Directors’ Duties in Hong Kong

>> Powers and duties In Hong Kong

You must act within the powers imposed by the Companies Ordinance and the company’s articles of association (“Articles”).  The articles govern

how the company is to be run, including what the directors’ powers and responsibilities are.  The Articles also set out how decisions are to be taken. For example, the procedures for calling a board meeting and how many directors are needed to vote on a proposal.

Duties – Skill and Care

In exercising directors’ powers, you must exercise a degree of care, skill and diligence in your actions as a company director.

You are generally not liable for the actions of your fellow directors if you knew nothing about them and took no part in them, however you have a duty to make sure that you are informed about the company’s affairs – turning a blind eye is not an option.

Duties – General

Generally speaking, a director must observe the following duties:

  • a director must exercise the same level of reasonable care, skill and diligence that would be exercised by a reasonably diligent person with
    • the general knowledge, skill and experience that may reasonably be expected of a person carrying out the function that is carried out by the director in relation to the company
    • the general knowledge, skill and  experience that the director has.

This will be measured via a subjective test, i.e. where a director with additional or specialist knowledge and experience is appointed, they will be held to a higher standard of care compared to someone without.  There will also be an objective test, i.e. a standard measurement of what is required of a director who has “the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions that are carried out by the director in relation to the company”. the directors owe a fiduciary duty

  • to act in good faith in the interests of the company
  • to exercise his powers for their proper purpose
  • to avoid conflicts of duty and interest
  • the directors have a duty to observe the company’s constitution and the resolutions of the shareholders, ensuring that they are accurately implemented and undertaken
  • the directors shall ensure that the office accounting records are sufficient to show and explain the company’s transactions and are compliant with the relevant statutes. These records must always be available for inspection by the other officers of the company

Duties – Other

There are many other areas of the law that impose duties on directors and senior managers.

Bribery

Hong Kong has established the Prevention of Bribery Ordinance (POBO) which is primarily aimed at the prevention of corruption of public officials and corrupt transactions within the private sphere. (1) Prevention of Corruption of Public Officials

A person commits the offence of bribery, whether in Hong Kong or elsewhere and without lawful authority or reasonable excuse, if they offer any advantage to a public servant or chief executive, as an inducement to or reward for or otherwise on account of that public servant’s or the chief executive’s;

  • performing or abstaining from performing, or having performed or abstained from performing, any act in their capacity as a public servant
  • expediting, delaying, hindering or preventing, or having expedited, delayed, hindered or prevented, the performance of an act, by a public servant or a chief executive
  • assisting, favouring, hindering or delaying, or

having assisted, favoured, hindered or delayed,

any person in the transaction of any business with a public body.

For the purposes of the above, an advantage could be described as;

  • any gift, loan, fee, reward or commission consisting of money or of any valuable security or of other property or interest in property of any description
  • any office, employment or contract
  • any payment, release, discharge or liquidation of any loan, obligation or other liability, whether in whole or in part
  • any other service, or favour (other than entertainment), including protection from any penalty or disability apprehended, or from any action or proceedings of a disciplinary, civil or criminal nature, whether or not already instituted
  • the exercise or forbearance from the exercise of any right or any power or duty
  • any offer, undertaking or promise, whether conditional or unconditional, of any advantage within the meaning of any of the above points

The chief executive or public servant who solicits or accepts any advantage in the aforesaid circumstances will also be guilty of an offence.

(2) Corrupt transactions within the private sphere

Any agent shall be guilty of an offence if they, without lawful authority or reasonable excuse, solicits or accepts any advantage as an inducement or reward for or otherwise on the account of their;

  • doing or forbearing to do, or having done or forborne to do, any act in relation to his principal’s affairs or business
  • showing or forbearing to show, or having shown or forborne to show, favour or disfavour to any

person in relation to their principal’s affairs or business

Any person who, without lawful authority or reasonable excuse, offers any advantage to any agent in the aforesaid circumstances shall also be guilty of an offence.

An agent includes a public servant and any person employed by or acting for another (the principal).  A director would be regarded as an agent of the relevant company.

(3) Penalties

Penalties for committing an offence under POBO can result in fines up to HK$1 million and imprisonment for those responsible for a period up to ten years.

Anti-Money Laundering (AML)

AML legislation in Hong Kong is derived from several sources, including;

  • The Drug Trafficking (Recovery of Proceeds)

Ordinance (DTROP) (Cap 405)

  • The Organized and Serious Crimes Ordinance (OSCO) (Cap 455)
  • The United Nations (Anti-Terrorism Measures)

Ordinance (UNATMO) (Cap 575)

  • The Anti-Money Laundering and CounterTerrorist Financing (Financial Institutions)

Ordinance (AMLO) (Cap 615)

Where an individual believes that property has been obtained as a result of crime, it is an offence to fail to disclose this belief to the relevant individual, including the assigned individuals of  the entity, a police officer or any other relevant  civil officer.

Legislation imposes various requirements on financial institutions relating to customer due diligence and record-keeping.  If a person who is an employee of a financial institution or is employed to work for a financial institution or is concerned within the management of a financial institution (which would include its director), knowingly causes or knowingly permits the financial institution to contravene a specified provision, the person will commit an offence.  However, it is a defence for that person to prove that they acted in accordance with the policies and procedures established and maintained by the financial institution for the purpose of ensuring compliance with the relevant specified provision.


Latest version updated 22nd March 2018

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