HONG KONG SAR, CHINA Law and Practice Contributed by: Vincent Lung and Mike Yeung, Parkside Chambers
The nature of the claim depends on the conduct and the statutory framework engaged. Regulatory Enforcement Regulators may bring enforcement action against directors and officers. Relevant regulators include the HK Stock Exchange, the Securities and Futures Commission, the Companies Registry, the Hong Kong Monetary Authority, the Insurance Authority, the Com - petition Commission, the Privacy Commissioner and law enforcement agencies. Regulated sectors carry higher personal risk for sen - ior management. Regulators often focus on whether senior officers had proper systems, supervision and A company cannot generally exempt a director from liability to the company for negligence, default, breach of duty or breach of trust. Any such exemption is gen - erally restricted by statute. However, companies may provide permitted indemni - ties and may purchase directors’ and officers’ liability insurance. Such insurance is common, especially for listed companies and regulated businesses. Ratification Shareholders may ratify some breaches of duty. How - ever, ratification is not available for every type of mis - conduct. 3.10 Payments to Directors/Officers Approval Requirements escalation procedures. Limitation of Liability Directors’ remuneration is governed by the articles, service contracts, the Companies Ordinance and, for listed companies, the Listing Rules. The articles may allow directors’ fees to be determined by the board or the shareholders. Listed Company Remuneration Committees Listed companies must maintain a remuneration com - mittee. It should review and recommend remuneration policy, directors’ remuneration and senior manage - ment remuneration.
The committee should consider performance, market conditions, time commitment, responsibilities, risk and the need to avoid rewarding poor performance. It should also ensure that remuneration structures do
not encourage excessive risk-taking. Consequences of Non-Compliance
Payments made without the required approval may be unauthorised and recoverable. Directors may be required to repay the benefits or compensate the company. Non-compliance may also amount to breach of duty. For listed companies, it may lead to regulators scru - tiny, public criticism or disciplinary action. Disclosure Companies must disclose directors’ emoluments in their financial statements. Listed companies must provide more detailed annual report disclosure con - cerning remuneration policy, directors’ remuneration, remuneration committee work and senior manage - ment remuneration by band. Where remuneration arrangements involve share options, share awards, connected transactions or termination payments, further disclosure or approval requirements may apply. A company is a legal person separate from its share - holders. Shareholders do not own the company’s property; rather they own the shares of and in the company which carry certain rights (including voting rights and the rights to receive dividends). The principle of separate legal personality means that shareholders are generally not liable for the compa - ny’s debts beyond any unpaid amount on their shares. Rights of Shareholders Shareholder rights primarily arise from the Companies Ordinance, the articles of association, the terms of issue of the shares and any shareholders’ agreement. 4. Shareholders 4.1 Companies and Shareholders Separate Legal Personality
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