Pre-Registration Contracts & Internal Governance Rules
Law of Associations 200018
Copyright © 2002 Thomas Feerick Lecturer School of Law, UWS
Lecture 6 – Week 6
Pre-Registration Contracts &
Internal Governance Rules
This lecture has 2 parts. Part 1 examines the legal implications of ‘pre-registration contracts’. Part 2 discusses ‘internal governance rules’.
1. Pre-Registration Contracts
The people who form a company or procure its formation are commonly known as ‘promoters’. The courts have construed the term ‘promoter’ broadly. In Twycross v Grant (1877) 2 CPD 469, for example, Cockburn CJ declared that a promoter was:
one who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish that purpose.
In Tracy v Mandalay Pty Ltd (1953) 88 CLR 215, the High Court held that non-active participants in the formation process may be promoters. In this case it was alleged that various people associated with a newly formed company (Mandalay Pty Ltd) had breached their fiduciary duties to the company. They had participated in a scheme whereby the new company purchased land and shares at inflated prices, producing substantial gains for the participants. The High Court first confirmed that promoters owe fiduciary duties to their charge. The second issue was whether all of the defendants were promoters, as some were not directly involved in the formation process or the impugned transactions.
Dixon CJ, Williams and Taylor JJ jointly declared that:
persons who leave it to others to get up the company upon the understanding that they also will profit from the operation may become promoters.
The Corporations Act does not provide a definition of ‘promoter’. However, s 9(1) of the former Corporations Law provided an exclusionary definition of ‘promoter’ which applied only in the context of issuing a prospectus. The definition excluded:
a person [who] by reason only of acting in proper performance of the functions attaching to his
Copyright © 2002 Thomas Feerick Lecturer School of Law, UWS
Lecture 6 – Week 6
Pre-Registration Contracts &
Internal Governance Rules
This lecture has 2 parts. Part 1 examines the legal implications of ‘pre-registration contracts’. Part 2 discusses ‘internal governance rules’.
1. Pre-Registration Contracts
The people who form a company or procure its formation are commonly known as ‘promoters’. The courts have construed the term ‘promoter’ broadly. In Twycross v Grant (1877) 2 CPD 469, for example, Cockburn CJ declared that a promoter was:
one who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish that purpose.
In Tracy v Mandalay Pty Ltd (1953) 88 CLR 215, the High Court held that non-active participants in the formation process may be promoters. In this case it was alleged that various people associated with a newly formed company (Mandalay Pty Ltd) had breached their fiduciary duties to the company. They had participated in a scheme whereby the new company purchased land and shares at inflated prices, producing substantial gains for the participants. The High Court first confirmed that promoters owe fiduciary duties to their charge. The second issue was whether all of the defendants were promoters, as some were not directly involved in the formation process or the impugned transactions.
Dixon CJ, Williams and Taylor JJ jointly declared that:
persons who leave it to others to get up the company upon the understanding that they also will profit from the operation may become promoters.
The Corporations Act does not provide a definition of ‘promoter’. However, s 9(1) of the former Corporations Law provided an exclusionary definition of ‘promoter’ which applied only in the context of issuing a prospectus. The definition excluded:
a person [who] by reason only of acting in proper performance of the functions attaching to his