Company A (which markets computer software) and company B (which runs a

computer training college) enter into an agreement to form a new company,

company C. Company C is to provide onsite computer training for retail businesses

that use company A's software. Sharon (a director of company A) and Lynda (a

director of company B) are authorized by the boards of directors of their respective

companies to, as a matter of urgency, take whatever steps are necessary to form

company C and to secure training contracts on its behalf.

Sharon and Lynda instruct solicitors to register a company. More quickly than they

anticipate, they manage to attract a large training job from company Y. Purportedly

on behalf of company C, they execute a contract with company Y. They have told the

company Y representatives that company C is not yet registered. The parties agree

to include a clause that provides that if company C (or a company reasonably

identifiable with it) is not registered within two months of the date of the contract,

then company Y can rescind the contract.

Consider these facts in the light of each of the following scenarios and questions.

1. Assume company C is registered a month after the contract is executed. What

steps must Sharon and Lynda take to ensure that:

the contract with company Y is binding on company C; and

neither of them is personally liable for the actions of company C under the

contract.

2. Assume company C is not registered within the two-month period. What

remedies do company Y have and against whom?

3. Assume Sharon and Lynda do procure the registration of company C. Company

A, company B and two individuals, C and D, become its shareholders. Sharon and

Lynda organize the transfer of assets from their own company, company

SL, to company C at grossly inflated values. Company C becomes insolvent and

a liquidator is appointed. Once registered, neither Sharon and Lynda have taken

any role in the management of company C. Despite this, what remedies might the

liquidator still pursue against Sharon and Lynda?