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

Priya, a promoter, bought land for 200,000 and, after the company Vantage Ltd was formed, sold it to the company for 260,000 without disclosing her original cost to the company's independent board or members. Which remedy is available to Vantage Ltd?

Vantage Ltd can rescind the sale or recover Priya's secret profit of 60,000. Because she failed to disclose her cost to an independent board or the members, she breached her fiduciary duty, and the company's agreement to the price does not remove that breach.

  1. ARescission of the sale, or recovery of the 60,000 secret profit from PriyaCorrect
  2. BNo remedy, because the price was agreed by the company
  3. CRecovery of 260,000 only, with Priya keeping the land

Explanation

A promoter must disclose any profit made on a sale of property to the company to an independent board or to the members. Without disclosure, the company may rescind the contract or recover the secret profit of 60,000 (260,000 less 200,000). Agreement to the price does not cure the lack of disclosure.

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