When a Singapore minority shareholder wants to sue the directors on behalf of a wronged company, the path runs through Section 216A of the Companies Act 1967 — the statutory derivative action. But standing alone is not enough. Before the court will grant leave to bring the action, the applicant must satisfy a court that the application is being made in good faith. The good faith requirement is the single most contentious limb of a Section 216A application. It is the gate that keeps shareholder vendettas and tactical litigation out of the system, and it is the limb most frequently challenged by the defendant directors and the company.
This article explains what “good faith” means under Section 216A in 2026, the leading Singapore authorities, what conduct counts as bad faith, the evidence the court looks at, and how a complainant should structure the application to clear the good faith hurdle.
The Statutory Framework
Section 216A(3) of the Companies Act provides that the court will not grant leave for a complainant to bring a derivative action unless it is satisfied that:
- The complainant has given 14 days’ notice to the directors of the intention to apply (subject to limited exceptions);
- The complainant is acting in good faith; and
- It appears prima facie to be in the interests of the company that the action be brought.
The three limbs are cumulative. Failing any one means leave will be refused. The good faith limb has produced more case law than the others combined.
Who Decides Good Faith — and on What Basis?
The judge hearing the leave application decides good faith on the affidavits and documentary evidence filed. There is no oral evidence and no cross-examination at the leave stage; the assessment is on the papers. The complainant bears the burden of establishing good faith on the balance of probabilities.
The Singapore High Court has emphasised that the good faith inquiry is a subjective one focused on the complainant’s actual motives, not an objective test of whether the proposed action is likely to succeed (the merits are dealt with by the third limb — prima facie interests of the company).
The Leading Singapore Authorities
The Singapore High Court’s reasoning in cases such as Petroships Investment Pte Ltd v Wealthplus Pte Ltd [2016] 2 SLR 1, Pang Yong Hock v PKS Contracts Services Pte Ltd [2004] 3 SLR(R) 1, and the Court of Appeal’s analysis in Tay Soon Hwa v Sapphire Corporation Ltd have shaped the practical contours of the good faith test.
The principles emerging from these and other cases include:
- An honest belief that there is a good cause of action belonging to the company, supported by reasonable grounds, is the core of good faith.
- Mixed motives are permissible. The complainant can have a personal interest in the litigation (most do, as shareholders) so long as the dominant or primary motive is to vindicate the company’s rights.
- Collateral purposes can be fatal. If the application is driven by personal hostility, pressure tactics, or an attempt to gain leverage in a separate dispute, that is bad faith.
- Delay can evidence lack of good faith — but not always. A complainant who sits on knowledge of a wrong for years and then sues at a tactically advantageous moment risks an inference of bad faith. A complainant who waits because they were trying to resolve the matter internally is in a different position.
- Refusal to mediate or negotiate is a factor the court can weigh, although it is not determinative.
What Conduct Has Been Held to Indicate Bad Faith?
- Use of the derivative action as a bargaining chip in an oppression suit, divorce, or related-party dispute.
- Funding the action from sources hostile to the company — for example, a competitor or a discontented former employee.
- Pursuing a claim the complainant knows is doomed, where the real objective is to harass directors or extract a settlement.
- Suppressing material facts in the leave application affidavit, including facts that go to motive or to the company’s possible defences.
- Concurrent personal claims that overlap with the company’s claim, where the complainant has not explained how the two will be coordinated.
None of these are automatically fatal. The court looks at the overall picture and asks whether the complainant has come to court with clean hands and an honest belief that the company has been wronged.
What Conduct Is Consistent with Good Faith?
- A clear, evidence-based account of the alleged wrong, with documents and chronology.
- Prior internal steps — raising the issue at a board or shareholder meeting, requesting an investigation, sending a formal letter of demand to the directors.
- Compliance with the 14-day statutory notice in Section 216A(3)(a).
- Willingness to accept court-appointed safeguards — for example, an undertaking to pay the company’s costs of an unsuccessful action.
- Independent representation by counsel with no conflicts that suggest the action is a vehicle for someone else’s grievance.
The 14-Day Notice and Good Faith
Section 216A(3)(a) requires 14 days’ written notice to the directors. The notice serves two purposes — fair warning to the directors, and a chance for the company itself to bring the action or to ratify or settle the wrong. The court is sensitive to the quality of the notice. A vague or aggressive notice can suggest bad faith; a measured notice setting out the wrong and inviting the company to act is consistent with good faith.
In limited cases the court can dispense with the notice — typically where notice would cause irreparable prejudice to the company (asset dissipation, destruction of evidence). The complainant must apply specifically for dispensation.
Cost Consequences and the Costs Indemnity
Section 216A(6) gives the court power to make a costs indemnity order in favour of the complainant — meaning the company indemnifies the complainant for the costs of the action. Whether to grant the indemnity is closely linked to the court’s view of good faith. A complainant whose good faith is borderline may be granted leave but refused the indemnity, leaving them exposed to bear costs if the action fails.
Practical Steps for a Complainant
- Build the factual record before the application. The good faith assessment is on documents, not witnesses.
- Send a measured, fact-rich 14-day notice. Avoid invective. The notice will be exhibited to the leave affidavit.
- Disclose your motives candidly in the affidavit. Acknowledging a personal interest is not bad faith; concealing it is.
- Explain any delay. Set out the internal steps and the timeline of becoming aware of the wrong.
- Address concurrent litigation. If you have a parallel oppression suit, explain how the two will be coordinated and what overlap exists.
- Engage Singapore litigation counsel with derivative action experience. The drafting of the affidavit is where most good faith challenges are won or lost.
Frequently Asked Questions
Q: Can a former shareholder bring a Section 216A action?
The “complainant” definition in Section 216A(1) covers current members and former members. A former shareholder whose membership ended because of the very wrong being complained about can apply, subject to good faith and prima facie interest tests.
Q: Is hostility between shareholders bad faith?
Not automatically. Many derivative actions arise from broken-down shareholder relationships. The court asks whether, despite the hostility, the complainant honestly believes the company has been wronged.
Q: What if the directors offer to settle the underlying wrong?
Refusal to entertain a reasonable settlement can weigh against good faith. But the court is sceptical of “ratification” settlements that effectively whitewash directorial misconduct without compensating the company.
Q: Does good faith have to be present at every stage of the action?
The good faith assessment is primarily at the leave stage. If bad faith emerges later (for example, the complainant settles the action for a personal benefit at the company’s expense), the court can revoke the indemnity or strike out the action.
Q: Can the company itself dispute good faith?
Yes — the company is a party to the leave application and routinely contests the good faith limb, often alongside the directors.
Statutory Provisions and References
The full text of Section 216A is at sso.agc.gov.sg. Singapore court practice on derivative actions is set out at courts.gov.sg. For practitioner-oriented case summaries see justfollowlaw.com.
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.
📧 Email: [email protected]
📱 Call, SMS or WhatsApp: +65 8501 7133
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.
For related guides see What Is a Statutory Derivative Action Under Section 216A in Singapore, Who Can Apply for Leave to Bring a Derivative Action in Singapore, and Who Can Bring a Section 216 Oppression Claim in Singapore.
— The Editorial Team, Raffles Corporate Services