COMPANY
TUTORIAL
Benedict Ngoh
Wong Wai Hou
Cheah Kah Mun
Chyrel Rachel James
FACTS
Ting owned 3 square kilometer block of land
in Sarawak for 3 years, he paid RM15000
Tiing and a group of friends decided to form a
company to explore, mine and sell minerals
They agreed, Lombong Gali ( Tiings firm )
should bring out the new company, Grand
Strike Nickel Bhd
QUESTION 1
What rights does Grand Strike Nickel Bhd
have in relation to the first block sold to it
by Tiing?
IN MALAYSIA HOWEVER,
SECTION 35(1) OF
COMPANIES ACT 1985
"Any contract or other transaction purporting to be
entered into by a company prior to its formation or
by any person behalf of a company prior to its
formation may be ratified by the company after its
formation and thereupon the company shall become
bound by and entitled to the benefit thereof as if it
has been in existence at the date of the contract or
other transaction and had been a party thereto.
MEANING
Pursuant to S35(1) of the CA 1985, in light of our
question, to be entitled to the block of land sold to
Grand Nickel, based on the pre-incorporation
contract, Grand Nickel has to ratify the contract.
Facts:
Respondent brought an action against appellant for
the breach for contract of service as managing director
for the appellants. The contract was contained in a letter
signed by 12 promoters which included the appellant.
There were differences between the terms in the letter
(signed by the promoters which is contained the
contract) and the resolution.
Held :
For Section 35(1) to be invoked successfully, 3 things
must be seen to exist I. Entered by any person on behalf of the company
prior to its formation.
II. Such contract may be ratified by company after its
formation.
III. As an effect, a contract upon such ratification is
antedated to the date when it first purported to
have been made.
IN OUR CASE,
Ratification can be implied based on the facts as Grand
Strike Nickel has included the purchase price in the
companys Prospectus.
A Prospectus is a form of document to invite public
investors.
By printing the purchase price of the first block of land
with Tiing, it goes to show that Grand Strike has already
impliedly ratify the pre-incorporation contract and
pursuant to S35(1), they are thus bound to the contract.
QUESTION 2
Is Tiing permitted to sell this block at a profit to Grand Strike
Nickel?
IN THIS CASE
i.
ii. They then agreed Tiings firm i.e. Lombong Gali should form the new
company named Grand Strike Nickel Bhd and commenced the process
of incorporation.
iii. He furthers sold his property in pursuant to the incorporation.
iv. (this could be inferred from the fact that a contract was entered into by
Tiing and Lombong Ali stipulating that hell receive the purchase price
of the land)
Based on the given facts, it is apparent that Tiing is one who undertakes to
form a company and set it going as well as take necessary steps to
accomplish that purpose.
HOL:
The contract could be rescinded as there was no full and drank
disclosure as the promoters stand undoubtedly in a fiduciary
position.
It is not the law that the owner of a property cannot promote
and form a company and then sell on his property to it. What the
law seeks to prohibit is the making of secret profits by the
promoters.
IN APPLICATION,
Though Tiing stands in a fiduciary relation to the
company, he is by law permitted to sell the block at a
profit to Grand Strike Nickel provided that Tiing satisfies
his fiduciary duty by disclosing to Grand Strike Bhd that
he is doing so thereby affording Grand Strike Bhd a
right to decide whether or not to accept the offer.
2. BY COMMUNICATING TO AN
INDEPENDENT BOARD OF DIRECTORS
Who is an independent board of directors?
Erlanger v New Sombrero Phosphate Co- the test is whether
3. BY COMMUNICATION TO THE
EXISTING AND INTENDED MEMBERS OF
THE COMPANY.
If there is no independent board, disclosure by the
promoters to the existing and proposed members of
the company would be sufficient disclosure.
May be sufficient if all the persons who are invited
to become members of the company are aware of
the disclosure and approve the transactions based
on their own judgment
QUESTION 3
Whether Tiing is entitled to the profit
on the 2nd block
RE CAPE BRETON CO
Defendant purchased certain mines, subsequently selling them to
a company of which he was a director.
He purchased the mines before the formation of the company - it
was clear that he was not an agent at the date of the purchase.
The company subsequently, with full knowledge of the facts,
affirmed the contract and elected not to cancel.
It was also established that there was no misrepresentation
made by the director.
Cotton LJ : A fiduciary duty arises when a promoter had begun to
promote a company when he bought a property which he
intended to sell on subsequently to the company at a profit.
APPLICATION
Tiing told the company that he will sell the property (second
block) for RM50,000. This means that he will make a profit of
RM42,000 out of the sale.
When he started to promote the company when he bought
the property which he intended to sell on subsequently to the
company at a profit, a FIDUCIARY DUTY arises.
The facts are silent on disclosure made regarding the profit
made. Furthermore, in this case, he merely told the company
about the purchase price.
Thus he will not be entitled to the profit unless he disclose
all the material facts.