HONG KONG SAR, CHINA Law and Practice Contributed by: Vincent Lung and Mike Yeung, Parkside Chambers
Duty of Care, Skill and Diligence The Companies Ordinance imposes a statutory duty on directors to exercise reasonable care, skill and dili - gence. This duty contains both objective and subjec - tive elements. This statutory duty is in addition to the common law duties of care. The court may consider what would reasonably be expected of a person carrying out that director’s func - tions, and what may be expected from that director’s actual knowledge, skill and experience. Duty to Exercise Independent Judgment Directors must exercise their independent judgment. They may rely on management, experts and profes - sional advisers where appropriate, but they must still consider matters for themselves. A director appointed by a shareholder should not sim - ply follow that shareholder’s instructions. The direc - Directors and officers may also have duties concern - ing accounting records, financial statements, audit, shareholder meetings, statutory registers, filings, dis - closure of interests and corporate records. In listed and regulated companies, directors and sen - ior officers may have additional obligations under the Listing Rules, Securities and Futures Ordinance, anti- money laundering laws and sector-specific regula - tions. 3.7 Responsibility/Accountability of Directors Duties Owed to the Company Directors generally owe their duties to the company, not directly to individual shareholders. The company is a separate legal person. This means that where the company suffers loss, the company is normally the proper claimant. A share - holder cannot usually recover personally for a loss that is merely reflective of the company’s loss. Shareholders Although duties are owed to the company, share - holder interests are often highly relevant. In a solvent tor’s duty is owed to the company. Statutory and Regulatory Duties
misuse corporate opportunities, company property or confidential information. Where a director has an interest in a transaction, the director must disclose the nature and extent of that interest. The articles and applicable rules will deter - mine whether the director may vote or count towards the quorum. Listed Company Connected Transactions Listed companies are subject to connected transac - tion rules. These regulate transactions between the company and its directors, substantial shareholders, controlling shareholders and/or their associates. Depending on the size and nature of the transaction, requirements may include announcement, circular, independent financial advice, independent board committee review, independent shareholder approval and annual reporting. Practical Conflict Management Companies should maintain clear procedures for iden - tifying and managing conflicts. These include director interest registers, annual confirmations, transaction- specific declarations, abstention procedures and independent approvals. For listed companies and regulated businesses, con - flict management should be treated as a core com - pliance system, not an informal and self-regulated matter. 3.6 Legal Duties of Directors/Officers Fiduciary Duties Directors must act in good faith in the interests of the company. They must exercise powers for proper purposes and must not act for collateral or improper motives. They must avoid conflicts of interest, not make unau - thorised profits and not misuse company assets, opportunities or confidential information. These duties are strict and may apply even where the company has not suffered any financial loss.
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