Company Law 1 - University of Wolverhampton

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Study Unit 2 Suggested minimum study hours: 10TopicPromoters and Pre-Incorporation ContractsIntroductionWe shall examine the role of individuals who form companies, and their duties and liabilities in respectof this task.Objectivesa To consider who will be regarded as a promoter and whether any definition of the term‘promoter’ is possible or advisable.b To compare the fiduciary position of a promoter with those of a trustee and an agent.c To examine s36C(1) CA 1985 and the Court of Appeal decision in Phonogram v Lane.Essential ReadingThese titles have been supplied as part of your study materials.Company Law by John Lowry and Alan Dignam OUP 2006Statutes on Company Law 2007-2008Cases and Materials on Company Law (Andrew Hicks and S Goo)General ReadingThese titles have not been supplied and are not essential reading, but you may wish to refer tothem to further your understanding.Gower and Davies: the Principles of Modern Company Law, Davies – Relevant Chapter(s)Case law and statutesBraymist Ltd v Wise Finance Co Ltd [2002] 2 All ER 333Cape Breton Co, Re (1885) 29 Ch D 795Cotronic (UK) Ltd v Dezonie [1991] BCC 200Ebrahimi v Westbourne Galleries Ltd [1973] AC 360English and Colonial Produce Co Ltd, Re [1906] 2 Ch 435Gluckstein v Barnes [1900] AC 240Howard v Patent Ivory Manufacturing Co (1866) 38 Ch D 156Kelner v Baxter (1866) LR 2 CP 174Lagunas Nitrate Co v Lagunas Syndicate Ltd [1899] 2 Ch 392Leeds and Hanley Theatre of Varieties Ltd, Re [1902] 2 Ch 809Newborne v Sensolid (Great Britain) Ltd [1954] 1 QB 45Northumberland Avenue Hotel Co, Re (1886) 33 Ch D 16Oshkosh B’Gosh Inc v Dan Marbel Inc and Craze (1988) 4 BCC 795Phonogram v Lane [1981] 3 All ER 182Rover International Ltd v Canon Films Ltd [1989] 3 All ER 423Salomon v Salomon & Co [1897] AC 22Twycross v Grant (1877) 2 CPD 469Companies Act 1985: ss14 and 36
Insolvency Act 1986: ss131, 132, 133 and 134Public Offers of Securities Regulations 1995 (SI 1995/1537)Self-Study Questions1 What is the nature of the fiduciary duty imposed on promoters?2 If a promoter makes a secret profit out of the promotion can this be recovered without rescindingthe contract between the company and the promoter?3 In what ways can a promoter be rewarded for his services? What procedures must be observedin each case?4 What remedies are open to a promoter where the company refuses to reward him for his services?5 Why do promoters make pre-incorporation contracts?6 Consider the decision in Phonogram v Lane. Is s36 CA 1985 confined to companies already inexistence?Sample Questions1 a To what extent has s36 of the Companies Act 1985 solved the problems surrounding pre-incorporationcontracts?b How may a promoter avoid liability for pre-incorporation contracts?(Wolverhampton LLB by Distance Learning, September 2000, Question 4.)2 John is about to take the necessary steps to form a company, John Wilson Ltd, which will produceand sell shoes. Before the company is incorporated he makes two agreements.a He agrees orally with Frank to buy ten tons of leather from him, Frank being fully aware that thecompany has not yet been formed, but that John intends the leather for the company’s use.b He enters into a written agreement with Peter to sell him 500 pairs of shoes. John signs theagreement: ‘John Wilson Ltd (John Wilson)’.Peter knows nothing else of John’s company.John can now buy the leather cheaper and no longer wants to buy Frank’s leather. Peter, who ishaving difficulties selling the shoes he has bought from other sources, has refused to accept theshoes.Advise John.(Wolverhampton LLB by Distance Learning Question.)
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Company Law 1 - University of Wolverhampton

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