Directors’ Duties in Hong Kong

>> Liabilities and Penalties in Hong Kong

Under the new Companies Ordinance a variety of penalties have been introduced, however these all vary dependent upon the breach in question.  It is specifically stated that a breach of directors duties as specified by the Companies Ordinance is the same as at common law or equity, i.e. compensation or damages.  The penalties are therefore determined on a case by case basis, dependent upon the damage incurred.

If you do not comply with your duties as a director, you may be liable to civil or criminal proceedings and may be disqualified from acting as a director.  Where a director is in breach of his/her duties and the breach has not been disclosed and ratified by the company, an action may be brought for one or more of the following remedies:

  • you could be jointly or severally liable for damages to the company if you are found to have acted negligently or in breach of your duties
  • the misapplication of the company’s property renders a director liable to account for the company in equity on the same basis as governing a misapplication of trust funds by trustees
  • if the company is in breach of the Companies Ordinance, for instance, by failing to file annual returns, failing to file special resolutions of shareholders, failing to produce annual financial statements and audited accounts, or failing to hold annual general meetings of shareholders, then you could be personally subject to a default and daily fine
  • you may be personally responsible for debts and other liabilities if you are knowingly a party to fraud. For instance, if, when a company is wound up, it appears that the business has been carried on with intent to defraud creditors the above examples are not meant to be exhaustive

Delegation of Authorities

Directors may delegate powers to committees or individual directors and, in practice, individual directors carry out many of the company’s activities.

Statute of Limitation

Under Hong Kong legislation, actions found on simple contracts or on tort laws, shall not be brought after the expiration of six (6) years from the date on which the cause of action occurred. This also covers the actions for a directors’ breach of duty.  However, where the action is based on the defendant’s fraud or facts relevant to the plaintiff’s right of action being deliberately concealed by the defendant, or the action is for relief from the consequences of a mistake, the period of limitation shall not begin to run until the plaintiff has discovered the act.  Moreover, no action for damages as a result of negligence, other than personal injury, shall be brought after the expiration of fifteen (15) years from the date on which the act occurred.

Directors and Officers Liability Insurance

The law in Hong Kong does not make it easy for directors to be indemnified by the company if they have failed in any duty owed to it.  The company cannot make a prior agreement with a director to indemnify against or exempt them from any liability arising from any negligence, default, breach of duty or breach of trust in relation to the company.  Any provision purporting to have this effect, whether in the Articles, in any contract with the company or otherwise, would be void.

The company may, however, make a prior agreement to indemnify its directors against the costs incurred by them in defending any proceedings, civil or criminal, in which judgment is given in their favour or in which they are acquitted.

Please note the company may indemnify the directors, however this cannot cover:

  • criminal Fines
  • penalties imposed by regulatory bodies
  • defence costs of criminal proceedings where the director is found guilty
  • defence costs of civil proceedings brought against the director by the company, or an associated company, in which judgement is awarded against the director
  • costs of an unsuccessful application to the court by the director for grant of relief from liability for misconduct

Latest version updated 22nd March 2018

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