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ACCA Applied Skills · Corporate and Business Law (Global) · The formation and constitution of a company

Marcus, a promoter of Orchard Foods Ltd, owns land that he bought for 400,000. He sells it to the company shortly after incorporation for 550,000 and does not disclose that he is the owner or the profit he made. The company's board consists only of Marcus and his nominee. What remedy is the company most likely to have?

The company can rescind the sale or recover Marcus's secret profit. Promoters owe fiduciary duties, including full disclosure of any personal interest to an independent board or to the members. Disclosure to a board made up of Marcus and his nominee is not effective disclosure.

  1. AIt can rescind the contract or recover the secret profit, because the promoter owed fiduciary duties and failed to discloseCorrect
  2. BIt has no remedy, because the price was agreed by the board
  3. CIt can only claim damages for breach of the contract of sale
  4. DIt can recover only the amount by which the price exceeded market value if the company was a public company

Explanation

Promoters owe fiduciary duties to the company. They must disclose any interest and profit to an independent board or to the members. Marcus's board was not independent, so the disclosure was ineffective and the company can rescind or claim the secret profit. Option B fails because the board was not independent.

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