Question

In December of 2020, Mark decided to register his successful natural wine business as a limited liability company under the name Natural Wine Ltd. Before registration of the company, Mark asked his friend Tony to help him to acquire a suitable plot of land on which to set up his factory and use as the registered office. As Mark and Tony would both contribute to the start-up capital, the land was purchased by Tony on behalf of Natural Wine Ltd. The land was transferred with an undertaking that a balance of $1M would be paid to the seller in March 2021.

Natural Wine Ltd was registered in February 2021. At the time of incorporation the value of the business was $3M. The company paid Mark $1M and issued a debenture to him for $1M secured by a floating charge. Of the 3M share capital valued at $1 each, Mark had 2M, Tony had 800K and Mark's two daughters had 100K each. Mark and Tony were appointed directors and were the only employees of the company.

In a tragic accident at the factory, Mark died from a machine explosion. The company thereafter fell on hard times and had to be liquidated in March. The company only had $1M for debt repayment. The question arose as to whether this sum should be used to pay for the difference on the land or to honour the debenture payment to Mark.

a. Explain who is a promoter of a company. (3 Marks)

b. Discuss two duties of a promoter (7 Marks) c. Using decided cases discuss whether Natural Wine Ltd or Tony should repay the $1M balance on the sale of the land? (10 Marks)

d. Using decided cases discuss whether the company should honour the debenture issued to Mark? (10 Marks)