets subject to the charge until it crystallised.”
00″a charge over a category of assets in the present and future” ;
“the category of the asset is one that, in the ordinary course of commerce with constantly changing” ;
“the corporate has the freedom to dispose of the subject matter of the charge in the ordinary course in the commerce or may sell, charge or else deal with the assets subject to the charge until it crystallised.”
In Re Yorkshire Woolcombers Association 1903, the definition of floating charges are as below:
However, in Dresdner Bank AG v Ho Mun-Tuke Don, it was held that “a floating charge still amounted which it has the last two features in the case above”. Besides that, the judges of the Federated Malay States defined that both of fixed and floating charge were difficult to identify in a certain situation in the case of Re Bonds Ltd.

In additional, in Re Bonds Ltd case states that “an instrument does not purport to create a floating is unrelated but if there is a charge has the features of floating charge, it was irrelevant with the drafter of the instrument.” On the other hand, Chase Manhattan Bank NA v Wong Tui Sun and Dresdner Bank AG v Ho Mun-Tuke Don, both of them have reached the Court of Appeal. The concept in all three cases was the same, the security creates as held to be a floating charge.

The Features of a Floating Charge:
The following features of floating charge outlined by J.R. Lewis and Lee Wei Wah:

Benefits and Drawbacks of Floating Charge
The following list depicts the benefits and drawbacks of floating charge outlined by Sanjay Bulaki Borad:

In nutshell, floating charges offer convenience and flexibility as the corporate can continue to use the assets charged without having to get the agreement of the debentures holder whilst the important of the assets charged could be reduced not only not returned but also exhausted by the crystallisation.

CrystallisationCrystallisation defined as the process by which a floating charge becomes a fixed charge over assets within the category of assets. It also owned by the corporate at the time of the event was triggering crystallisation occurs.

Walter Wood pointed out the crystallsation may happen in a different situation, below are the examples:
“The corporate goes into liquidation, all floating charge will automatically crystallize.”
“The appointment of the receiver by the Court.” (UMBC Bhd v Official Receiver of Soon Hup Seng)
“The holder of charge to enforce or take possession of the securities may also crystallize the charge.”
“When the corporate stops to carry on its business.”Re Woodroffes (Musical Instruments) Ltd)
“It is possible to provide the implement that creates the charge that will crystallise at the choice of the creditor.”
“There is a probability that a floating charge may automatically and immediately crystallize toward the happening of a specified event.”

Once crystallisation takes place, the corporate is unable to dispose of the assets without the agreement of the creditor. The main purpose is to protect the interest of the creditor in the property the subject of the charge.

Priority of charges:
After the process of crystallisation, the charges are considered as secured debt. Besides that, the fixed charge will rank above a floating charge. Although the floating charge was created earlier than fixed charge, this rules still apply. It becomes the most important benefit of fixed charge whilst becomes the drawback of a floating charge.

In case United Overseas Bank Ltd v Forward Oversea Credit (1988) held that ” a floating charge has no priority over a fixed charge except it created earlier than the fixed charge and it has a negative pledge without the holder of the floating charge’s consent and the fixed chargee having knowledge of the clause”. Similarly, different charges may have been given over the same property, to different creditors. The problems which then may arise concerns the determining of the priority in which the charges are to be paid.

0615315″the charge was registered” ;
“the types of charges” ;
“if it is a floating charge, it will crystallised on beginning of shut down” ;
“the existence of preferential creditors.”
00″the charge was registered” ;
“the types of charges” ;
“if it is a floating charge, it will crystallised on beginning of shut down” ;
“the existence of preferential creditors.”
The following issues can be used to identify the priority of charges outlined by June Venus, whether;
left152400•”The registered charge has priority in order of Registration with the Registrar”;
•”For the equitable charge, it does not have any priority over a legal charge except it had created earlier and the chargee knew about it”;
•”However, for the unregistered charge has priority in line with its creation of time.”
•”The registered charge has priority in order of Registration with the Registrar”;
•”For the equitable charge, it does not have any priority over a legal charge except it had created earlier and the chargee knew about it”;
•”However, for the unregistered charge has priority in line with its creation of time.”
Based on the Common Law principles in the case of priority of charge:
“The registered charge has priority in order of Registration with the Registrar” ;
“For the equitable charge, it does not have any priority over a legal charge except it had created earlier and the chargee knew about it”;
“However, for the unregistered charge has priority in line with its creation of time.”
In additional, there are two types of floating charge which is specific and general If these two floating charges occur at the same time, the asset will priority the charge that created first to prevail. Besides that, specific floating charge have rank over an earlier general floating charge. Once a crystallisatoion occur, the charge will be entitled as a secured creditor and will, therefore, pay first in any liquidation compared with the unsecured creditor.

Under Section 294(2) of the Companies Act, it recognizes “unsecured creditor as a preferential creditor”. Then, in Section 392 and Section527, both of these sections held that “preferential creditor include the claims of the corporate for unpaid salaries up to 4 months (maximum months) and RM15,000 (maximum figures)”. Similarly, in Section 392(3), if a person lends money to corporate to pay their employees’ salaries, the floating charge will pay to the person who lends the money to the corporate.

Registration of Charges (ROC)
Who maintains the ROC
1333501102995″Informs people dealing with the company that there is a creditor or chargee who has the rights in respect of the company’s property that it may become entitled to enforce”
“Established the order of priority among register able charges and the validity of registrable charges as against a liquidator or an administrator of the company.”
00″Informs people dealing with the company that there is a creditor or chargee who has the rights in respect of the company’s property that it may become entitled to enforce”
“Established the order of priority among register able charges and the validity of registrable charges as against a liquidator or an administrator of the company.”
Under the Companies Art, when a company wishes to create a certain charge, it must prepare a certain information about the charge to the ROC. Then, the ROC will go through the information on its register of charge. Aishah Bidin pointed out the register of charges have two board functions, which;
How to register a charge
According to Suruhanjaya Syarikat Malaysia (SSM):
20002512700″If a company created a charge under section 352, CA 2016, the company need to lodge Statement of Particulars to Be Lodged with Charge within 30 days from the date charge created.” 
“If a company acquired a property which is subject to a charge under section 356, CA 2016, the company need to lodge Statement of Particulars to Be Lodged with Charge within 30 days from the date of the acquisition.”
“Registration fee for local company and foreign company are RM300 and RM500 respectively.” 
00″If a company created a charge under section 352, CA 2016, the company need to lodge Statement of Particulars to Be Lodged with Charge within 30 days from the date charge created.” 
“If a company acquired a property which is subject to a charge under section 356, CA 2016, the company need to lodge Statement of Particulars to Be Lodged with Charge within 30 days from the date of the acquisition.”
“Registration fee for local company and foreign company are RM300 and RM500 respectively.” 

The types of registrable charges
Under Companies Art 1965 Section 108 (3), the registrable charges are:

The Duty of Register Charger
According to Companies Art 1965 Section 109, the registration is done by lodging Form 34 with the ROC. This lodgement maybe the corporate or anyone who interested in the documents.

In fact, the trustee and debenture holder will basically register the charge by creating an issue of debentures rather than leave it to the corporate to perform the registration.

Extension of time
“If the failure to register was accidental, inadvertent, due to other sufficient cause or is not a nature to prejudice creditors or shareholder, the court can grant relief.” by Companies Art Section 361.

Besides that, if the document required to lodge is in perform or made outsides Malaysia, the ROC will allow an extension of time for up to 7 days or longer than that.

2(a) who is a promoter?
Definition:
Promoter means a person who set up and establish business of the company. They are act behalf of the company before the company be formed which personally liable for any contracts of the company under section 65(1) company act 2016. The person will take steps which involves in the process to register the company and prepared as pre-incorporated company. A promoter is like trustee but have certain fiduciary duties of the company because determine promoter to ascertain if he breached his duty to the company. If company public issue shares, it is necessary to disclose any benefit given to promoter. Promoters will obligation a duty of good faith, without deceive any investors, and disclose all material evidences about corporate business. A promoter is one who undertake to form a company with reference to a given project, and to form going and who taken necessary steps to establish that purpose.

In Whaley Bridge Co. v. Green-Green Bowell LJ case, means promotion is not term of law but business process like commercial world, which becomes in existence. It consists huge commercial activities which contains many technical and non-technical operations. Promotion do by promoter to set up the company. Technical operations consist project planning, collaboration and locational studies. Non- technical activities such as required advice on various legal requirements, introduce key people who make documentation and enter all types of pre-incorporated contracts.

According to Braymist v Wise Finance Co Ltd, promoter personally liable for pre-incorporated contracts. Company not liable for the contract, company can take rights of the promoter and also liability of the promoter. They held that liability not restrict to follow which was limited to
prevent enforcement of contracts made by persons who not formed company. Thus, an individual who is personally liable will also be sued on the contract.

In the case of Twycross v Grant, means a person who take over a company to set up with reference with given project and makeover the company. Promoters have responsible to undertake the necessary steps to accomplish that objectives but still few anything to show. If there is have any further details over those proven the trial, which defendant surrender to obtain benefits, they might be brought before court, but no else sort has been trialing that fact which, cannot help to struck. This cause enters to new trial, the point would remain unchanged, and that case will measure damages that been awarded by the name and jury of the shares. However, transfer e case to new jury in order of damages. In this case, the promoter has a fiduciary relationship with company perform as good trust. If promoter breach of contract which no honest with company that under breach in fiduciary relationship. The constitution gives company and its members a protection against any breach of contract by promoters that not make own profits.

Active promoters
Active promoters are a promoter who participate in all process of set up the company or register the company for example filing the required documents for incorporation and many more. They become themselves interested to be promoter in a company to take part. Professional is a person who assist other to register a company as part of their business and sell to person wanted company not to non-promoter’s person. Professional are not promoter but can help promoter to set the company process. They will carry our necessary steps for incorporation. Incorporation consists payment of legal fees, prepare company constitution, negotiation of preliminary agreements and prepare prospectus of a company. This promoter who set up the company with purpose of selling specific property to the company and organize the shares of the company which taken up by other is also a promoter. They held on neither share nor managerial position in the company. This situation the promoter will be possible may use the position for secret profit, to the detriment of the company and its shareholders. This avoid accountants who not work more than execute instruction of the person contribute to incorporate the company and no participation in enterprise.

According to Kelner v Baxter case, a promoter is not an agent, but he is promoter. Binding contract between promoter and third party. A stranger cannot subsequently ratify and relieve them from sincere toward contract. However, novation is steps to relieve promoter from personal liability if the company after incorporation contract with new contract with similar procedures. A company must avoid ratify of pre-incorporated contract but is allows to enter into new contract and give impact to contract made in pre-incorporation.

Passive promoter
Passive promoter means a person not actively involved any formation of the company, but they were joint adventurer. They still act as promoter which give benefit to the company but act as little. They are still accepted as promoter which they contributed initial working capital of the company. They can be promoter to another company. A promoter not be human but natural person and artificial person can be promoter in the company. They also raise share capital but leave it to others on understand that the person make profit from company. Few of them actively involves while others took inactive part but stood to make profit and allows other promoter to act on their behalf.

Tracy v Mandalay Pty Ltd case, the promoters were under fiduciary duty to shut down the company, which promoting raw material evidence when sell they’re to the company and replace to new company decide whether to agree the offer by appointing an independent board. The person participative actively in promotion of the company and increase share capital which promoters, and those who leave it to others to set up the company on understood by them also will profit from process becomes promoter. Seven of the shareholder in the appellant company were promoters and failed to removal their fiduciary owe of transaction was invalid against them. Some others were held be promoter even though they had been act with active promoters and stood only to recover their original seeking after commencing litigation. The contracts were ordered to obligate money that purchased with interest.

What are promoter duties?
Duty not to make a secret profit at the expense of the company
A promoter owes fiduciary duties to the company that he promotes. Thus, his primary duty towards the company is not to make any secret profit at the expense without adequate disclose to the company. The promoter need to disclose all the information relating to the formation of the company. The promoter should not make any secret profit at the expense of the company he promotes, without the knowledge and consent of the company and if he does so, the company can force him to be responsible for it.

Cases:
Erlanger v New Sombraro Phosphate Co.

Erlanger and his associates formed a syndicate to acquire the lease of a phosphate mine island for £55000. The syndicate subsequently set up a company and became the first director. He sells the lease to the newly formed company for £110,000. The purchase was ratified by the board of directors of the company.

The public subscribed capital to the company. The prospectus that issued the shares of the company to the public did not disclose the profit of the promoter. When the original board of directors was replaced, the new board of directors sought to have the contract rescinded as the promoter had not disclosed his profit in the transaction to an independent board of directors.

Held: The court held that the contract needs to rescind. The promoters should have disclosed all the profit to the independent board.
Gluckstein v Barnes
A syndicate of persons bought property and sold this to the company promoted by them. They bought it for £140,000 and get the £20,000 discount. They also become a director and buy the property for the company for £180,000. When they issued the share to the public, the £40,000 profit was disclosed in the prospectus. However, the £20,000

discount did not show in the prospectus. Profit of £20,000 is a secret profit. The court allowed the liquidator to recover the undisclosed profits from the promoters.
Held: The promoters need to account £20,000 secret profit to the company.

Lagunas Nitrate Company v Lagunas Syndicate
The promoters were the first directors and there was no independent board of director. They owned the interest in the property which they sold to the company. The profit of the promoter need to disclose to an independent board of directors and shareholders when the contract with the company is made between the promoter and company.
The disclosure of profit of the promoter can make in different method, such as disclose the profit in the prospectus, through the memorandum or articles of association of the company, communication to the independent board of directors of the company.
On the other hand, the promoter can make the disclosure to the directors of the company. However, in this situation, the disclosure can only make to the independent board of directors.

Fairview Schools Sdn. Bhd v Indrani a/p Rajaratnam Mahadev Shanker JCA said, “Promoters have a legal duty not to make a secret profit out of the promotion of the Company without the Company’s consent and also to disclose to the Company any interests the promoters have in any transaction proposed to be entered into by the Company.”
Duty not to disclose confidential information
The promoter cannot disclose the confidential information to the outsider or third parties. The reason is the company want to maintain the confidential in all the information related to the company and avoid to use for other purpose. The examples of confidential information are agreement, financial information, marketing plan, business plan, and others.
Duty not to conflict his interest with that of the company
The promoter must avoid involve themselves in a situation where conflict of interest between the company and the promoters. As a promoter, he also need avoid to involve himself in the contract or opportunity which in equity belongs to the company. If the promoter purchases a property for himself which should have been obtained for the company, it shows that the promoter has breached his fiduciary duty.

Duty of disclosure
A promoter must make sure that disclosure is fully and completely disclosed. If the disclosure not fully disclosed, there is a breach of the promoter’s duty towards the company. It is possible for the promoter to take an opportunity to commit fraud, are they behave honestly or whether they make a profit or not.

The promoter has a duty to disclose any interest which in the contract to the company. The disclosure also must be made to the independent board of director, articles of association, prospectus and to the existing or prospective shareholders. There is one case is about the disclosure of interests in a contract, the disclosure to the independent board of director: Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218.
HELD: “Disclosure was not made to an independent board of directors but to the two directors who were also the promoters. Therefore, the promoters are in breach of their fiduciary duties.” – by Krishnan, Rajoo, and Vergis. The House of Lords also held that ” The promoters were under a duty when forming the company to provide it with an independent board of directors to whom full disclosure of the promoters’ interests in contracts with the company must be made. The directors are then able to exercise an independent and reasoned judgment on the transaction.”
Kamaruddin Mahmood point out if disclosure is made to the board of director, the board of director must be independent – “HABIB ABDUL RAHMAN v ABDUL CODER (1808-1890) 4 Ky 193” (Mahmood, 2014). This statement indicated that there is no necessity for a director also be a promoter of the company.

FACT: The business type for this case is a partnership. One of the partner also as a promoter bought a land that belongs to his company. The promoter had a personal interest in the partnership due to he did not disclose about he entered into the transaction into the disclosure. The company takes an action against the promoter due to he breached his duty.
HELD: The court held that the promoter breached his duty to disclose. He fails to disclose the crucial information.

Moreover, the promoter also has a duty to disclose personal profit. The promoter must make sure all the profit that he made upon a deal is fully disclosed, partial disclosure is not sufficient. Case: Gluckstein v Barnes 1900 AC 240 .
FACT:
A syndicate formed by (Mr.) G and 3 others had purchased a property total 120,000 pounds but they officially telling people that they bought at 140,000 pounds. Later they sell the property to a company of which they are the directors in the company total 180,000 pounds. Then the company offers share to the public so as to fund the purchase. At the same time, the prospectus was also issued to the public. The prospectus was disclosed at 40,000 pounds profit but not at 20,000 pounds. Obviously, the promoters had made a secret profit total 20,000 pounds. This issue was not disclosed to the prospective shareholders. On the contrary, it was recorded with an indistinct reference to the interim investments. A few years later, the company faced a liquidation and the company found the extra 20,000 pounds. The liquidator brought an action to claim the secret profit.
HELD: “The House of Lord held that the promoter was under a duty to disclosed all the profits made and that disclosure to a BOD comprised of other members of the syndicate formed for the purpose of making that profit was insufficient. There had been no disclosure to an independent BOD nor to the ultimate shareholders of the company.” – by Rachagan, Pascoe, and Joshi.
According to Krishnan, Rajoo, and Vergis, a promoter must avoid conflict of interest, not to make a secret profit and there is a must to generate full and honest disclosure – Fairview Schools Bhd v Indrani a/p Rajaratnam ; Ors (No 2) 1998 1 MLJ 110
Mahadev Shanker JCA on behalf of the Court of Appeal, he said: “Promoters have a legal duty not to make a secret profit out of the promotion of the Company without the Company’s consent and also to disclose to the Company any interests the promoters have in any transaction proposed to be entered into by the Company.”
Furthermore, the disclosure made to the shareholder. The case is Lagunas Nitrate Company v Lagunas Syndicate 1899 2 Ch 392 (CA).

HELD: The court held that the interest of the syndicate in the property that purchased by the company was disclosed sufficiently to the prospective shareholders. Therefore, the company was not entitled to rescind the contract and to claim the damages.

Another case is Salomon v A Salomon ; Co Ltd 1897 AC 22, House of Lords believe that if the board of directors was not an independent, the disclosure of all material facts should be made to the original shareholders.

Duty to act bona fide
The promoter has to be in good faith in the best interest of the company. The promoter should not against the law, he/she must fulfill their obligations and duties. In addition, the promoter must behave honestly and not conflict his/her interest with his/her company.
The promoter shows in good faith when they sincerely do something such as making a decision that is beneficial to the company. In contrast, promoter shows in bad faith when they do something is aimed for personal private earn.
Case study
Australian Metropolitan Life Assurance Co Ltd v Ure (1923) 33 CLR 199
Held: Even though the constitution of the company may give power to the director to make a decision, the director still must be acted bona fide/in good faith. The director cannot act arbitrary but act genuinely in the interests of the shareholders as a whole.

Re Smith and Fawcett Ltd 1942 Ch 304
HELD: According to Uni Study Guide, they point out Lord Greene MR had said: “The directors must exercise their discretion bona fide in what they consider – not what a court may consider – is in the interests of the company, and not for any collateral purpose.”
Howard Smith Ltd v Ampol Petroleum Ltd 1974 AC 821.

HELD: Directors cannot assume that they acted bona fide in the best interest of the company if the self-interest is involved. The self-interest is one instance of inappropriate motive.

Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285.

HELD: The Court held that the test of good faith/bona fide is to test whether the duty has been complied with. There is no specific rule to know good faith is present or absent. It depends on the circumstances that are present in each case.

What are the remedies can do when promoter breach his duties?
Remedies 1: Damages for breach of duty
If the company suffering any losses, it can claim for the damages. Especially in the case of a company suffering loss from purchasing a property at a high-value. For this scenario, the case is Re Leeds ; Hanley Theatre of Varieties Ltd 1902 2 Ch. 809.

FACT: A company purchased a property from its promoter. The promoter sold that particular property at high- value, he/she overvalued the property.
HELD: The court held that the promoter was breached his duty as a promoter. Therefore, he should pay damages to the company based on the amount of loss suffered by the company. This is his liability to the company.
Another case that related to damages for breach of promoter’s duties: Kirschmann v. Lediard & Ree, 61 Barb. 573 (N. Y. 1872).

FACT: The complainant (A) agreed to assign a patent to a company which formed by the defendant (B). Thus, the company was paid to A by stock and cash. B failed to form the company.
HELD: The court held the promoter is liable to the breach of their contract to incorporate. The promoter has to pay the damages based on the putative value of the stock.

Recession of contract
In spite of recovery of secret profit and damage or loss due to breach of promoter duties, another remedy is rescission. The company may rescind the contract made by the promoter when promoter has breach his duty as promoter in the contract. Besides, the company able to rescind the contract when the parties can still be returned to their pre-contractual position. In addition, the profit also may be recovered

In case: “Erlanger V New Sombrero Phosphate Company:HL1878, Enlarger was a Parisian banker that bought an island for $55 000. Later, he sold this island to a company for $110000 through a nominee. Most of the directors had relation to Erlanger. So, when in the board, they ratified the sale of the land. After 8 months, the board of directors was replaced by new board which brought an action to rescind the contract. In the end, the courts attempted to make rescission work and the profits could also be returned as part of rescission.

In case: “Bell V Level Brothers Ltd:HL 15 DEC 1931”, Mr Bell was director and chairman of Niger, a subsidiary of Lever Brothers Ltd who dismissed him. Then, Niger trade was in trouble, and they found that Mr Bell made a secret profit at the expense of Niger which he could have been summarily dismissed. Lever sued Mr Bell for repayment of $30000 and claimed rescission of the agreement for breach of duty. Mr Bell admitted his false and made a payment into court. The court held that the contract to be declared void.

However, sometime the rescission may be gone if the company aware the breach after
confirmed the contract but doesn’t rescind the contract within reasonable time. Besides, rescission may lost when it is impossible to restore the property or asset to its original form. For example, the price of land increases after long period of time. Additionally, rescission is unavailable when third parties have put some money or interest into the property.

Once the promoter earn a secret profit, the law presumes that he has earns the payment to the detriment of his principal. Furthermore, this does not necessary to prove dishonest action or improper use of position of the agent. If the principle knows that the promoter gains the extra profit from the beginning and give him the right to use it, then only the promoter is entitled to receive the profit. Because if principal know from the beginning, then the profit cannot be considered as secret profit anymore. Hence, if the profits are still being secret, then the principle can sue the promoter to claim back the secret profit made. Section 168 and 169 stated that principal has the right to deal with promoter’s account in business and benefit gained by agent dealing on his own account. Therefore, the principal is entitled to claim from the promoter any secret benefit from transaction.

In case: ” Mahesan v Malaysian Government Officers co-operative Housing Society Ltd”, the principal sued the promoter for damages due to the fraud of promoter. In that cases, the appellant was the director and employee of a housing society. The appellant caused the society to buy land at overvalue price. After that, he had received $122 000 as secret commission or secret profit from the vendor. The court held that the principal has the right to recover both secret profit and actual damaged caused by the promoter.

In case: “Tan Kiong Hwa v. Andrew S.H. Chong19742 MLJ 188, the principal take action in order to get back the amount came from the transaction although the promoter has not taken the profit himself. In that case, the plaintiff authorized the defendant to sell the flag for $45000. In contrast, the defendant sold the flat for $54000. The extra of $9000 was credited to company as secret profit. In the end, the court held that the plaintiff was entitled to recover $9000 from the defendant as the defendant has breached his duty as promoter.

Under section 171 of Contract Art 1950, promoter need to pay to his principal all sums received on his behalf. In case:”Andrew v Ramsay and Co1903, the defendant had to pay back both secret profit and secret commission which is $20 and $50. In that case, the plaintiff asked the defendant to sell property belonging to plaintiff. With the principal’s consent, he received $50 as their commission. But, the defendant breached his duties as promoter, because he had a side deal with Clutterbuck(Purchaser) whereby he paid them $20. So, Principal sued his promoter for secret profit and commission, and court held that he could recover both secret profit and commission.

References
Free agent, 2018, What is a fixed charge, viewed 22 July 2018, ; https://www.freeagent.com/glossary/fixed-charge/ ;
Jonathan Munnery, 2017, What are fixed and floating charges, viewed 22 July 2018, ; https://www.realbusinessrescue.co.uk/articles/directors-advice/what-are-fixed-and-floating-charges ;
Business Dictionary, 2018, Fixed Charge, viewed 22 July 2018, ; http://www.businessdictionary.com/definition/fixed-charge.html ;
Surbhi S, 2015, Difference Between Fixed Charge and Floating Charge, viewed 26 July 2018, ; https://keydifferences.com/difference-between-fixed-charge-and-floating-charge.html ;
CourseHero, 2018, Case notes Topic 7, viewed 26 July 2018, ; https://www.coursehero.com/file/24561450/Case-notes-topic-7docx/ ;
Sanjay Bulaki Borad 2018, “Floating Charges”,  viewed 22 July 2018, https://efinancemanagement.com/sources-of-finance/floating-charge Sanjay Bulaki Borad 2018, “Floating Charges”,  viewed 22 July 2018, ;https://efinancemanagement.com/sources-of-finance/floating-charge ;
BMS.co. 2013, “What are the characteristics of floating charges? “,  viewed 22 July 2018, ; http://www.bms.co.in/what-are-the-characteristics-of-floating-charges/ ;
LinkedIn Corporation 2011, “Strengths and weakness of fixed and floating charges as form of security”, viewed 22 July 2018, ; https://www.slideshare.net/wongo78/strenghts-and-weaknesses-of-fixed-and-floating-charges-as-forms-of-security ;
Financial Web 2017, “What is a Floating Charge?”, viewed 23 July 2018, ; https://www.finweb.com/loans/what-is-a-floating-charge.html;
Money Matters| All Management Articles 2018, “Fixed and Floating Charge| Meaning| Difference | Crystallisation “, viewed 24 July 2018, ;  https://accountlearning.com/fixed-and-floating-charge-meaning-difference-crystallisation/ ;
Junes Venus 2016, “Priority of Charge”, viewed 26 July 2018, ; https://prezi.com/rcca4cp0x_wa/priority-of-charge/ ;
Suruhanjaya Syarikat Malaysia 2017, “How To Register a Charge”, viewed 26 July 2018, ; http://www.ssm.com.my/en/node/189 ;
Thomson Reuters 2018, “Crystallisation”, viewed 25 July 2018, ; https://uk.practicallaw.thomsonreuters.com/3-542-5285?transitionType=Default;contextData=(sc.Default);firstPage=true;comp=pluk;bhcp=1 ;
J.R Lewis and Lee Wai Wah, 1997. The Handbook of Malaysian Company Law. Malaysia: Asian Centre for Professional Development Sdn Bhd.
Aiman Nariman Mohd Sulaiman. and Aishah Bidin., 2008. Commercial Applications of Company Law in Malaysia 3rd Edition. Malaysia: CCH Asia Pte Limited
Walter Woon, 1997. Company Law Student Edition. Singapore: FT Law ; Tax Asia Pacific.

Krishnan, L, Rajoo, P, Vergis, AC 2015, Principles of Business and Corporate Law, Malaysia, Commerce Clearing House Sdn Bhd, Malaysia.

Rachagan, S, Pascoe, J, Joshi, A 2002, Principles of Company Law in Malaysia, Malayan Law Journal Sdn Bhd, Malaysia.

Aabclnu 2009, ‘Promoters and Pre-registration Contract’, viewed on 22 July 2018, ; http://www.aabclnu.com/%E8%B5%84%E6%96%99/200909/2205/Chapter6.pdf ;.

Mahmood, K 2014, PROMOTER AND PRE INCORPORATION OF COMPANIES, viewed 25 July 2018, ; http://www.balohpedia.com/2014/02/promoter-and-pre-incorporation-of.html ;.

Course Hero 2018, ‘The court held that the promoters had fraudulently’, viewed 25 July 2018, ; https://www.coursehero.com/file/p5onh9n/The-Court-held-that-the-Promoters-had-fraudulently-omitted-to-disclose-the/ ;.

Andrew, 2016, Promoters Fiduciary Duties | Case Notes, viewed 22 July 2018, ; https://andrewscouller.files.wordpress.com/2016/01/16-the-law-months-part-ii-promoters-fiduciary-duties-attachment.pdf ;.

Quizlet 2018, ‘Company 5 Company formation, promoters and pre-incorporation contracts’, viewed 22 July 2018, ; https://quizlet.com/20631867/company-5-company-formation-promoters-and-pre-incorporation-contracts-flash-cards/ ;.

Hemingway, C 2016, What is the Duty to Act in Good Faith in the Best Interests of the Company?, viewed 23 July 2018, https://legalvision.com.au/what-is-the-duty-to-act-in-good-faith-in-the-best-interests-of-the-company/ .

Uni Study Guides 2013, ‘Directors’ duty to act in good faith and for proper purposes’, viewed 23 July 2018, <.http://www.unistudyguides.com/wiki/Directors%E2%80%99_duty_to_act_in_good_faith_and_for_proper_purposes >.

Bartholomeusz, S 2015, DIRECTORS’ DUTIES IN FOCUS – DUTY TO ACT BONA FIDE (IN GOOD FAITH), viewed 23 July 2018, ; https://youlegal.com.au/directors-duties-focus-duty-act-bona-fide-good-faith/ ;.

W. Ehrich, M, C. Bunzl, L 1929, PROMOTERS’ CONTRACTS, viewed 25 July 2018, < http://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=3361&context=ylj

x

Hi!
I'm Dora

Would you like to get a custom essay? How about receiving a customized one?

Check it out
x

Hi!
I'm Barry!

Would you like to get a custom essay? How about receiving a customized one?

Check it out