Understanding Good Faith and Proper Purpose in Corporations Law

Running head: CORPORATIONS LAW
Corporations Law
Name of the Student
Name of the University
Author Note

CORPORATIONS LAW1
Introduction
The issue of the actions of the directors being executed with an improper purpose would depend
upon the purpose of the action that the director concerned with. The main intention of a director
conducting the affairs of the company is the well being and continuous operations of the company being
maintained and not the board of directors being continued to be operative. The fiduciary relationship
between the director and the company requires the director to have in his mind underlying the well-being
of the company while discharging his powers under the designation of a director. For the purpose of
disputing the adherence of the director to his duty to exhibit is functions as a director for a proper cause
and not to opt for any cause which is improper needs to be assessed with an underlying contention of the
purpose that has been backing the actions of the director. This issue has been brought forward with the
case of ASIC v Flugge & Geary [2016] VSC 779. The determination of the purpose of the actions
pertaining to the director as proper is required to be assessed in an objective manner. In this context, the
two terms that are the most relevant and need consideration are “good faith” and “for a proper purpose”.
These two expressions are required to be interpreted for the purpose of assessing the role with respect to
mechanism assisting corporate governance (Buscombe 2019). This essay would discuss the terms “good
faith” and “for a proper purpose”. This would also analyse the role that “good faith” and “for a proper
purpose” has been playing as a mechanism recognised by statue for the purpose of assisting corporate
governance.
Discussion
Meaning of Good Faith
Good faith depicts an abstract or inclusive expression that contemplates a true assurance or
purpose, which can be conceived in the absence of any malintentions or desire to deceive another. This
expression owes its origin to the Latin expression bonafide. The meaning to be assigned to good faith has
been varied depending upon the discretion of the courts in consideration with the circumstances of the

CORPORATIONS LAW2
proceeding. In the legal field, good feet is a relevant term and is used in many circumstances with respect
to different cases. The significance of this particular expression is immense in case of commercial law as
well as civil law. In common law, whenever a person acts in a good faith in pursuing an unethical
endeavour, he would be protected by the law from being held liable and the law would restore his rights
irrespective of the mal intentions existing with respect to the other party involved in the endeavour. Good
faith is a trustworthy defence, which a person can opt for in case of any allegations of wrongdoing being
brought against him. However, only bringing a claim of good faith would not extinguish his liability, the
elect is required to provide conclusive proof of his good faith being executed from his actions with
respect to the concerned issue (Carter and Courtney 2016).
Meaning of Proper Purpose
The expression for a proper purpose has a proximity with the duty of the directors pertaining to a
company to ensure their actions being executed with proper purpose. The designation belonging to a
director requires the director to maintain confidence and faith to be inflicted from their actions and all
their endeavours relating to the affairs of the company is required to be affected in a proper way in the
absence of any improper purpose. The directors of a company have been imposed with the inherent duty
of proper purpose to be ensured from their actions. This is essential requisites with respect to the duties of
a director belonging to a company to utilise their power for a purpose of serving the company and not for
any purpose, which is not apt for the company. The directors in a company are required to indulge into
conducts and activities that are beneficial for the company and abstain from all the endeavours that proves
to be derogatory for the company. Moreover, improper purpose is not only restricted to derogation being
caused to the company by an activity. It also extend towards the endeavours, which are although not
expressly derogatory to the company but has no purpose to serve for the company and has been solely
based upon the private benefits of the director indulging into the same(Kiefel and Edelman 2019).