Directors' Duty to Act in the Interests of the Company: Subjective or Objective?

Abstract

A duty to act in good faith in the interests of the company has been imposed for many years on company directors by English and Australian corporate law, as well as the corporate laws of other countries. Yet an issue that is unresolved in some countries is whether the duty is subjective, objective, or a combination of both. Courts have adopted different tests. The authors examine the relevant judgments and argue that the preferred approach combines both subjective and objective tests. Another issue on which courts have differed is whether, if a director fails to give consideration to the interests of the company, the director is necessarily in breach of the duty to act in the interests of the company. The authors analyse the judgments on this issue and conclude that there should be a breach of duty.