LAW 3211: COMPANY
LAW 2
DUTY TO ACT IN GOOD FAITH
IN THE INTEREST OF THE
COMPANY
• Section 132(1): A director
of company shall at all times
exercise his powers for a
proper purpose and in good
faith in the best interest of
the company.
• Re Smith & Fawcett Ltd.
(Directors must exercise the
discretion bona fide in what
they consider is the interest
of the company and not what
the court consider)
 Shareholders/Members -
The directors must act in the
interest of the shareholders
as a whole (not interest of
individual shareholders).
• Percival v. Wright (Director
don’t owe fiduciary duty to
individual shareholders)
• Greenhalgh v. Arderne
Cinemas Ltd. (Company as
a whole means, the
corporators as a general body
not the company as a
commercial entity)
 Creditors
• Kinsela v. Russell Kinsela
Pty. Ltd. (The interests of
the company become those
of its creditors rather than its
shareholders when a
company is insolvent or
nearly insolvent)
• Hilton International Ltd.
v. Hilton (The creditors
interests has been upheld in
the decision of the company
to declare dividends)
 Employees, Customers,
Suppliers & Community
(Whether an intelligent and
honest person in the position
of the director could have
reasonably believed that the
decision was for the benefit
of the company)
• Parke v. Daily News Ltd.
(The interests of the company
DIRECTOR’S DUTIES
DUTY TO USE POWER FOR A PROPER
PURPOSE
• Section 132(1): A director of
company shall at all times exercise
his powers for a proper purpose and
in good faith in the best interest of
the company.
• Power to issue shares
 Proper purpose
• Harlowe’s Nominees Pty. Ltd. v.
Woodside (Issuing shares to
another company to ensure long-
term stability for the company)
 Improper purpose
• Kokotovich Constructions Pty.
Ltd. v. Wallington (Diluting the
shareholding of a member)
• Whitehouse v. Carlton Hotel
Pty. Ltd. (Entrenching control of
the company in certain shareholders
by issuing them more shares)
• Howard Smith Ltd. v. Ampol
Petroleum Ltd. (Attempting to
reduce to a minority position,
member or members who hold
majority of the voting power)
• Hogg v. Cramphorn Ltd.
(Directors maintaining control of the
company)
• Other powers
• Advance Bank of Austrlia Ltd. v.
FAI Insurances Australia Ltd.
(Use company’s funds to conduct re-
elect of directors)
• Permanent Building Society v.
Wheeler (To have the company
enter into contracts for the purchase
or sale of property)
• Power to register transfer of
shares
• Kwality Textiles (Malaysia) Sdn.
Bhd. v. Arunachalam & Ors. (The
discretion although absolute must
be exercised in good faith)
• Lim Koei Ing v. Pan Asia
• Shareholders’ approval for
substantial property
transaction
• Sections 132C and 132E
• Exceptions: Section 132F
DUTY TO AVOID CONFLICT OF INTEREST DUTY OF CARE, SKILL AND
• Section 131(1): Every director of a company …, DILIGENCE
• Section 132(1A)
whether directly or indirectly, interested in a
contract or proposed contract with the company
shall, as soon as practicable after the relevant  Duty of care
facts have come to his knowledge, declare the
nature of his interest at a meeting of the directors • Re City Equitable Fire
of the company. (statutory duty) Insurance Co. Ltd.
• Exceptions: Sections 131(2), 131(3)(a) and (b)
• Section 135: General disclosure
• Daniels v. AWA (directors are
required to take reasonable steps
• Section 132(2): Common law duties to acquaint themselves with
• Section 132(5): Section 132 is additional information concerning the
company’s financial status and
 Transactions with the company
business)
• Aberdeen Railway Co. v. Blaikie Bros
 Taking corporate property
• Section 132(2)(a)
• Lim Weng Kee v. PP (the
standard of skill and care would not
• Voo Nyuk Fah@Peter Tawau City Motors
be lowered to accommodate
Sdn. Bhd. v. Lam Yat Kheong & Anor
inadequacies in an individual’s
 Using corporate information knowledge and experience but
• Section 132(2)(b) would be raised if the individual
• Yukilon Manufacturing Sdn. Bhd. & Anor v. held himself out as having
Dato’ Wong Gek Meng & Ors. (No. 2) knowledge and experiences)
 Misuse of position as director
• Section 132(2)(c) • Section 132(1B): Business
Judgment rule
• Furs Ltd. v. Tomkies (bribery)
• Magnifine Sdn. Bhd. v. Yap Mun Him (secret
 Duty of skill
commissions)
 Taking corporate opportunities • Re City Equitable Fire
• Section 132(2)(d) Insurance Co. Ltd. (A director
• IDC Ltd. v. Cooley (third party refused to deal need not exhibit, in the
performance of his duties, a
with the company)
greater degree of skill than my
• Cook v. Deeks
reasonable be expected from a
• Regal (Hastings) Ltd v. Gulliver (lack of person of his knowledge and
financial resources) experience)
• Peso Silver Mines Ltd. v. Cropper (the
company rejected the corporate opportunity) • Daniels v. AWA (directors have to
• Canadian Aero Service Ltd. v. O’Malley (the posses some basic skill that will
director’s position with the company rather than a enable him to understand the
company’s business and financial
new initiatives)
status)
 Conflicting duties – being a director in 2 or
more companies  Duty of diligence
• Bell v. Lever Brothers Ltd. (a director is at
liberty to be a director in other company) • Re City Equitable Fire
• Kea Holdings Pte. Ltd. v. Gan Boon Hock Insurance Co. Ltd. (A director is
 Nominee directors not required to give continuous
• Section 132(1E) attention to the affairs of the
company and his duty arises
• OCBC Ltd. v. Justlogin Pte. Ltd. (the nominee
intermittently while performing his
director’s decision must always be in the best functions at board meetings)
• Daniels v. AWA (directors have to
exercise the amount of diligence