Issue 1

The first issue of the case is whether Cantek as a promoter of Yayasan Ikhlas Hati (YIH)
breaches his fiduciary duties to YIH.

Legal argument

A promoter is a person who applies for a company incorporation. They are obligated to
make full disclosure of any transactions they have entered on behalf of the company to enable
the company to either accept or reject the contract. The duty is fulfilled when the entire truth is
disclosed prior to an independent board of directors. However, it is insufficient when the partial
truth is disclosed by a promoter because it would be defective and devoid of legal force.
Disclosure must be complete, frank, and explicit, and include all the information relevant to the
transaction. Any secret commission or financial advantage in addition to the agreed-upon
commission that the promoter is to receive, such as an incentive, rebate, discount, or bribe. It is
important for the company to have fully informed of the promoter's profits. Thus, a promoter is
required to disclose any profit or benefit derived from the transactions. A promoter who earns a
secret profit in the performance of his duties as a promoter is deemed to have acted for his own
benefit rather than the company's. Any profit made ceases to be a secret upon its complete
disclosure.

In the case of Erlanger v New Sombrero Phosphate Co. [1878] 3 App Cas 1218, Mr
Erlanger bought the Anguilian island of Sombrero’s lease, which was said to have phosphate
mines at £55,000. He then established New Erlanger Phosphate Co (Phosphate) to take over the
island and its mines for double its purchase price, £110,000. Phosphate consists of 5 directors;
one was the Lord Mayor of London, who was independent of Erlanger’s initial group of
founders; two were abroad, and the others were Erlanger’s puppet directors who were totally
under the control of Mr Erlanger. The selling of the island was agreed upon by the directors on
behalf of the company, except those abroad. The company then issued a prospectus for shares
which was very favourable regarding the scheme, where Mr Erlanger’s secret interest was
undisclosed. Eventually, the investor discovered the lease sales at double the price, and
Phosphate brought an action against Erlanger for the contract recession due to non-disclosure
and Mr Erlanger’s secret profit.
 The other case applicable here is Gluckstein v Barnes [1900] AC 240. The case concerns
the defendants, who purchased debentures in a company at a reasonable price and subsequently
acquired the company for £140,000. The defendants redeemed the debentures at face value for a
total of £20,000 profit. The defendants then established a second company, where they are
directors, and transferred the ownership of the first company to it for a profit of £40,000. There
was a disclosure in the company's prospectus, but not their £20,000 profit from the redemption of
debentures. Then, the liquidator tried to recover the undisclosed profits when the company
entered into liquidation. The House of Lords held that partial disclosure of the profits acquired
was insufficient, as it did not constitute full disclosure, and that the profits made were
recoverable by the liquidator. As the company lacked independent directors, the House of Lords
determined that the syndicate had breached their fiduciary duties and must account to the
company for the private profit they had made. Where the profit made on the redemption of the
debentures, which amounted to £20,000, was not disclosed, the House of Lords held that the
defendants must account to the company the secret profit made. This duty includes disclosing all
commissions or payments he receives upon any property transfer.

The case of Fairview Schools Bhd v Indrani a/p Rajaratnam & Ors (No 2) [1998] 1 MLJ
110 stated that a director has a general obligation to disclose information about shares,
debentures, participatory interests, rights, options, and contracts. The director must make a
complete and frank disclosure. Meanwhile, a company's director or officer is not allowed to
conduct a general meeting without the approval or ratification of the shareholders. The director
will be disqualified if he uses any company opportunity to become aware of performing his
duties as a director or promoter of the company. The court held that promoter obligations involve
not making a secret profit from the company's promotion without the company's consent and
disclosing to the company any interests the promoters have in any proposed transaction.