ROLE, POWERS & DUTIES OF

THE BOARD OF DIRECTORS

25 January 2016

DISCUSSION
W
hat do you understand from the term
director?
W
hat are the parameters of their powers?
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DIRECTORS DEFINED
Section 2(1)
director ( ) includes any person occupying the position
of director (by whatever name called)
shadow director ( ), in relation to a body
corporate, means a person in accordance with whose
directions or instructions (excluding advice given in a
professional capacity) the directors, or a majority of the
directors, of the body corporate are accustomed to act

Directors are Responsible Persons as defined under s 3

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APPOINTMENT
appointed as a director
sound mind
bankrupt or disqualified
articles of company
exempt private companies s 456

formation

Registrar to maintain an

Capacity to be
oAge of majority and of
oNot undischarged
oLimitations under
oBody corporate for

Consent to act at
Casual appointment
Section 647 requires
Index of Directors

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DISQUALIFICATION
U
ndischarged bankrupt: s 480
P

art IVA Companies (Winding-Up & Miscellaneous Provisions)

Ordinance (Cap 32) empowers the court to make disqualification
orders of up to 15 years
Convicted of certain offences pertaining to promotion, formation or
management
Persistent breach of Companies Ordinance
Declaration under section 275 C(WUMP)O
Unfit to manage
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POWERS OF THE BOARD

powers of management
by majority provided that there is quorum
may be delegated
director
committees
Attorney

Broad
Decision
Powers
oManaging
oBoard
oPower of

Section
461 validates actions of directors even if their appointments are defective

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IS THE BOARD AN AGENT OF

THE GENERAL MEETING?

utomatic Self-Cleansing Filter Syndicate v

Cunninghame (ChD 1906)

ohn Shaw & Sons (Salford) v Shaw (English CA 1935)

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DISCUSSION
How do
we benchmark
the
actions of directors and
enhance
the level of
their
accountability?
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TWO ISSUES
o The common law DUTY of care, skill and
diligence
o The codified STANDARD OF CARE under
s 465 of the Companies Ordinance
effective 3 March 2014

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FIDUCIARY DUTIES
To act in
good faith
obona fide in
interest of company
ouse power
for a proper purpose
oretain
discretionary power
oavoid
conflicts of interest

To exercise
due care diligence and skill
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THE COMMON LAW

Percival v
Wright (ChD 1902)
Allen v Hyatt (PC
1914)

Coleman v
Myers (NZ HC 1977)
Re Smith and
Fawcett Ltd (ChD 1942)
Regal (Hastings)
Ltd v Gulliver (HL 1942)
Howard Smith v
Ampol Petroleum (PC 1974)
See A Guide on
Directors Duties published by the Companies Registry (2014) available at
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http://www.cr.gov.hk
/en/companies_ordina
nce/docs/Guide_DirDu

STANDARD OF CARE
AT COMMON LAW
eference is often made to the decision of Romer LJ in
Re City Equitable Fire Insurance
Individual skill and expertise
Not full-time commitment
Delegation is possible

oNote that under s 466 the consequences of actual or threatened

breach of the duty specified in section 465(1) are the same as would
apply if the common law rules or equitable principles that section
465(1) replaces applied.
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S&E
C

REFLECTION OF THE TIMES?

DJan of London Ltd (Eng HC 1994)
New Zealand Guardian Trust Co Ltd v Books (PC 1995)
Secretary of State for Trade & Industry v Baker (No 5)
(Eng CA 1999)

Re Boldwin Construction (CA 2001)

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STATUTORY STANDARD OF
CARE
ection 465(1) requires directors to exercise
skill and diligence

reasonable care,

ection 465(2) defines this to mean the care, skill and diligence
that would be exercised by a reasonably diligent person with:
(a) the general knowledge, skill and experience that may reasonably be
expected of a person carrying out the functions carried out by the director in
relation to the company; and
(b) the general knowledge, skill and experience that the director has.
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OBJECTIVE PLUS
The Objective - Directors must exercise the
knowledge, skills and experience that would reasonably
be expected of a director carrying out the same functions
The Plus The director must also bring his or her own
general knowledge, skills and expertise to the table

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S&E
C

BENCHMARKS?
ENGLAND
o Towers v Premier Waste Management [2011] EWCA Civ 923

AUSTRALIA
o ASIC v Hellicar [2012] HCA 15 The James Hardie case
o ASIC v Healey [2011] FCA 717 The Centro case

CAVEATS - Enlightened Shareholder Value (UK)

- Quid Pro Quo (Australia)
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REMEDIES FOR BREACH

To the COMPANY

Damages
Accounting for profits
Rescission of contract and/or injunctions
Return of property

China Everbright-IHD Pacific v Chng Poh (CFA 2003)

Royal Brunei Airlines v Tan Kok Ming (PC 1995)

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REMEDIES FOR BREACH

To MEMBERS
Common law limitations
Statutory Derivative Actions
To CREDITORS

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RATIFICATION & EFFECT

Section 473 requires a resolution by
DISINTERESTED shareholders. If there are none
then the approval must be obtained by a unanimous
consent of all shareholders
Applies to conduct amounting to negligence,
default, breach of duty or breach of trust
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JUDICIAL DISCRETION
Sections 903-904 empower courts to grant relief for
misconduct if director acted honestly and reasonably
and ought fairly be excused
Dorchester Finance Co Ltd v Stebbing (Eng HC 1989)
Chingtung Futures Ltd (in liq) v Lai Cheuk Kwan (HC 1994)

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WHAT ELSE IS NEW?

C

oncept of a responsible person: section 3

An officer or shadow director of the company or non-Hong Kong company who
authorizes or permits, or participates in, the contravention or failure.

o corporate directors for companies within listed

least one natural person for private companies

N
groups and at

A
pprovals for transactions that may involve possible conflicts of
interest
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ADDED PROTECTION
Sec 468 Extension of permitted indemnities for
directors but not against specified fines, penalties and
costs
Section 117 protects outsiders by:
o being assumed to have acted in good faith
o not being required to enquire into limitations of directors
powers to bind company and/or authorise others to do so
o being able to take documents at face value in the absence of
reason to doubt its authenticity
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FAIR DEALING BY
DIRECTORS

Sectio
ns 486-488 extends persons connected for purposes of prohibitions on
loans by company
Exem
ptions from foregoing subject to prescribed approval by shareholders: ss
500-504
Sectio
n 505 creates a new exception for small loans not exceeding 5 percent of
net assets or called up
capital
Excep
tion for defence of proceedings or investigation/regulatory action: ss 507
& 508

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