DIRECTORS’ DUTIES

TO ACT BONAFIDE IN THE BEST INTERESTS

OF THE COMPANY
SEC 213 (1)
A DIRECTOR OF A COMPANY SHALL AT ALL TIMES EXERCISE HIS
POWERS IN ACCORDANCE WITH THIS ACT,FOR A PROPER PURPOSE
AND IN GOOD FAITH IN THE BEST INTEREST OF THE COMPANY

- LIABILITY EXIST WHEN THERE IS INTENTION TO DISREGARD COMPANY’S INTERESTS

( PROMOTING INTERESTS OF OTHER PARTIES).
 POWER CONFERRED MUST BE
EXERCISED IN GOOD FAITH

NOT REQUIRED TO HAVE DISHONEST/FRAUDULENT INTENT

CHOO CHIN THYE V CONCRETE ENGINEERING PRODUCTS BHD & OTHER
APPEALS
..DUTY TO ACT HONESTLY DOES NOT MEAN THAT THE DIRECTORS HAD
ACTED FRAUDULENTLY; IT MEANS THAT HE MUST ACT BONA FIDE IN THE
INTEREST OF THE COMPANY AND THAT IN EXERCISING HIS
DISCRETION, THE DIRECTOR SHOULD ACT ONLY TO PROMOTE AND
ADVANCE THE INTEREST OF THE COMPANY
 POWER CONFERRED MUST BE EXERCISED IN
THE BEST INTERESTS OF THE COMPANY

THE BELL GROUP LTD (IN LIQ) V WESTPAC BANKING

CORP(NO 9)
• IF THE DIRECTORS’ INTENTION AND PURPOSE IS TO CONFER A
BENEFIT ON A THIRD PARTY, THEY MAY BE IN BREACH OF DUTIES
THAT THEY OWE TO THE COMPANY……

• THE DUTY TO ACT IN THE INTERESTS OF THE COMPANY IS ONE THAT

INVOLVES HONESTY. AND HONESTY IS A COMPONENT OF BONA
FIDES. TO EXERCISE POWERS IN A WAY THAT IS NOT IN THE
INTERESTS OF THE COMPANY BETRAYS A FUNDAMENTAL PART OF
THAT OBLIGATION.
 POWER CONFERRED MUST BE EXERCISED IN
THE BEST INTERESTS OF THE COMPANY
• THE DUTY REQUIRES THE DIRECTOR TO OBEY THE LAW, IF A DIRECTOR
ACTS AGAINST ANY WRITTEN (EXPOSE COMPANY TO LIABILITY) HE IS
NOT ACTING IN THE BEST OF INTERESTS OF THE COMPANY

HO KANG PENG V SCINTRONIX CORP LTD [2014] SGCA 22

F: HO (DIR) HAD MADE UNAUTHORISED PAYMENTS TO THIRD PARTY IN
ORDER TO SECURE A BUSINESS FOR THE COMPANY
H: HO WAS LIABLE .
THE REQUIREMENT OF BONA FIDE(HONESTY) WILL NOT BE SATISFIED IF
THE DIRECTOR ACTED DISHONESTLY EVEN IF FOR THE AIM OF
MAXIMISING PROFIT FOR THE COMPANY
 TEST
WHETHER THE DECISION WAS IN THE BEST
INTERESTS OF THE COMPANY
WHETHER AN INTELLIGENT AND HONEST PERSON IN THE
POSITION OF THE DIRECTOR CONCERNED COULD, IN THE
WHOLE OF THE EXISTING CIRCUMSTANCES, HAVE
REASONABLY BELIEVED THAT THE TRANSACTION WAS
FOR THE BENEFIT OF THE COMPANY
- CHARTERBRIDGE [1970] CH 62
• THE TEST IS A COMBINATION OF:
SUBJECTIVE TEST –BECAUSE IT’S THE BOARD OF DIRECTORS’
DECISION OF WHAT IS IN THE BEST INTEREST OF THE COMPANY (NOT
THE COURT)

OBJECTIVE TEST – BECAUSE COURT LOOKS AT THE FACTS &

SURROUNDING CIRCUMSTANCES IN DECIDING WHETHER ANY
DIRECTOR IN THE SAME POSITION COULD HAVE REASONABLY
BELIEVED THAT THE DECISION IS IN THE BEST INTERESTS OF THE
COMPANY
 PIONEER HAVEN[2012] MLJ 616
• HO HUP CONSTRUCTION CO BHD OWNED 70% SHARES IN BUKIT JALIL
DEVELOPMENT SDN BHD. (BUKIT JALIL OWNED 60 ACRE PIECE OF LAND)
(HO HUP WAS CATEGORISED UNDER PN17-FINANCIALLY DISTRESS COMPANY
IN 2008;WPOULD BE DELISTED IF FAILED TO SUBMIT REGULARISATION PLAN
BY APRIL 2010)

ISSUES: BUKIT JALIL DEVELOPMENT ENTERED INTO A JOINT DEVELOPMENT

AGREEMENT(JDA) WITH PIONEER HAVEN SDN BHD ; WAS ALLEGED NOT IN
THE BEST INTEREST OF THE COMPANY AND WAS ENTERED INTO FOR
IMPROPER PURPOSE
(JDA WAS SUPPORTED BY HH’S BOD. JDA WAS ENTERED ONE DAY BEFORE
HH’S EGM TO REMOVE ITS DIRECTORS)
• HO HUP BROUGHT A SUIT AGAINST THE DEFENDANTS CLAIMING
THAT THE JDA SHOULD BE AVOIDED AS THE PRIOR APPROVAL OF
THE SHAREHOLDERS HAS NOT BEEN OBTAINED (SEC132C OF CA
1965) …AND BREACHED OF DIRECTORS’ DUTIES UNDER SEC 132(1)
AND UNDER THE COMMON LAW AS NOT BEING IN THE INTEREST
AND STATUTORY DUTIES (ALLEGING THAT THE LAND HAS BEEN
DISPOSED)
• HIGH COURT: - JDA WAS VIEWED AS SUSPICIOUS.
- PERSONAL INTEREST INVOLVED & NOT IN THE
BEST INTEREST OF THE COMPANY
COURT OF APPEAL:
“ WHETHER THERE WERE GROUNDS UPON WHICH A REASONABLE BOARD COULD
HAVE CONSIDERED THAT THE JDA WAS IN THE BEST INTEREST OF THE BJD AND
BJD’S SHAREHOLDERS.”

H: DIRECTORS WERE ACTING IN THE BEST INTEREST OF THE CO:

• THE BOARD TOOK THE POSITION THAT THERE WAS A REAL RISK
AND DREADFUL PROSPECT THAT DELAY/FAILURE TO ACT WOULD
CAUSE HO HUP TO BE DELISTED, BUKIT JALIL TO BE WOUND UP
AND THE LAND FORECLOSED. THE COMPANY HAD NO OTHER
VIABLE ALTERNATIVES TO DEVELOP THE LAND AS OTHER
FINANCING COULD NOT BE SECURED. THUS IT WAS REASONABLE
TO ENTER INTO JDA
• THE AMOUNT OF THE PROJECTED REVENUES WAS MORE THAT THE
MARKET VALUE OF THE LAND IF THE LAND HAD BEEN SOLD AND
MORE THAN THE PROFITS TO BE GENERATED BY BUKIT JALIL SHOULD
IT DEVELOP THE LAND FROM ITS OWN RESOURCES OR FUNDING.
THIS WOULD ENABLE THE COMPANY TO SOLVE THE PROBLEM OF
THE ACCUMULATED LOSSES WHICH IS VERY IMPORTANT FOR THE
PURPOSE OF REGULARISATION PLAN.

• NO PERSONAL INTEREST INVOLVED OR THE DIRECTORS HAD ACTED

IN COLLUSION WITH THE OTHER DEFENDANTS TO ACT TO THE
DETRIMENT OF HO HUP.
 PETRA PERDANA BHD [2017] MLJU 1976
• PETRA PERDANA(PP) WAS HOLDING COMPANY OF PETRA ENERGY
(PE); OWNED 55% SHARES IN PE.

ISSUE: PP DECIDED TO SELL ITS SHAREHOLDING IN PE (DIVESTMENT). IT

WAS ALLEGED THAT IT WAS NOT FOR A PROPER PURPOSE AND IN
THE BEST INTEREST OF THE COMPANY.
DEFENCE: COMPANY WAS FACING FINANCIAL DIFFICULTY, THERE WAS
PENDING CREDITORS’ LITIGATION & DIVESTMENT WAS THE MOST
EXPEDITIOUS MANNER TO OBTAIN FUND TO PAY OFF ITS DEBT
• COURT FOUND THAT THE DIVESTMENT WAS A RESULT OF
CONSIDERED AND COLLECTIVE DECISION OF THE BOARD (FULL
BOARD MANDATED THE SALE) BASED ON THE INFORMATION
PROVIDED BY THE SENIOR MANAGEMENT (RELIED ON
PROFESSIONAL ADVISOR) RELATING TO THE CO’S CASH FLOW
POSITION.

• DIVESTMENT WAS EXPEDITIOUS AS OTHER METHOD WOULD HAVE

TAKEN TOO LONG TO RAISE FUND (VARIOUS OPTIONS HAVE BEEN
CONSIDERED – SELLING VESSELS)
• APPLYING CHARTERBRIDGE…IT APPEARS TO THIS COURT THAT AN
INTELLIGENT AND HONEST MAN IN THE POSITIONS OF (DIRECTORS
WHO WERE SUED),..IN THE WHOLE CIRCUMSTANCES HAVE
REASONABLY BELIEVED THAT THE TRANSACTIONS WERE FOR THE
BENEFIT OF THE PLAINTIFF…
..THEY HAVE EXERCISED THEIR POWERS IN GOOD FAITH…
NOTE:
HIGH COURT: NO BREACH OF DUTY TO ACT IN GOOD FAITH FOR THE
BEST INTEREST OF THE COMPANY.
COURT OF APPEAL: LOOK AT DIFFERENT ASPECT – THERE IS
CONFLICT OF INTEREST…THEREFORE THE ACT WAS NOT IN THE BEST
INTEREST OF THE COMPANY.
FEDERAL COURT: FOLLOWED THE DECISION OF THE HIGH COURT
 THE MEANING IN THE BEST INTERESTS
OF THE COMPANY
• DIRECTORS OWE DUTY TO THE COMPANY AS A WHOLE AND NOT
TO INDIVIDUAL MEMBERS

PERCIVAL WRIGHT
F:A DIRECTOR WAS APPROACHED BY A SHAREHOLDER WISHING TO
SELL HIS SHARES. THE DIRECTOR AGREED WITHOUT DISCLOSING
PENDING TAKEOVER BID. THE SHAREHOLDER CLAIMED THAT THE
DIRECTOR HAD BREACH THE FIDUCIARY DUTY.

H: THE DIRECTORS ONLY OWE FIDUCIARY DUTIES TO THE COMPANY AS

A WHOLE AND NOT TO INDIVIDUAL SHAREHOLDERS.
 EXCEPTION
• WHERE THERE IS AGENCY RELATIONSHIP BETWEEN THE
DIRECTORS AND THE MEMBERS

ALLEN V HYATT
F: DIRECTORS APPROACHED THE SHAREHOLDERS AND INDUCED
THEM TO GIVE THE OPTION TO PURCHASE THEIR SHARES FOR THE
PURPOSE OF AMALGAMATION AND THE DIRECTORS MADE PROFIT
H: DIRECTORS BECAME AGENTS OF THE SHAREHOLDERS & OWE
SUCH DUTY TO THEM
 EXCEPTION
• IN OTHER SPECIAL CIRCUMSTANCES (SPECIAL FACTS FIDUCIARY
RELATION) I.E.NATURE OF THE COMPANY & TRANSACTION,
DEPENDENCE OF THE SHAREHOLDERS ON THE DIRECTORS ETC

COLEMAN V MYERS [1977] NZLR 225 &

BRUNNINGHAUSELAVANICS (1999) 17 ACLC 1,247
THE SPECIAL FACTS CIRCUMSTANCE WILL ARISE WHERE:
• THERE IS A RELATIONSHIP OF TRUST & CONFIDENCE
• THE SHAREHOLDERS HAS RELIED ON THE INFORMATION AND ADVICE
GIVEN BY THE DIRECTORS
• THE SIGNIFICANCE OF SOME PARTICULAR TRANSACTION FOR THE
PARTIES; AND
• THE EXTENT OF ANY POSITIVE ACTION TAKEN BY/ON BEHALF OF THE
DIRECTORS
 OTHER CASES

• LUM SOW KUEN V CHUAH CHOONG HEING & ORS

( 1998) MLJU 39
H: NO FIDUCIARY DUTY OF THE DIRECTORS THAT IS OWED TO
INDIVIDUAL SHAREHOLDERS.
THERE WAS NO SPECIAL FACTS FIDUCIARY RELATIONSHIP EXISTED SO
AS TO IMPOSE ON THE DIRECTORS A DUTY TO INFORM THE
PLAINTIFF OF IMMINENT TAKEOVER OFFER.

• SIMILARLY HELD IN TAI KAM SAN V LIM CHER KIA (2001)

MSCLC 97,402
• BSNC CORPORATION BHD V GANESH KUMAR BANGAH
[2010] 7 MLJ 85

THE COURT ACKNOWLEDGED THAT A FIDUCIARY DUTY CAN BE OWED

TO SHAREHOLDERS BUT THE SPECIAL CIRCUMSTANCES FOR THE DUTY
TO EXIST WERE NOT PROVEN IN THIS CASE.
 WHO IS TO DECIDE WHAT IS IN THE
INTEREST OF THE COMPANY

• MAY BE DECIDED BY THE COMPANY AT GENERAL MEETING

• WHEN POWERS LEFT TO THE BOD, IT WOULD BE THE DIRECTORS

WHO DECIDE.

• LORD GREENE MR IN RE SMITH & FAWCETT LTD

THEY MUST EXERCISE THEIR DISCRETION BONA FIDE IN WHAT THEY
CONSIDER- NOT WHAT THE COURT MAY CONSIDER-TO BE IN THE
INTERESTS OF THE COMPANY, AND NOT FOR ANY COLLATERAL
PURPOSES
RE W.& M. ROITH LTD
F: R OWNED A MAJORITY SHARES IN A COMPANY AND WAS ALSO A
DIRECTOR. R WANTED TO MAKE A PROVISION FOR HIS WIFE AFTER
HIS DEATH AND HAD ENTERED INTO A CONTRACT WITH THE
COMPANY. LATER R DIED, HIS EXECUTOR CLAIMED THE WIFE’S
PENSION. LIQUIDATOR REJECTED.

H: THE CONTRACT WAS NOT IN THE INTEREST OF THE COMPANY

 INTEREST OF EMPLOYEES

PARKE V DAILY NEWS LTD [1962] CH 927

• DN PUBLISHED 2 NEWSPAPERS WHICH HAD SUFFERED LOSS FOR A
LONG TIME. THE BOARD ENTERED INTO A CONTRACT TO SELL THE
NEWSPAPER WHICH RESULTED TERMINATION OF ITS EMPLOYEES
• THE BOARD PROPOSED TO USE SALE MONEY TO MAKE EX-GRATIA
PAYMENT TO EMPLOYEES AND THIS WAS CHALLENGED BY MINORITY
SHAREHOLDERS
HELD: EX GRATIA PAYMENT WAS NOT WITHIN THE DIRECTORS
POWERS. DIRECTORS HAD BREACHED THEIR DUTIES TO ACT IN THE
BEST INTERESTS OF THE COMPANY(THOUGH WELL INTENTIONED)
….. PARKE V DAILY NEWS LTD
• THE PROPOSED PAYMENTS WERE NOT INCIDENTAL TO THE
CARRYING ON OF THE COMPANY’S BUSINESS.

• THEY WERE GRATUITOUS PAYMENTS TO THE DETRIMENT OF

SHAREHOLDERS AND THE COMPANY AS A WHOLE.
TECK CORP V MILLER (1973) 33 DLR
 THE DIRECTORS OWE A DUTY TO THE COMPANY. THE COMPANY
SHAREHOLDERS ARE THE COMPANY…NO INTEREST OUTSIDE THOSE
OF THE COMPANY’S SHAREHOLDERS CAN LEGITIMATELY BE
CONSIDERED BY THE DIRECTORS

 …BREACH OF DUTY IF DIRECTOR DISREGARD ENTIRELY THE

INTEREST OF SHAREHOLDERS IN ORDER TO CONFER BENEFIT ON ITS
EMPLOYEES.
 IN CORPORATE GROUP
CHARTERBRIDGE
DIRECTORS OF CHARTERBRIDGE CAUSED THE COMPANY TO GIVE
GUARANTEE OVER LOANS OF A SUBSIDIARY COMPANY IN THE
GROUP. THE COMPANIES IN THE GROUP WERE MANAGED AS ONE
AS THEY HAD THE SAME DIRECTORS, SHAREHOLDERS AND SHARED
THE SAME OFFICE.
“EACH COMPANY IN THE GROUP IS A SEPARATE ENTITY AND THE
DIRECTORS OF A PARTICULAR COMPANY ARE NOT ENTITLED TO
SACRIFICE THE INTEREST OF THAT COMPANY…THE PROPER
TEST…WHETHER AN INTELLIGENT AND HONEST MAN IN THE
POSITION OF A DIRECTOR OF THE COMPANY CONCERNED, COULD,
IN THE WHOLE OF THE EXISTING CIRCUMSTANCES, HAVE
REASONABLY BELIEVED THAT THE TRANSACTIONS WERE FOR THE
BENEFIT OF THE COMPANY”
• A DIRECTOR IS ALLOWED TO TAKE INTO CONSIDERATION THE
INTERESTS OF OTHER COMPANIES IN THE GROUP SO LONG AS THE
DECISION ALSO BENEFITS THE COMPANY ON WHOSE BOARD HE IS A
DIRECTOR
WALKER V WIMBORNE (1976)
DIRECTORS PROVIDE LOAN TO ANOTHER COMPANY WHICH WAS
FACING FINANCIAL DIFFICULTIES.
( JUST COMMON DIRECTORS ; NO COMMON/INTERLOCKING
SHAREHOLDING)

HIGH COURT: DIRECTORS MUST PUT THEIR COMPANY’S INTEREST

BEFORE THE GROUPS’ INTERESTS.
SHOULD CONSIDER THE INTEREST OF ITS SHAREHOLDERS
(NOT THE INTERESTS OF THE GROUP AS A WHOLE)
EQUITICORP FINANCE LTD V BANK OF NEW ZEALAND
EQUITYCORP GROUP COMPRISED OF WHOLLY-OWNED AND PARTLY –
OWNED SUBSIDIARIES .EQUITICORP HOLDINGS LTD (EHL) WAS THE
HOLDING COMPANY.
F: A SUBSIDIARY(URUZ PTY) BORROWED $200M FROM BNZ –GUARANTEED
BY EHL. TWO SUBSIDIARIES OF EHL HAD $50M DEPOSIT WITH BNZ & BNZ
REQUESTED THAT THE MONEY BE USED TO PAY THE LOAN MADE BY URUZ.
WHEN EHL GROUP WHEN INTO LIQUIDATION ,THE LIQUIDATOR BROUGHT
ACTION ON BEHALF OF THE TWO SUBSIDIARIES CHALLENGING THAT THE
DIRECTORS WERE IN BREACH OF THEIR DUTY TO THE SUBSIDIARIES BY
USING THEIR FUND TO PAY OFF DEBT OWED BY THE HOLDING
DIRECTORS WOULD NOT BE IN BREACH OF DUTY IF THEIR DECISION
BENEFITED ANOTHER CO. IN THE GROUP, AS LONG AS IT ALSO BENEFITED
THEIR CO.
….EQUITICORP

NEW SOUTH WALES COA:

THE DOMINANT DIRECTOR OF A GROUP WAS JUSTIFIED IN
CONSIDERING THAT THE WELFARE OF THE GROUP WAS INTIMATELY
TIED UP WITH THE WELFARE OF THE INDIVIDUAL GROUP.
(OTHERWISE WOULD BE DISASTROUS TO THE ENTIRE CORPORATE
GROUP)
 DIRECTORS OF SEVERAL COMPANIES

KEA HOLDINGS [2002] 3 SLR 129

GAN DIRECTOR IN KEA & SININDO. KEA ORDERED 3 SHIP – THEN
CANCELLED – ON THE ADVICE OF GAN – NO INTERESTED BUYERS.
KEA HAD TO FORFEIT DEPOSIT WHEN CANCELLED THE ORDER.
SININDO ACQUIRED SHIPS AT MORE COMPETITIVE PRICE.
H: GAN BREACHED DUTY – KNEW SININDO’S INTEREST & MISLED KEA
(NO BUYER EXISTS).
• 2 DIRECTORSHIP – NO BREACH, IF DISCLOSED & APPROVED
• HOWEVER : DIRECTOR CANNOT MAKE A DECISION THAT
BENEFITTED ONE COMPANY BUT CAUSED DETRIMENT TO THE
OTHER COMPANY
- SHOULD BE NEUTRAL/REFRAIN FROM ACTING TO THE DETRIMENT
OF ANOTHER COMPANY.
 A DIRECTOR MUST DISCLOSE KNOWLEDGE
OF WRONG DOING
BRITISH MIDLAND TOOL LTD [2003] BCLC 523
4 DIRS PLAN TO LEAVE AND SET UP RIVAL CO. ONE OF THEM RETIRED
AS MD AND 3 REMAINED. RETIRED DIRCTOR POACHING SKILLED
WORKERS FROM THE CO. – MOST SKILLED WORKERS LEFT FOR
RIVAL CO. REMAINING 3 KNEW ABOUT THAT – LATER RESIGNED AND
JOIN THE RIVAL CO.- SUBSEQUENTLY CO. CLOSED DOWN; UNABLE
TO OPERATE.
BRITISH MIDLAND SUED THE THREE DIRECTORS FOR BREACH OF DUTY
• A DIRECTOR’S DUTY TO ACT SO AS TO PROMOTE THE BEST INTERESTS
OF HIS COMPANY PRIMA FACIE INCLUDES A DUTY TO INFORM THE
COMPANY OF ANY ACTIVITY, ACTUAL OR THREATENED, WHICH
DAMAGES THOSE INTERESTS.

• THEY KNEW THAT THE COMPANY’S EMPLOYEE BEING ENTICED TO

LEAVE THE COMPANY AND THEY HAD FACILITATED THE EMPLOYEES
TO LEAVE THE COMPANY

• DIRECTOR WHO RESIGNED – NOT LIABLE BECAUSE HE HAD RESIGNED

ITEM SOFTWARE LTD V FASSIHI
F (A DIR) & EMPLOYEE IN RESPONDENT CO.
RESP. ( HAD A CONTRACT WITH ISOGRAPH LTD(IL)) RENEGOTIATED
ITS TERMS WITH IL AND AT THE SAME TIME F HAD A PRIVATE TALK
WITH IL TO SET HIS OWN CO. F ENCOURAGED RESP. TO BE
AGGRESSIVE AND IL ULTIMATELY TERMINATED THE CONTACT WITH
RESP. AND ENTERED INTO A CONTRACT WITH F . F WAS LATER
DISMISSED WHEN RESP FOUND OUT ABOUT HIS ACTIONS.
ON APPEAL :
F WAS UNDER A FIDUCIARY DUTY TO DISCLOSE HIS OWN
WRONGDOING. A DIRECTOR’S DUTY TO ACT IN THE BEST INTERESTS
OF THE COMPANY WAS A BROAD AND WELL ESTABLISHED PRINCIPLE
THAT WAS NOT RESTRICTED IN ITS APPLICATION.
F COULD NOT POSSIBLY HAVE BELIEVED THAT IT WAS IN RESP’S BEST
INTERESTS FOR HIM TO WITHHOLD THE INFORMATION OF HIS TALKS
WITH IL.
SUNDAI (M) SDN BHD V MASATO SAITO 7 ORS [2013] 9 MLJ 729
F: SUNDAI M’SIA PROVIDED ENGLISH LANGUAGE TUITION &TUITION
SERVICES TO JAPANESE STUDENTS. LATER THERE WAS LEADING
EDUCATION CENTRE SDN BHD( LCD) WHICH PROVIDED THE SAME
SERVICE.
SUNDAI BROUGHT ACTION AGAINST SAITO(FORMER DIRECTOR)
WHO WAS INVOLVED IN THE SETTING UP & OPERATION OF LDC.
SAITO KNEW OF THE PLAN TO SET UP THE RIVAL COMPANY BY THE
FORMER EMPLOYEES OF THE COMPANY WAS EVIDENCED BY A
SERIES OF EMAILS.
H: SAITO WAS LIABLE FOR BREACH OF FIDUCIARY DUTY….FALLING
TO BRING TO SUNDAI’S ATTENTION INFORMATION THAT A RIVAL
COMPANY BEING SET UP BY ONE OF THE COMPANY’S EMPLOYEES.
 NOMINEE DIRECTORS
• SEC 217(1)
NOMINEE DIRECTOR MUST EXERCISE HIS JUDGMENT IN THE BEST
INTEREST OF THE COMPANY AND SHOULD NOT BE BOUND TO ACT
IN ACCORDANCE WITH THE DIRECTION OF HIS APPOINTOR
- APPROVED IN OCBC LTD V JUSTLOGIN PTE LTD [2004] 2 SLR 675

• SCOTTISH COOP WHOLESALE SOCIETY

DIRECTORS AS NOMINEE OF THE SOCIETY WAS IN BREACH OF DUTY
FOR SUBORDINATING THE COMPANY’S INTEREST TO THE SOCIETY’S
• KUMAGAI GUMI CO LTD V ZENECON [1995] 2 SLR 297
BUT A NOMINEE DIRECTOR MAY TAKE INTO CONSIDERATION THE
INTEREST OF HIS APPOINTOR IF SUCH INTEREST DOES NOT CONFLICT
WITH THE INTEREST OF THE COMPANY

THE COURT WILL ONLY INTERFERE IF IT IS OF THE VIEW THAT NO

REASONABLE DIRECTOR WOULD CONSIDER THE ACTION TAKEN TO BE
IN THE BEST INTERESTS OF THE COMPANY
• ICP V CEPCO
CHOO WAS MD OF CEPCO – APPOINTED BY SUBSTANTIAL
SHAREHOLDER AS NOMINEE DIRECTOR. HE DISREGARD THE BOARD
AND OTHER SHAREHOLDERS EXCEPT THE GROUP WHICH HE
REPRESENTED. ( ENTERED INTO MANAGEMENT AGREEMENT AT THE
REQUEST OF THE SUBSTANTIAL SHAREHOLDER)
H: THE PRIMARY DUTY OF A DIRECTOR IS HIS ALLEGIANCE TO THE
COMPANY. ONLY WHERE THERE IS NO CONFLICT OF INTEREST CAN
HE TAKE INTO ACCOUNT THE INTEREST OF THE PRINCIPAL
• COBDEN INVESTMENTS LTD V RWM LANGPORT LTD V ORS [2008]
EHWC 2810
DUTIES OF NOMINEE DIRECTORS:
- OWES SAME DUTIES TO THE COMPANY AS OTHER DIRECTORS
- OWES HIS DUTIES AS A DIRECTOR TO THE COMPANY ALONE.
- CO IS ENTITLED TO EXPECT FROM THE DIRECTOR HIS BEST
INDEPENDENT JUDGMENT
• THE BELL GROUP LTD (IN LIQ) V WESTPAC BANKING CORP (NO 9)
[2008] WASC 239
…IF THE DIRECTOR BONAFIDE CONSIDERED THE TRANSACTION TO BE
IN THE INTERESTS OF THE COM-ANY & ACTED FOR THE PURPOSE
OF FURTHERING THE COMPANY’S INTERESTS, THE FACT THAT THE
TRANSACTION BENEFITS A THIRD PARTY WOULD NOT BY ITSELF,
GIVE RISE TO BREACH OF THE CONFLICT OF INTEREST RULE
• HAWKES V CUDDY[2010] BCC 597
AN APPOINTED DIRECTOR, WITHOUT BEING IN BREACH OF HIS DUTIES
TO THE COMPANY, MAY TAKE THE INTEREST OF HIS NOMINATOR INTO
ACCOUNT, PROVIDED THAT HIS DECISION AS A DIRECTOR WERE IN
WHAT HE GENUINELY CONSIDERED TO BE THE BEST INTERESTS OF THE
COMPANY.
• CENTRAL BANK OF ECUADOR& OTHERS V CONTICORP SA AND
OTHERS [2015] UKPC 11
…IF DIRECTOR FOLLOWED INSTRUCTION OF NOMINATOR WHICH IS
NOT IN THE BEST INTERESTS OF THE CO…

THERE IS A BREACH OF DUTY BECAUSE BY FOLLOWING BLINDLY THE

INSTRUCTIONS OF THE NOMINATOR HE HAD NOT EXERCISED ANY
INDEPENDENT JUDGMENT TO ASSESS WHAT WAS IN THE BEST
INTERESTS OF THE COMPANY
 INTEREST OF THE CREDITORS
• DILLON LJ IN MULTINATIONAL GAS & PETROCHEMICAL CO (1983) 2
AER 563
‘ THEY (THE DIRECTORS) OWE FIDUCIARY DUTIES TO THE COMPANY
THOUGH NOT TO THE CREDITORS, PRESENT OR FUTURE, OR TO
INDIVIDUAL SHAREHOLDER’
• LORNHO V SHELL PETROLEUM, LORD DIPLOCK
‘ IT IS THE DUTY OF THE BOARD TO CONSIDER…THE BEST INTEREST OF
THE COMPANY. THESE ARE NOT EXCLUSIVELY THOSE OF ITS
SHAREHOLDERS BUT MAY INCLUDE THOSE OF ITS CREDITORS
• KINSELA V RUSSEL KINSELA PTY LTD
WHEN A COMPANY IS INSOLVENT OR NEARLY INSOLVENT, THE
INTERESTS OF THE COMPANY BECOME THOSE OF ITS CREDITORS
RATHER THAN ITS SHAREHOLDERS.

• WINKWORTH V EDWARD BARON DEVELOPMENT CO LTD

LORD TEMPLETON: A DUTY IS OWED BY THE DIRECTORS TO THE
COMPANY AND TO THE CREDITORS OF THE COMPANY TO ENSURE
THAT THE AFFAIRS OF THE COMPANY ARE PROPERLY ADMINISTERED
AND ITS PROPERTY IS NOT DISSIPATED OR EXPLOITED FOR THE
BENEFIT OF THE DIRECTORS THEMSELVES TO THE PREJUDICE OF THE
CREDITORS
 KINSELA’S CASE

F: FAMILY BUSINESS. THE COMPANY GRANTED A LEASE OF ITS

BUSINESS PREMISES TO TWO DIRECTORS, LESS THAN THE
COMMERCIAL VALUE. A CLAUSE IN THE LEASE – DIRECTOR COULD
PURCHASE THE PROPERTY AT ANY TIME FOR A FIXED PRICE (DESPITE
INCREASE IN VALUE). LEASE APPROVED BY THE SHAREHOLDERS. 3
MONTHS LATER CO. WOUND UP.

H: DIR BREACH DUTY…BECAUSE THE PURPOSE OF LEASE TO HAVE THE

ASSET BEYOND THE REACH OF CO’S CREDITORS. CO WAS INSOLVENT
AT THE TIME THE LEASE WAS ENTERED.
• ANY ACTION FOR BREACH OF DUTY BECAUSE OF FAILURE OF THE
DIRECTORS TO TAKE INTO CONSIDERATION THE INTEREST OF
CREDITORS IS TO BE ENFORCED BY THE COMPANY OR IN MOST
CASES BY THE LIQUIDATOR.
• CREDITORS’ INTERESTS NORMALLY EMERGE WHEN THE COMPANY
IS INSOLVENT
 NOTE

• SEC 172 OF UK CA 2006

DIRECTORS NEED TO CONSIDER THE INTEREST OF THE EMPLOYEES,
CUSTOMERS, SUPPLIERS, THE COMMUNITY AND THE ENVIRONMENT
IN EXERCISING THEIR DUTY O ACT IN GOOD FAITH TO PROMOTE THE
SUCCESS OF THE COMPANY.
 Employee

Dir in few Group Co

company

Best interest of
the company
THE TEST

Creditors Nominee
Director

Honest,
Disclose
wrong doing