The promoter would be the person who undertakes the formation of a company by carrying out the procedures necessary for incorporation, person actually interested in the company or professionals who incorporate a company as part of their business. But under
Section 4 The Companies Act 1965 states does not include any person by reason only of his acting in a professional capacity. Hence, such a person is termed as ‘an active promoter’. Besides active promoter, passive promoter is a person who is not actively involved in its formation but contributed to the initial working capital of the company would also be deemed a promoter.
This can be seen in the case law of Tracy v Mandalay Pity Ltd (1953). Based on common law, Section 131(2) Corporations Act 2001 testify that ‘inflict a liability for damages only on he person who entered into a contract or acted on behalf of the company’.
For example Bay v Lawyers Stationary Supplies Pity. Ltd (1986) case had four advocates one of them had entered into a contract on behalf of the company, the company was not formed at that time so the company had failed to ratify the contract, and then the Lawyers suppliers try to sue all four advocates.
The court found only one of the account was liable to pay the damages because he was the only who had sign the contract. Application: In the case of Simon, if things go wrong he will not be solely liable for the accessory steps to form a company.
Bradshaw and Rudy are the passive promoter subsequently the passive promoter will be deemed as promoter so Bradshaw and Rudy are also responsibilities. Nevertheless, if Simon alone entered into a contract on behalf the company before it has incorporated. Therefore, Simon will be personally liable if the company has no intention to ratify the contract. QUESTION 1 (II) Issue How Gangland WOUld be able to claim for the rental from September 2011? Provision/ Case law: Based on common law, the company cannot enter into a contract before its incorporation.
Besides that, the company also cannot ratify the contract even though after its incorporation, this can be proved via the case law of Newborn v Semisolid Ltd. The promoter is personally liable and bound to the contract, this can be seen in the case law of Keller Baxter. If more than one (1) promoter, only the promoter who actually involved in the contract will be liable under the case law of Bay v Lawyers Stationery (1986). Based on statutory law, under Section 35(1) The Companies Act 1965 states hat the company has the right to ratify the contract after its incorporation.
If the company chooses to ratify, hence the company is bound to the contract. Nevertheless, under Section 35(2) The Companies Act 1965 states that if the company fails or does not ratify the contract, then the promoter is personally liable and bound to the contract, unless the agreement clearly stated otherwise. In this case, Board of Directors of Macron Bad decided to pay for the rental of the office from 4th January 2012 only, which means Macron Bad does not have he intention to ratify the contract that to pay the rental of the office entered before Macron Bad being incorporated.
Therefore, according to Section 35(2) The Companies Act 1 965, the promoter that is Simon who entered the contract on behalf the Macron Bad before the company incorporated will personally liable for the rental payment of the office before 4th January 2012. Thus, Gangland can claim the payment of the office with the promoter that is Simon from September 2011 until 3rd January 2012 and the following months will be paid by Macron Bad.
However, based on both illustrations above, promoter is not personally liable for the payments of rental of the office if the term of contract is stated clearly that promoter does not have to liable to the payment. Hence Gangland will not able to claim from the promoter for the payments. Conclusion Gangland able to claim full rental payments from the promoter before 4th January 2012 and the Macron Bad after 3rd January 2012. If the express term stated clearly that promoter does not have to personally liable, then Simon is not liable for the rental payments.
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