Promoter and Ratification

PART A
(a)
Promoters & Pre-registration contract A promoter is a person who is involved, actively or passively, in forming a company, raising its capital and establishing its business at any period prior to the company obtaining a certificate of complete registration: Twycross v Grant.[1] Part 2B.3 of Corporations Act 2001 (Cth) purports to overcome the common law difficulties of earlier cases based on the law of agency[2] and provides an exclusive set of rules to determine primary and secondary liabilities under pre-registration contracts.[3] Section 131(1) describes it as contracts made ‘on behalf of’ or ‘for the benefit of’ a company before it is registered. The contract with Ted’s Technology Pty Ltd is apparently ‘for the benefit of’ or ‘on behalf of’ the proposed company as Petunia and Paul signed the purchase contract in the name of Lifestyle Ltd as directors. Also, the company was yet to be incorporated at that time of the contract. These are the key attributes that are sufficient to attract the terms of s 131.
Ratification
The primary liability lies on Lifestyle Ltd by a pre-registration contract if it is registered and ratifies the contract: s 131(1). The company is registered as given fact. Ratification means that a company has adopted or confirmed the pre-registration contract.[4] Under s 126(1) a company’s power to ratify may also be exercised by an individual acting within the company’s express or implied authority and on behalf of the company (derived from agency law). Ratification may be express or implied by conduct and in Herrman v Simon[5], the doctrine was said to be based upon principles of estoppel for implied ratification. Thus a company which acts as though the contract has been ratified may be held to have ratified it even though there may be no formal resolution to that effect. Assuming that the company was registered when Ted called Petunia, she as a director has an actual authority to ratify the contract. The goods were

Bibliography: Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461 Adler v ASIC (1992) 41 ACSR 72 Aztech Science Pty Ltd v Atlanta Aerospace (Woy Woy) Pty Ltd [2005] NSWCA 319 Bay v Illawarra Supplies Pty Ltd (1986) 4 ACLC Black v Smallwood (1966) 117 CLR 52 Gemstone Corp of Australia Ltd v Grasso (1994) 12 ACLC 653 Herrman v Simon (1990) 4 ACSR 81 Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 Hughes v NM Superannuation Board Pty Ltd (1993) 29 NSWLR 653 Kelner v Baxter (1866) LR 2 CP 174 Southern Cross Mine Management Pty Ltd v Ensham Resources Pty Ltd [2005] QSC 233 Tavistock Holdings Pty Ltd v Saulsman (1990) 3 ACSR 502 Tracy v Mandalay Pty Ltd (1953) 88 CLR 215 Transvaal Lands Co v New Belgium (Transvaal) Land & Development Co [1914] 2 Ch 488 Twycross v Grant (1877) 2 CPD 469 Textbooks HAJ Ford, RP Austin and IM Ramsay, Ford’s Principles of Corporations Law, 12th ed 2005, LexisNexis Butterworths John Farrar, Corporate Governance, 3rd ed, 2008, Oxford Phillip Lipton and Abe Herzberg, Understanding Company Law, 14th ed, 2008, Lawbook Co Robyn Donnelly, Corporations Law, 2nd ed, 2003, LexisNexis Butterworths S. Woodward, H. Bird and S. Sievers, Corporations Law in principle, 6th ed, 2003, Lawbook Co Journal articles Michael J Whincop, “Of Dragons and Horses: Filling Gaps in Pre-incorporation Contracts” (1998) 12 Journal of Contract Law No 3 ----------------------- [1] (1877) 2 CPD 469; Tracy v Mandalay Pty Ltd (1953) 88 CLR 215 [2] Kelner v Baxter (1866) LR 2 CP 174; Black v Smallwood (1966) 117 CLR 52 [3] Michael J Whincop, “Of Dragons and Horses: Filling Gaps in Pre-incorporation Contracts” (1998) 12 Journal of Contract Law No 3 [4] Phillip Lipton and Abe Herzberg, Understanding Company Law, 14th ed, 2008, Lawbook Co, p.139. [5] (1990) 4 ACSR 81 [6] HAJ Ford, RP Austin and IM Ramsay, Ford’s Principles of Corporations Law, 12th ed 2005, LexisNexis Butterworths, p.724. [7] Phillip Lipton and Abe Herzberg, Understanding Company Law, 14th ed, 2008, Lawbook Co, p.140. [8] [2005] NSWCA 319 [9] (1993) 29 NSWLR 653 [10] Corporations Act 2001 (Cth) [11] Robyn Donnelly, Corporations Law, 2nd ed, 2003, LexisNexis Butterworths, p.45. [12] (1986) 4 ACLC [13] John Farrar, Corporate Governance, 3rd ed, 2008, Oxford, p.118. [14] [1967] 2 AC [15] (1854) 1 Macq 461; Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 [16] (1994) 12 ACLC 653; Adler v ASIC (1992) 41 ACSR 72 [17] [1914] 2 Ch 488 [18] [1983] 2 Qd R 508 [19] (1990) 3 ACSR 502 [20] [2005] QSC 233 [21] John Farrar, Corporate Governance, 3rd ed, 2008, Oxford, p.121. [22] S. Woodward, H. Bird and S. Sievers, Corporations Law in principle, 6th ed, 2003, Lawbook Co, pp.61-75