Gluckstein v Barnes

• A syndicate of promoters bought property cheaply, then formed a company and sold the property to it at a profit.
• They "disclosed" some profit to the shareholders in the prospectus but concealed an additional profit made on a preliminary transaction (buying debentures at a discount).
• The company went into liquidation and the liquidator claimed the undisclosed profit.

1. Whether promoters must disclose all profits connected with the company's formation, or only the final sale profit.

• The House of Lords held that promoters must disclose the entire profit. Partial disclosure is not sufficient. The duty of disclosure extends to every benefit, gain, or profit connected with the formation of the company, regardless of when or how it was made. The promoters were liable for the undisclosed amount.

Promoters' fiduciary duty requires full disclosure: not merely disclosure of the "main" profit. Partial disclosure (revealing some profit while concealing others) is a breach. Every profit connected to the formation, whether preliminary or final, must be disclosed to an independent board or shareholders. The liquidator can recover undisclosed profits on the company's behalf.