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Directors duties in Hong Kong

DIRECTORS' DUTIES
 
Directors should clearly understand their duties for good corporate governance. The legal regime relating to directors in Hong Kong is contained in both statute and case law. The Hong Kong Companies Ordinance (Cap 622) (“CO”) sets out in some detail a director’s powers and duties, while the company’s articles of association can be found in the Companies (Model Articles) Notice (Cap 622H)..
 
The duties of directors of listed companies can be found in Securities and Futures Ordinance (Cap 571) (“SFO”) and the Listing Rules.
 
In 2014, the Companies Registry issued the useful ‘Guide on Directors’ Duties’ which laid down the basic eleven principles to be observed by  all Hong Kong company directors:
 
Principle 1:         Duty to act in good faith for the benefit of the company as a whole.

Principle 2:         Duty to use powers for a proper purpose for the benefit of members as a whole.

Principle 3:         Duty not to delegate powers, except with proper authorization, and  to exercise independent judgement.

Principle 4:         Duty to exercise care, skill and diligence

Principle 5:         Duty to avoid conflicts between personal interests and the interests of the company

Principle 6:         Duty not to enter into transactions in which the directors have an interest, except in compliance with the requirements of the law.

Principle 7:         Duty not to gain advantage from use of position as a director.

Principle 8:         Duty not to make unauthorized use of company’s property or information.

Principle 9:         Duty not to accept personal benefit from third parties conferred because of their position as a director.

Principle 10:       Duty to observe the company’s constitution and resolutions.
      
Principle 11:       Duty to keep accounting records.
 

HIGHLIGHTS FOR LISTED COMPANIES

As mentioned in the Corporate Governance section of the Structuring My Business in Asia pages (http://mbia.media-events.mc/en/structuring/corporate-governance-for-my-business-in-asia), the separation of ownership and control is a more important and serious issue in a listed company.

Hong Kong has a well-developed regulatory system to protect the interests of shareholders and stakeholders. There is a top down government-imposed set of laws with strict enforcement provisions.
 
Hong Kong has a regulatory system of three tiers.
 
The first tier is the government as the regulator of last resort, under Article 109 of the Basic Law. The Chief Executive of the Hong Kong Special Administrative Region, together with the Financial Secretary, have the reserve power under the Securities and Futures Ordinance (Cap 571) to take control of a listed company, when that company is in a financial crisis.
 
The second tier is the Securities and Futures Commission which serves as the market watchdog.
 
The third tier is the Hong Kong Exchanges and Clearing Limited which monitors and supervises Hong Kong listed companies. This system enables Hong Kong has a balance of self-regulation and top-down government approach. 
 

November 2015

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