2.

To exercise his powers for the proper purposes

and not for any collateral purpose.
The powers given to the directors are held in trust for the
company and must not be exercised for an improper purpose.
If it alleged that a director has acted for an important purpose,
the court will adopt 2 factors to determine if there is a breach of
duty :
The court will ascertain what is the particular power in question
and also for what legal purpose this power may be used
-For example, it may be the power of directors to issue shares
The court will examine the fact of the case before it and the
intensions of the director and decide what was the actual
purpose for which the director exercised the power in question

 Case : Re Duomatic Ltd

The directors made payment to a former director as a compensation for
loss of office. They were not aware that the UK Companies Act required
them to notify the shareholders before doing so. The payment was thus
invalid.
Held :
Although the directors had acted honestly due to their ignorance of law,
the directors were liable for misapplication of the companys fund.
Case : Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821

The Facts: The Directors allotted shares to a company which had made a takeover
bid. The Directors argued that the allotment was made to obtain
capital for the company.
Held: The director had breached their duty by improperly exercising their
powers and the issue of the shares to Howard Smith was invalidated.
Although the company could make use of the additional capital. The
issue of the shares was not because of that. But due to the fact that
they wanted Howard Smith to succeed in their takeover bid.