A director diverts a lucrative contract to a company he personally controls. The board, dominated by that same director, refuses to act. A minority shareholder wants the company to sue, but has no personal claim of her own, the loss belongs to the company, not to her. This is exactly the situation section 216A of the Companies Act 1967 was written to address, and Singapore’s courts have now decided enough leave applications under it that a clear pattern has emerged for how the “good faith” and “company’s interest” tests actually work in practice.
Raffles Corporate Services has previously set out the full step-by-step process for bringing a derivative action under section 216A. This article goes deeper into the two tests that decide whether leave is granted or refused, using the reasoning Singapore judges have actually applied in reported cases, so that directors and shareholders considering an application understand where these cases are won and lost.
1. What the Leave Application Actually Decides
A statutory derivative action lets a member, or in limited cases a director, ask the General Division of the High Court for permission to sue in the company’s name over a wrong done to the company itself, typically a breach of directors’ duties, diversion of a corporate opportunity, or misappropriation of company assets. It is not the same as the oppression remedy under section 216 of the Companies Act, which compensates a shareholder personally for conduct that unfairly prejudices that shareholder. Section 216A protects the company; any recovery belongs to the company, not the applicant.
Before the substantive claim can even begin, the applicant must clear a preliminary hurdle: the leave application itself. This is where most contested section 216A matters are actually fought and lost, because the underlying merits of the wrongdoing are often not seriously disputed. What is disputed is whether the applicant has satisfied the statutory conditions for leave. Understanding how the courts have applied those conditions is more useful, in practice, than reciting the bare wording of the section.
2. The Statutory Framework: Section 216A(3)
Section 216A(3) of the Companies Act 1967 (available in full at Singapore Statutes Online) provides that the Court will only grant leave if satisfied that:
- the complainant has given the directors of the company 14 days’ written notice of the intention to apply for leave, setting out the grounds and reasons for the intended action, unless the Court considers it not practicable or expedient to require that notice;
- the complainant is acting in good faith; and
- it appears to be prima facie in the interests of the company that the action, or the conduct of it, be brought, prosecuted, defended or discontinued.
The notice requirement is applied strictly
In Lee Sng Eder v Wee Kim Chwee [2013] SGHC 287, the applicant commenced his leave application without first giving the required 14 days’ notice to the company’s directors. He argued that notice was not practicable because the defendants might destroy evidence in the meantime. The High Court disagreed, holding that the risk of evidence being tampered with existed regardless of whether notice was given, since it would also arise once the originating application was served, and that the applicant could instead have sought a search order to preserve evidence. The court held that section 216A does not dispense with the notice requirement altogether, and dismissed the application for non-compliance. The case is a useful warning that the 14-day notice is not a formality to be skipped for convenience; it will be excused only in genuinely exceptional circumstances.
Good faith is tested for honesty and candour, not merely motive
In Malcolm Tan Chun Chuen v Ronny Lee Tiang Luok [2022] SGHC 187, the High Court confirmed that the good faith requirement has two limbs: the complainant must honestly believe that a good cause of action exists for the company to pursue, and the complainant must not be found to be bringing the application for a collateral purpose unrelated to the company’s welfare.
The importance of candour was underlined in Vivaz Group Holdings Pte Ltd v TripleOne (Cambodia) Investment Pte Ltd [2025] SGHC 176. The applicant sought leave to sue two former directors over the alleged wrongful disposal of the company’s principal asset, a Cambodian hotel development. The respondent’s central objection was that the applicant had known about the disputed transactions at the time they occurred, years earlier, and had not come to court with utmost candour and honesty about that knowledge. Justice Mohamed Faizal found, on the evidence, that the applicant had indeed known of the transactions at the material time, and that raising the issue only years later was, in his words, somewhat anomalous. Leave was refused on the ground that the good faith requirement was not met, notwithstanding that the underlying allegations of wrongdoing were far from trivial. An appeal was filed against that decision. The case illustrates that good faith is assessed independently of the strength of the underlying wrong: a meritorious claim can still fail at the leave stage if the applicant’s own conduct, particularly delay and incomplete disclosure, undermines the court’s confidence in their motives.
The company’s interest requirement looks forward, not just at the wrong itself
The prima facie interests of the company test is deliberately a low threshold. The applicant does not need to show the claim will probably succeed, only that it has a genuine, arguable basis. But “in the interests of the company” also requires the court to consider whether litigation actually makes commercial sense for the company at that point in time. In Lee Sng Eder, the High Court noted that the company was in financial difficulty and likely headed for liquidation, at which point a liquidator, not the applicant, would hold the exclusive power to decide whether to pursue the directors. On the facts, spending the company’s money on a derivative action shortly before a likely winding up was not in the company’s interests. This is a reminder that the test is not simply “was the company wronged”, but “does it make sense, now, for this litigation to proceed in the company’s name”.
3. Who Can Apply
The definition of “complainant” under section 216A is broad. It includes a current member of the company (including a corporate shareholder, as in the Vivaz case), a person who was a member at the time of the events complained of, a director, and any other person the Court considers an appropriate applicant in its discretion. Beneficial ownership can suffice even without registration as a member, as the High Court accepted in Malcolm Tan Chun Chuen, where the applicant held his shares under a declaration of trust rather than as the registered holder. Section 216A ceases to be available once the company has entered liquidation, at which point the liquidator alone has standing to pursue claims against directors on the company’s behalf.
4. Step-by-Step: Preparing an Application That Survives the Good Faith Test
- Gather a complete evidential record early, including everything the applicant knew, and when. The Vivaz decision shows that gaps or inconsistencies in the applicant’s own timeline are what respondents will attack first.
- Serve a proper 14-day notice on every director, setting out the grounds and reasons for the intended action with reasonable particularity, and keep proof of service. Do not assume the Court will excuse a skipped notice on urgency grounds alone.
- Address delay head-on in the supporting affidavit. If there has been a gap between discovering the wrong and applying for leave, explain it credibly; unexplained delay invites the same adverse inference drawn in Vivaz.
- File the originating application in the General Division of the High Court, naming the company as a nominal defendant alongside the alleged wrongdoer, supported by an affidavit addressing notice, good faith and the company’s interests directly and separately, since they are analytically distinct tests.
- Anticipate the company’s and directors’ response, which will typically target good faith and candour rather than the underlying merits, precisely because that is the more promising line of attack at the leave stage.
- Attend the leave hearing, where the Court decides only whether the three statutory conditions are met, not whether the claim will ultimately succeed.
- If leave is granted, commence the substantive claim in the company’s name, which then proceeds as ordinary High Court litigation through pleadings, discovery, and trial or settlement.
5. Documents Required
| Document | Purpose |
|---|---|
| Section 216A notice to directors and proof of service | Evidences strict compliance with the 14-day statutory notice requirement |
| Originating application and supporting affidavit | Sets out standing, the alleged wrong, and grounds for leave under all three limbs |
| Timeline of the applicant’s own knowledge | Pre-empts a good faith challenge based on delay or incomplete candour, as in Vivaz |
| Company’s register of members or share register extract | Proves current or former membership, or the basis of beneficial ownership |
| Company’s constitution | Confirms directors’ powers and any relevant restrictions |
| Board minutes and correspondence with directors | Shows the board’s knowledge of, and response (or lack of response) to, the alleged wrong |
| Financial records and, where relevant, a solvency assessment | Supports the argument that litigation is presently in the company’s interests, not merely arguable in the abstract |
6. Timeline and Costs
| Stage | Typical Duration | Indicative Cost (SGD) |
|---|---|---|
| Evidence gathering, including reconstructing the applicant’s own knowledge timeline | 2 to 6 weeks | 5,000 to 20,000 |
| Section 216A notice and 14-day waiting period | 2 to 4 weeks | 2,000 to 5,000 |
| Filing and hearing the leave application | 2 to 6 months, longer if good faith is contested | 15,000 to 45,000 |
| Appeal of a leave decision, if pursued | 6 to 12 months | 20,000 to 60,000 |
| Substantive derivative claim, if leave granted | 12 to 24 months to trial, less if settled | 50,000 to 300,000 or more |
These figures are indicative only. Contested good faith arguments, of the kind seen in Vivaz, tend to lengthen and add cost to the leave stage considerably, since they require detailed affidavit evidence and close scrutiny of the applicant’s own conduct. The Court retains discretion to direct that the company indemnify the applicant’s reasonable costs of a successful leave application and the substantive claim, since the applicant is litigating for the company’s benefit.
7. What Happens After the Order
If leave is refused, as it was in both Lee Sng Eder and Vivaz, the applicant cannot pursue the claim in the company’s name at all, though a personal remedy may still be available under section 216 if the same facts also disclose unfairly prejudicial conduct towards the applicant as a shareholder. A refused applicant retains the right to appeal, as Vivaz has done.
If leave is granted, the derivative claim proceeds as ordinary High Court litigation, and the Court retains supervisory control over its conduct: any settlement, discontinuance or compromise generally requires the Court’s approval, so that the wrongdoer or a sympathetic board cannot quietly bury a meritorious claim once it has been allowed to proceed. Any judgment sum or settlement recovered belongs to the company, not to the individual applicant.
8. Frequently Asked Questions
Does delay automatically defeat a section 216A application?
Not automatically, but unexplained delay between discovering the alleged wrong and applying for leave is treated as a serious factor against good faith, as the Vivaz decision shows. An applicant who has known about a transaction for years should expect the Court to ask why it was not challenged sooner.
Can the notice requirement be skipped if there is a real risk of evidence destruction?
Rarely. The High Court in Lee Sng Eder held that this risk exists with or without prior notice, since it also arises once proceedings are served, and suggested that a search order, not a skipped notice, is the proper tool to address that concern.
Is the good faith test only about the applicant’s motive for suing?
No. Singapore courts treat good faith as a subjective test distinct from the objective company’s interest test, and it extends to the applicant’s honesty and candour in placing the full factual picture before the Court, not merely whether the underlying motive for suing is a proper one.
What if the company is already in financial difficulty?
The Court may find that a derivative action is not, in fact, in the company’s interests where the company is heading towards liquidation, since a liquidator would then hold exclusive authority to decide whether to sue, and spending scarce company funds on litigation beforehand may not be commercially sensible.
Can a corporate shareholder, rather than an individual, bring the application?
Yes. Both Vivaz and the earlier case law confirm that a corporate shareholder can apply for leave in the same way as an individual member, and a beneficial owner under a declaration of trust may also qualify as a complainant even without being the registered shareholder.
If leave is refused, is that the end of the matter?
Not necessarily. The applicant may appeal the refusal, as happened in Vivaz, and may also still have a personal claim available under section 216 if the same conduct unfairly prejudiced the applicant as a shareholder in their own right.
9. Related Reading on Raffles Corporate Services
For the full mechanics of bringing a claim, see our guide to bringing a derivative action under section 216A. Where the same facts affect a shareholder personally rather than the company, see the oppression remedy under section 216. Directors facing an alleged breach of duty should also read our explainers on directors’ duties under section 157, breach of fiduciary duty by a director, and recovering secret profits made by directors. Shareholders assembling the documentary evidence for a leave application may also find our guide to shareholder rights to inspect company records useful.
Need Help With This Matter?
If your company is facing this situation, Raffles Corporate Services can assist with the groundwork – ACRA filings, compliance documentation, and coordinating with experienced Singapore law firms. For matters requiring court proceedings, we work with a panel of experienced Singapore law firms who offer cost-effective and efficient legal service and advice.
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This article is for general information only and does not constitute legal advice. For advice specific to your situation, please consult a qualified Singapore Advocate and Solicitor.
The Editorial Team, Raffles Corporate Services