answer this plz

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Guest

21. XYZ Co. Ltd. was in the process of incorporation. Promoters of the company signed an agreement for the purchase of certain furniture for the company and payment was to be made to the suppliers of furniture by the company after incorporation. The company was incorporated and the furniture was used by it. Shortly after incorporation, the company went into liquidation and the debt could not be paid by the company for the purchase of above furniture. As a result suppliers sued the promoters of the company for the recovery of money. Examine whether promoters can be held liable for payment under the following situations: (i) When the company has already adopted the contract after incorporation? (ii) When the company makes a fresh contract with the suppliers in terms of preincorporation contract?

Replies (4)

Yogesh Shah

Managing Corporate Finance

1051 Points Joined March 2009

Hye Mr. Kundan,

IN MY OPINION, in both the above cases, it will be deemed that the contract has been accepted by the COMPANY.

In this case, as supplier has sued the company, the Court may order to realize some assets of company to settle of the dues or may order to utilize available capital to settle it off.

Promoters will not be liable.

Rasesh

CS CWA MBA (Fin) B.Com LL.B (Spl)

6501 Points Joined March 2007

Agree with Mr. Yogesh Shah

Guest

i also think that but the revision paper issued by the icai answered the (i) answer that promotor will be liable pls check the answer no 21 of this file

Rasesh

CS CWA MBA (Fin) B.Com LL.B (Spl)

6501 Points Joined March 2007

Going by what has been stated in the file attached, it seems that the Promoters will be liable unless the original contracted stated that upon adoption of this contract by the company, post incorporation, all the liabilities of the promoters would end.