HONG KONG SAR, CHINA Law and Practice Contributed by: Vincent Lung and Mike Yeung, Parkside Chambers
company, the interests of the company are common - ly associated with the interests of shareholders as a whole. Directors should not favour one shareholder group unfairly over another. In companies with controlling shareholders, directors must take care to exercise independent judgment and protect the company’s overall interests. Creditors When a company is insolvent or bordering on insol - vency, creditors’ interests become important. Direc - tors should be cautious about incurring new liabili - ties, disposing of assets, preferring certain creditors or continuing business without a realistic prospect of avoiding insolvent liquidation. Wider Stakeholders Directors may also need to consider employees, cus - tomers, suppliers, regulators, the community, ESG risks and reputational issues. For listed companies, these considerations are increasingly reflected in ESG reporting, risk management and internal control expectations. 3.8 Breach of Directors’ Duties Enforcement by the Company The company is usually the primary claimant for breach of directors’ duties. The board may cause the company to bring proceedings. If there has been a change of control, it is not uncommon for the new management to pursue former directors in the name of the company. If the company enters liquidation, the liquidator may investigate and bring claims against former direc - tors. This is common where there are allegations of misfeasance, improper payments, conflicts or asset dissipation. Shareholder Derivative Actions A shareholder may bring a derivative action on behalf of the company in appropriate circumstances. This is particularly relevant where the alleged wrongdoers control the company and prevent it from suing.
But in such a situation, the remedy still belongs to the company. Any recovery usually goes to the company, not directly to the shareholder. Unfair Prejudice Shareholders may also personally petition for relief where the company’s affairs have been conducted in a manner unfairly prejudicial to their (almost invariably minority) interests. The remedy is flexible and may include a buy-out order, regulation of the company’s affairs or other appropriate relief. This remedy is often used in private company disputes where there is exclusion from management, misuse of company assets, diversion of business or breakdown of legitimate expectations. Consequences Consequences of breach may include damages, equi - table compensation, account of profits, rescission, injunctions, restoration of property, disqualification, regulatory sanctions and criminal liability in serious cases. For listed companies, HKEX may also impose discipli - nary sanctions, including public criticism, prejudice to suitability findings and directions for remedial action. 3.9 Other Claims/Enforcement Against Directors/Officers Other Bases of Claims Directors and officers may face claims or enforcement for: • misleading statements or omissions in prospec - tuses; • false or misleading public announcements; • insider dealing or market misconduct; • breach of Listing Rules; • bribery, fraud or corruption; • money laundering or sanctions breaches; • data privacy breaches;
• competition law breaches; • employment law breaches; • misfeasance in insolvency; and • negligence or tortious liability.
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