Of all the duties imposed on a director of a Singapore company, none is more fundamental — or more frequently litigated — than the duty to act in good faith and in the best interests of the company. It is the bedrock obligation from which many other fiduciary duties flow. It is also the duty whose breach most commonly finds directors in civil dispute or, in serious cases, facing criminal prosecution. This article examines the legal content of the duty, its statutory basis, the case law that has shaped its application in Singapore, and the practical implications for directors of Singapore private limited companies and listed entities alike.

The Statutory Basis: Section 157 of the Companies Act

The duty to act in good faith and in the best interests of the company is codified in Section 157(1) of the Companies Act (Cap. 50), which provides:

“A director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office.”

The word “honestly” in Section 157(1) encompasses the equitable duty to act in good faith and in the best interests of the company. Singapore courts have consistently interpreted this provision as the statutory expression of the fiduciary obligation that a director owes to the company — not to any individual shareholder, creditor, or other stakeholder, but to the company as a legal entity.

A breach of Section 157(1) carries both civil and criminal consequences. Under Section 157(3), a director who breaches the duty to act honestly is liable to the company for any profit made or damage suffered. Under Section 157(3)(b), a person who wilfully contravenes Section 157(1) commits a criminal offence and is liable on conviction to a fine not exceeding S$5,000 or to imprisonment for a term not exceeding 12 months, or both.

The Equitable Foundation: Acting in Good Faith

Singapore company law draws on both its statutory framework and the common law of equity. The duty to act in good faith — sometimes expressed as the duty to act in the bona fide interests of the company — is a fiduciary obligation that equity has long imposed on those who hold positions of trust over another’s property or affairs.

The classic formulation of this duty in the Commonwealth tradition comes from Re Smith & Fawcett Ltd [1942] Ch 304, where Lord Greene MR stated that directors must act “bona fide in what they consider — not what a court may consider — is in the interests of the company.” This subjective formulation has been adopted and applied in Singapore, with the important qualification that the court will look at objective evidence to assess whether a director genuinely held the belief they claim to have held.

Key Singapore Cases

PP v Zheng Jia [2025] SGHC 76 — The Modern Sentencing Framework

The most recent and highly significant case on director dishonesty under Section 157 is PP v Zheng Jia [2025] SGHC 76, decided by the Singapore High Court. In this case, the court was required to sentence a director who had committed multiple counts of dishonesty in the discharge of his duties as a company officer under Section 157(3)(b).

The High Court took the opportunity to articulate a structured sentencing framework for Section 157 criminal offences — a framework that had been lacking in earlier decisions. The court identified the following key factors as relevant to the assessment of culpability and harm:

Culpability factors (increasing sentence): the degree of planning and premeditation; the director’s abuse of a position of trust and authority; the sophistication of the scheme; whether the director was the prime mover or a subordinate participant; and whether the breach involved deception of auditors, regulators, or shareholders.

Harm factors (increasing sentence): the quantum of loss or damage caused to the company; whether the harm was to a vulnerable company or one with many stakeholders (such as a listed company or a company with public deposits); and whether the breach resulted in downstream harm to third parties.

The court in PP v Zheng Jia also emphasised that deterrence is a primary sentencing consideration for director dishonesty offences, given the important role that directors play in Singapore’s business ecosystem and the need to maintain public confidence in the integrity of corporate governance.

Abdul Ghani bin Tahir v PP [2017] 4 SLR 1153 — Scope of the Duty

The Court of Appeal decision in Abdul Ghani bin Tahir v PP [2017] 4 SLR 1153 examined the scope of the duty under Section 157 in the context of a director who had caused company funds to be used for purposes that were not in the company’s interests. The court affirmed that the duty to act honestly under Section 157(1) is breached where a director acts in a manner that he knew, or ought to have known, was not in the company’s interests — even if the director did not personally profit from the breach.

The Court of Appeal clarified that the test for criminal liability under Section 157(3)(b) is whether the director “wilfully” contravened the duty — a standard that requires the prosecution to prove that the director acted deliberately in a manner they knew to be contrary to their duty, rather than merely negligently. This distinction between negligent breach (civil liability under Section 157(3)(a)) and wilful breach (criminal liability under Section 157(3)(b)) is fundamental to understanding the provision.

Falmac Limited v Cheng Ji Lai Charlie [2013] SGHC 113 — Whose Interests Count?

The High Court decision in Falmac Limited v Cheng Ji Lai Charlie [2013] SGHC 113 addressed a critical question: whose interests constitute “the company’s best interests” for the purpose of the duty? The court confirmed the orthodox position that the duty is owed to the company as a whole — meaning the general body of shareholders, considered collectively — and not to any individual shareholder or class of shareholders.

The decision also addressed the position of a company in financial difficulty. Singapore courts have followed the common law position that as a company approaches insolvency, the directors’ duty to act in the company’s best interests expands to encompass the interests of creditors. Directors who continue to operate a company in financial difficulty — incurring new debts, dissipating assets, or making preferential payments to related parties — may find themselves in breach not only of Section 157 but also potentially subject to fraudulent trading liability under Section 340 of the Companies Act. For a broader discussion, see our guide to winding up a Singapore company.

What Does “Best Interests” Actually Mean?

The Subjective-Objective Balance

Singapore courts apply a mixed subjective-objective test. The primary question is subjective: did the director genuinely believe they were acting in the company’s best interests? However, this belief is assessed against objective evidence. A director cannot simply assert good faith if the objective circumstances strongly indicate that the action taken could not reasonably have been considered beneficial to the company.

In Intraco Ltd v Multi-Pak Singapore Pte Ltd [1995] 1 SLR(R) 313, the Court of Appeal held that where a director’s purported justification is so implausible that no reasonable director could have held that belief in good faith, the court may infer that the stated reason was not the true reason, and that the director was not in fact acting in the company’s interests.

Group Company Situations

Directors of subsidiary companies face a particular challenge when instructions from a parent company may not be in the best interests of the subsidiary. Singapore law is clear that a director of a subsidiary owes their duty to the subsidiary — not to the parent group. A director who follows group instructions to the detriment of the subsidiary (for example, causing it to extend inter-company loans on uncommercial terms) may be in breach of Section 157. For guidance on corporate secretarial obligations, see our overview of corporate secretarial services in Singapore.

Common Fact Patterns That Breach the Duty

Self-Dealing Transactions

The most frequently litigated category of breach is the self-dealing transaction — where a director causes the company to enter into a contract that benefits the director (or a related party) at the company’s expense. Self-dealing transactions may also breach Section 156 of the Companies Act (duty to disclose interests in contracts), Section 162 (prohibition on loans to directors without shareholder approval), and Section 163 (prohibition on financial assistance for acquisition of own shares).

Acting Under the Direction of a Third Party

A director who acts as a rubber stamp for instructions from a majority shareholder or external party — without independently assessing whether those instructions are in the company’s interests — is not discharged from their duty under Section 157. The duty is personal and non-delegable. This is especially relevant for nominee directors, who may feel pressure to follow a particular shareholder’s instructions without exercising independent judgement. For more on the responsibilities of this role, see our guide on nominee directors in Singapore.

The Business Judgement Rule

Singapore does not have a codified business judgement rule, but courts have recognised that directors are not guarantors of business success. A director who makes a commercially poor decision is not necessarily in breach of Section 157 if they genuinely believed the decision was in the company’s best interests at the time. The law does not subject directors to the wisdom of hindsight — it requires that they approach their decisions with seriousness, acting informed, attentive, and genuinely focused on the company’s interests.

Practical Implications for Singapore Directors

Document Your Reasoning

The subjective good faith standard means that what a director believed at the time of a decision is critical. Directors should document the basis for significant decisions through board minutes, written resolutions, and professional advice obtained. This creates an evidentiary record that supports the director’s assertion of good faith.

Obtain Independent Advice on Related-Party Transactions

Where a director or their associates have an interest in a proposed transaction, it is prudent to obtain independent professional advice and to have the transaction approved by disinterested directors or shareholders. The obligation to disclose under Section 156 is a minimum requirement — good governance practice goes further.

Monitor the Company’s Financial Position

As insolvency approaches, the duty to act in the company’s best interests requires directors to consider creditors’ interests with increasing weight. Failing to seek appropriate professional advice when a company is in financial difficulty may itself constitute a breach of the duty of care and diligence under Section 157(1).

Conclusion

The duty to act in good faith and in the company’s best interests is the fundamental obligation that defines what it means to be a director. Section 157 of the Companies Act gives it statutory force, and a line of Singapore cases stretching from Falmac to Abdul Ghani to the landmark sentencing framework in PP v Zheng Jia [2025] SGHC 76 has given it operational content. Directors who take the duty seriously — asking, for every significant decision, whether this genuinely serves the company’s interests — will rarely find themselves on the wrong side of it.

For assistance with director appointments, corporate governance frameworks, and compliance obligations for Singapore companies, visit our incorporation and corporate secretarial services page.

To speak with the team at Raffles Corporate Services, you can email [email protected] or call, SMS, or WhatsApp +65 8501 7133.

— The Editorial Team, Raffles Corporate Services