When a company director breaches their fiduciary duties — by appropriating company assets, diverting business opportunities, or engaging in self-dealing — the company is the party that has been wronged. In theory, the company should bring a claim against the errant director. In practice, this rarely happens voluntarily: if the director is also a controlling shareholder or has allies on the board, those in charge of the company will not authorise legal proceedings against themselves.

Section 216A of the Companies Act 1967 exists to address precisely this scenario. It gives a qualifying complainant — typically a shareholder — the right to apply to the Singapore High Court for leave to commence legal proceedings on behalf of the company. This is known as a statutory derivative action. This guide explains how derivative actions work in Singapore, when they are appropriate for breach of fiduciary duty, and what the procedural and evidentiary requirements are.

The Proper Plaintiff Rule and Why Derivative Actions Are Necessary

A foundational principle of Singapore company law — derived from the English decision in Foss v Harbottle (1843) and applied consistently in Singapore courts — is the “proper plaintiff” rule: where a wrong has been done to a company, the proper plaintiff is the company itself, not its individual shareholders. A shareholder who suffers loss because the company has been wronged cannot ordinarily sue to recover that loss personally; the company must bring the action.

This principle creates a practical problem when the wrongdoers are also those who control the company and its decision-making. In a two-shareholder company where one director-shareholder has misappropriated company funds, the board of directors will not authorise proceedings against itself. The innocent minority shareholder is left holding a stake in a company whose assets have been depleted, with no direct right of action.

Section 216A of the Companies Act 1967 is the statutory response. It creates an exception to the proper plaintiff rule, allowing the court to authorise a shareholder or other eligible complainant to commence or continue legal proceedings in the company’s name and on its behalf. Any recovery goes to the company — not to the complainant personally — because the company is the victim.

Who Can Bring a Section 216A Application?

Under Section 216A(1), a “complainant” who may apply for leave includes:

  • A member of the company (i.e., a registered shareholder)
  • The Minister (in the public interest), and
  • Any other person whom the court considers appropriate in the circumstances

In practice, the vast majority of Section 216A applications are brought by shareholders. A shareholder does not need to hold a minimum percentage of shares to apply — even a 1% shareholder can file a Section 216A application, provided they meet the other statutory requirements.

Former members — shareholders who have already sold their shares — are generally not eligible to apply, as the rationale for the action (recovering assets for the benefit of the company and its current shareholders) no longer applies to them. However, courts have in some circumstances allowed former members to proceed where they were induced to transfer their shares by the same wrongdoing they seek to remedy.

The Three Statutory Requirements for Leave

Under Section 216A(3), the court will grant leave only if the applicant satisfies three cumulative requirements:

1. Notice Given to the Directors

The complainant must have given notice to the directors of the company, at least 14 days before the application is made, of the complainant’s intention to apply to court for leave. The notice must reasonably identify the alleged wrong and the basis for the proposed action.

The notice requirement serves two purposes: it gives the board a final opportunity to authorise the action itself (rendering the derivative application unnecessary), and it ensures the court is presented with evidence of whether the board considered the matter and, if so, why it declined to act.

Courts have held that where the board considers the notice in good faith and concludes that pursuing the action is not in the company’s interests, this is a significant factor — though not necessarily a bar — in the court’s assessment of whether to grant leave.

2. Good Faith

The applicant must be acting in good faith in bringing the derivative action. This is a subjective test: is the applicant genuinely seeking to remedy a corporate wrong, or are they bringing the action for an improper collateral purpose — such as using the derivative proceedings as leverage in a shareholder dispute, or to embarrass or harass the directors?

The Singapore Court of Appeal has addressed the good faith requirement in several cases. In Pang Yong Hock v PKS Contracts Services Pte Ltd [2004] 3 SLR(R) 1, the court observed that evidence of bad faith might include the applicant’s own conduct in relation to the company and their relationship with the alleged wrongdoers. However, the fact that the complainant has a personal grievance against the director does not automatically establish bad faith — a minority shareholder who has been oppressed by a director-shareholder may have a personal grievance that is entirely consistent with genuine concern about the corporate wrong.

3. Appearance of Being Prima Facie in the Company’s Interests

The proposed action must appear prima facie to be in the interests of the company. This is an objective test focused on whether the proposed claim has a reasonable chance of success and whether success would benefit the company.

At the leave stage, the court does not conduct a full merits assessment of the underlying claim. The complainant needs to show that the alleged wrong is not frivolous or vexatious, that there is a real case to be tried, and that the company stands to benefit from a successful outcome — whether through recovery of assets, damages, or other relief. The court is not being asked to decide whether the director actually breached their fiduciary duty; that question is decided at the substantive trial if leave is granted.

Types of Fiduciary Duty Breach Pursued via Derivative Action

The most common fiduciary duty breaches that are the subject of Singapore derivative actions include:

Misappropriation of Company Assets

A director who transfers company funds to themselves, their related parties, or controlled entities without proper authorisation. This is the paradigmatic derivative action scenario. The company’s claim is typically for the return of the misappropriated amounts plus interest, and for an account of profits made from using the funds.

Diversion of Business Opportunities

A director who diverts a contract, client, or business opportunity that came to them in their capacity as director to themselves personally or to a competing entity they control. Singapore courts apply the “no-profit” rule: a fiduciary cannot profit from their position without the informed consent of the company. In Singapore Rifle Association v Singapore Shooting Association, the court confirmed that the diversion of opportunities that the company had a legitimate expectation of pursuing constitutes a breach of the director’s fiduciary duty.

Secret Profits and Unauthorised Remuneration

A director who arranges for the company to pay themselves excessive remuneration, bonuses, or consulting fees that were not properly authorised by the shareholders. The remedy is an account of the unauthorised profits and repayment to the company. This is distinct from a Section 216 minority oppression claim, where the same facts may be pleaded as a form of oppression — in a derivative action, the company (not the minority shareholder) is the claimant.

Breach of the Duty to Avoid Conflicts of Interest

A director who causes the company to enter into a transaction with a related party on terms that are unfavourable to the company — for example, purchasing goods or services at above-market prices, or selling company assets at below-market prices to related entities. Under Section 156 of the Companies Act, directors must disclose material interests in transactions. A failure to disclose coupled with a transaction at non-arm’s length terms is both a statutory offence and a breach of fiduciary duty actionable by the company.

Insolvent Trading

Where a director causes the company to incur debts when they knew or ought to have known that the company could not pay them, a derivative action may be available to recover the increased net deficiency attributable to the new debts. More commonly, this claim is pursued by a liquidator post-insolvency, but Section 216A provides an avenue before insolvency where the board is unwilling to take action against a co-director who has been trading insolvently. For more on winding up and insolvency generally, see our guide to winding up in Singapore.

The Application Procedure: Step by Step

Step 1: Serving the Notice on the Directors (at least 14 days before)

Send a written notice to the board of directors (addressed to each director individually and to the company at its registered office) identifying the alleged wrong, the proposed defendant(s), and stating your intention to apply to court for leave under Section 216A if the company does not take action. Keep copies of all notices served and delivery confirmations.

Step 2: Filing the Originating Application in the High Court

If the board does not authorise the action within the notice period, file an Originating Application in the General Division of the Singapore High Court under the Rules of Court 2021. The application must be supported by an affidavit setting out:

  • The applicant’s standing (membership of the company)
  • Evidence of the notice given to the directors and their response (or non-response)
  • The factual basis for the alleged breach of fiduciary duty
  • Why the proposed action appears prima facie to be in the interests of the company
  • A statement that the applicant is acting in good faith

The application should also propose the specific action to be authorised — for example, a claim for breach of fiduciary duty and an account of profits against a named director — so the court understands the scope of what is being requested.

Step 3: Service and Response from the Company and Directors

The company and the director(s) named in the proposed action must be served with the Originating Application and supporting affidavit. They will typically file affidavits in response setting out their grounds for opposing the grant of leave. Common grounds include: the board’s decision not to pursue the action was taken in good faith for legitimate business reasons; the proposed action lacks merit; or the complainant is acting in bad faith.

Step 4: The Leave Hearing

The court determines the Section 216A application at a hearing. This is not a mini-trial of the underlying claim — the court focuses on the three statutory requirements. The hearing may last from a few hours to a full day, depending on complexity. Evidence is primarily by affidavit; oral cross-examination may be allowed if there are genuine factual disputes relevant to the statutory requirements.

Step 5: If Leave Is Granted

If the court grants leave, it will specify the terms — including who is authorised to conduct the action, what proceedings may be commenced, and often what costs indemnity the company must provide to the complainant. The complainant’s lawyers then conduct the action in the company’s name. Any judgment or settlement proceeds go to the company.

Costs and Indemnity in Section 216A Proceedings

The cost structure of derivative actions in Singapore deserves careful attention. The applicant bears the initial cost risk of the leave application. If leave is granted, the court may order the company to provide a costs indemnity to the complainant for the costs of prosecuting the derivative action — effectively, the company funds its own litigation through the complainant. This indemnity is important because it prevents shareholders with legitimate derivative claims from being deterred by cost exposure.

If the leave application is unsuccessful, the applicant will typically be ordered to pay the costs of the company and the directors. This risk is real and should be factored into the decision to bring a Section 216A application.

Courts have also made cost orders against third-party funders who backed meritless derivative applications, which is relevant in the growing Singapore litigation funding market.

Key Singapore Cases on Derivative Actions and Fiduciary Duty

Several Singapore decisions have shaped the law in this area:

Pang Yong Hock v PKS Contracts Services Pte Ltd [2004] 3 SLR(R) 1 — The Court of Appeal set out the framework for assessing good faith and prima facie interests, holding that at the leave stage the court is not conducting a full merits assessment but must be satisfied that the claim is not clearly bound to fail. The court must balance the complainant’s right to vindicate corporate wrongs against the risk of using derivative proceedings to harass directors.

Urs Meisterhans v GIP Pte Ltd [2011] 1 SLR 552 — The High Court granted leave where the complainant produced evidence that the defendant director had diverted company funds to entities he controlled. The board’s refusal to investigate was itself evidence that independent business judgment was not being exercised.

Petroships Investment Pte Ltd v Wealthplus Pte Ltd [2016] 2 SLR 1022 — The Court of Appeal addressed the relationship between Section 216A derivative actions and Section 216 minority oppression claims, confirming that the same underlying facts can support both types of proceeding but that the remedies are distinct: a derivative action recovers for the company, while a Section 216 order provides personal relief to the shareholder. For more on Section 216 claims, see our series on minority shareholder oppression in Singapore.

Derivative Actions vs. Other Remedies: Choosing the Right Path

Derivative actions are not always the best or only remedy for a shareholder facing director misconduct. Consider the alternatives:

Section 216 minority oppression: Where the director’s conduct is directed at oppressing the minority shareholder personally (excluding them from management, diluting their shares, withholding dividends), Section 216 provides personal relief including a buy-out order. A derivative action is appropriate where the primary loss is to the company rather than the individual shareholder.

Just and equitable winding up: Where the company’s relationships have broken down irreparably, a winding up application under Section 125(3)(i) of the Insolvency, Restructuring and Dissolution Act may produce a cleaner result than years of derivative litigation. See our guide on just and equitable winding up in Singapore.

Direct action by a liquidator: If the company is insolvent or being wound up, the liquidator has standing to bring claims against directors directly on behalf of the company without a Section 216A application. This is typically the more efficient route post-insolvency.

Negotiated resolution: In many cases, the most efficient outcome is a negotiated shareholder exit or settlement. The filing of a Section 216A application — or even the service of the 14-day notice — sometimes prompts a settlement discussion that resolves the dispute without full litigation. Carefully consider whether commencing proceedings is a bargaining tool or a genuine last resort before filing.

Practical Advice for Shareholders Considering a Derivative Action

If you believe a director has breached their fiduciary duties and the company’s board is unwilling to take action, here is what to consider before making the Section 216A application:

  • Gather evidence first. The leave application requires an affidavit setting out the factual basis for the alleged wrong. Collect documentary evidence — bank statements, emails, contracts, board minutes — before filing, not after. Discovery can be sought post-leave but you need enough evidence to support the prima facie case at the leave stage.
  • Assess the recovery prospects. A derivative action is only worthwhile if the company is likely to recover meaningful assets. If the director has no recoverable assets, winning the case may produce a hollow victory. Consider whether the director’s assets can be traced, preserved by injunction, or whether there is insurance coverage.
  • Consider costs exposure. Understand the cost consequences of losing the leave application before committing to the litigation path.
  • Use the 14-day notice strategically. The notice to directors is not merely a procedural formality — it is an opportunity to put the board on notice that the wrong has been identified and documented. A well-drafted notice sometimes resolves the situation without court proceedings.

For details on the related procedure for applying for leave to commence a derivative action, including the court forms and filing requirements, visit the Singapore Courts website. For official resources on director duties, see ACRA’s guidance for directors. For more on director duties and personal liability generally, see our Singapore director duties guide and our CALA 2025 director guide.

For the latest Singapore business and legal news, there are useful resources for directors and shareholders to stay current on corporate governance developments.

If you need legal advice on a derivative action or director misconduct in your company, we can point you in the right direction.

To speak with the team at Raffles Corporate Services, you can email [email protected] or call, SMS, or WhatsApp +65 8501 7133. We are happy to assist with any queries.

— The Editorial Team, Raffles Corporate Services