The New Companies Ordinance Series (3) – Directors

In this issue of the New Companies Ordinance Series, we will discuss major changes in relation to directors of a Hong Kong Company.

Corporate Directorship

Subject to a 6-month grace period after the new Companies Ordinance becomes effective, any company must have at least one natural person to serve as director. Sole corporate director is not permitted.

Directors' Duties

Currently, directors' duties are governed by common law. The existing Companies Ordinance has no reference to such duties.

The new Companies Ordinance will codify the common law duties of a director to exercise care, skill and diligence. A mixed subjective and objective test will be adopted in line with developments in other common law jurisdictions.

Under the new Companies Ordinance, a director of a company must exercise reasonable care, skill and diligence. The new law further elaborates that "reasonable care, skill and diligence" means the level of care, skill and diligence which would be exercised by a reasonably diligent person having (i) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director (the objective test) and (ii) the general knowledge, skill and experience that the director has (the subjective test). This level of duty also applies to shadow directors (i.e. a person who gives instructions or directions to directors).

In case of a breach of directors' duties, existing civil consequences of breach of duty under common law continue to apply.

The other fiduciary duties of directors remain uncodified and will continue be governed by common law rules and equitable principles. These include the duty of directors to act in good faith and in the best interest of the company, avoiding conflict of interests, and exercising powers bona fide for proper corporate purposes.

Ratification of Director's Conduct

The current Companies Ordinance does not provide for ratification of acts or omissions of directors. The ratification of acts and omissions of directors is subject to common law rules which generally require members' approval in a general meeting.

The new Companies Ordinance codifies the above general common law rule of ratification of director's conduct. Further, it provides that ratification of negligence, default or breach of duty or trust of a director requires the approval of disinterested members or unanimous consent of members. The common law rule as to certain acts that are incapable of being ratified still applies. Non-ratifiable conduct includes illegal acts, acts contravening the articles of association, fraud on minority and act of dishonesty of directors.

Loans and Similar Transactions to Directors

Under the existing law, there is a general prohibition on companies making loans and undertaking similar transactions to directors unless certain exceptions apply. In case of a listed company or a company in a listed group, the prohibition extends to certain persons connected with the directors.

This prohibition is preserved in the new Companies Ordinance and the list of connected persons, in the case of a listed company or a company in a listed group has been expanded. Connected persons now include persons such as adult children (including own children, step-children, illegitimate children or adopted children), parents and cohabitees etc.

The new Companies Ordinance introduces new exceptions from the prohibition. The exception permitting members to approve loans etc. to directors (which is currently only available to private companies not within a listed group) will be extended to all companies. There are also two new exceptions : (i) loans etc. not exceeding 5% of net assets or called-up share capital; and (ii) funds to meet expenditure by a director in defending proceedings or regulatory investigations/actions. A number of exceptions have also been modified to relax existing financial thresholds.

The new Companies Ordinance also abolishes the criminal sanctions for breach of the provisions on loans etc. and preserves only the civil penalties.

Long-term Service Contracts

Currently, there is no provision requiring the approval of the members of a company for long-term service of a director. This has changed in the new Companies Ordinance. Members' approval will be required for any contracts under which a director is guaranteed service for a term which exceeds or may exceed 3 years. Payments for Loss of Office
Under the existing law, payments to directors or former directors of a company as compensation for loss of office or consideration for retirement from office are prohibited unless disclosed to members and the prior approval of the company is obtained. In order to prevent the loophole of indirectly making such payments, the new Companies Ordinance extends the prohibition to include payments to connected entities of a director and payments to a person made at the direction of, or for the benefit of the director or a connected entity of the director.

Disclosure of Material Interests

Under the existing law, a director who has a material interest in a contract or proposed contract with the company which is of significance to the company's business must disclose the nature of such interest to the board of directors at the earliest directors' meeting that is practicable.

The scope of disclosure under the new Companies Ordinance has been widened. Directors will now have to disclose (i) transactions and arrangements, in addition to contracts and (ii) the extent of the interest, in addition to the nature in such transactions, arrangements and contracts. Directors of public companies will now also need to disclose the interests of their connected entities. These requirements also apply to shadow directors.

Personal Data of Directors

Currently, directors who are natural persons are required to provide their residential addresses and identification numbers in documents filed with the Companies Registry for incorporation and registration purposes. Such information is available for public inspection. However, there are concerns over the privacy and possible misuse of personal data.

Under the new Companies Ordinance, directors are required to provide a correspondence address in addition to their residential address. The correspondence address will be made available for public inspection while only specified persons (such as public officers and public bodies) will be granted access to a director's residential address. Identification numbers will be subject to similar restrictions. Only partial numbers will be made available to the public while access to full numbers will only be limited to specified persons. However, given the large volume of data already registered with the Companies Registry, existing data will only be withheld from public inspection upon application and payment of a fee.

Having said this, the relevant provisions in the new Companies Ordinance concerning the protection of personal data of directors will not commence on 3 March 2014. The commencement of these provisions are yet to be confirmed.

新《公司条例》系列（3）- 董事

本期的快讯讨论新《公司条例》下有关香港公司董事的主要修订。

法人团体董事

任何公司在新公司条列生效后（6个月宽限期），须指定至少一位自然人担任董事。法人团体不可担任唯一董事。

董事责任

目前，董事责任受普通法规管。现行公司条例没有此等责任的相关内容。

新公司条例将加入董事在普通法下须以谨慎、技巧和努力行事之责任。新公司条例将跟随其他普通法管辖区的发展，引入主观和客观混合准则。

根据新公司条例，公司董事须以合理谨慎、技巧和努力行事。新条例进一步阐述，"合理谨慎、技巧和努力"的意思是一位合理努力的人士在行事时所采取的谨慎、技巧和努力的程度,该人士应掌握(i) 一名人士在执行有关董事的职能时，可被合理预期该人士应有的一般知识、技巧和经验（客观准则），以及(ii) 有关董事其本身的一般知识、技巧和经验（主观准则）。这一责任程度同样适用于幕后董事（即是向董事给予指示或指引的人士）。

如果董事违反其责任，根据普通法之违反责任的民事后果仍然适用。

其他董事受信责任仍未列入法例，并将会继续按照普通法法规和衡平原则受监管。这些责任包括董事需真诚地并以公司最佳利益为依归行事、避免利益冲突，以及为正当的企业目的真诚地行使权力的责任。

董事行为的追认

现行公司条例未有就追认董事的行为或不作为而订立条文。董事行为和不作为的追认目前受普通法法规规管，即一般都需要股东在股东大会上表决通过。

新公司条例就上述有关追认董事的行为或不作为的普通法法规订立条文。新条例进一步阐述，追认董事疏忽、失责、失职或违反诚信责任的行为时，需获得非利益相关方股东的同意或全体股东一致批准。普通法下就某些无法获得追认的特定行为之规则仍然适用。无法追认的行为包括董事非法行为、违反章程细则行为、欺诈少数股东和不诚实行为。

向董事借贷和作出类似交易

现行法例一般禁止公司向董事借贷和作出类似交易，除非指定的例外情况适用。对于上市公司或隶属于上市集团的公司，此禁制延伸到与董事关连的特定人士。

此禁制在新公司条例下保留，而且关连人士的名单，在上市公司或隶属于上市集团的公司的情况亦有所扩大。关连人士现在包括，例如成年子女（包括亲生子女、继子女、非婚生子女或领养子女）、父母和同居人士等。

新公司条例引入有关此禁制例外情况的新条款。允许股东批准向董事批出贷款等的例外条款（目前此例外情况只限于不隶属于上市集团的私人公司）将会延伸到所有公司均适用。另外还有两项新的例外情况：(i) 不超过净资产或已催缴股本5%的借贷等；和(ii) 为支付董事在司法程序或监管调查/行动中抗辩所产生的费用而设立的资金。还有多项例外情况的条款被修改，藉此放宽现行的财务限制。

新公司条例还废除了违反借贷等条款的刑事罚则，只保留了民事罚则。

长期服务合约

目前并没有条文规定董事的长期服务需要获得公司股东的批准。新公司条例对此作出更改。任何保证董事服务期限超过3年或有可能超过3年的合约将需要获得股东的批准。

离职补偿

现行法例禁止公司向董事或前任董事支付任何款项作为失去职位的补偿或卸任职位的代价，除非有关款项已经向股东披露及获得公司事先的批准。为堵塞公司间接给予此款项的漏洞，新公司条例将此禁制延伸到包括向董事关连的实体给予款项、及向由董事指定的人士或以董事（或其关连实体）的利益支付款项。

重大利害关系的披露

根据现行法例，如果董事在一项与公司订立的合约或建议订立的合约中有具相当份量的利害关系，而该合约与公司的业务有重大关系，董事须在切实可行的情况下于最早召开的一次董事局会议上向董事局披露此等利害关系的性质。

新公司条例扩大了披露的范围。董事现在须披露(i) 「交易」和「安排」（而不仅是合约）; 以及(ii) 此等交易、安排和合约的利害关系的「范围」（而不仅是利害关系的「性质」）。公众公司董事现在亦需要披露其关连实体的利害关系。这些要求同样适用于幕后董事。

董事个人资料
目前，如董事是一名自然人，则需在向公司注册处提交的文件中为成立和注册公司的目的提供其住址和身份证明文件号码。此等资料可供公众查阅。但因此亦存在有关董事的隐私和其个人资料有可能遭滥用的问题。

根据新公司条例，董事须提供通讯地址及其住址。通讯地址将会供公众查阅，而只有特定人士（例如：公共机构官员和公共机构）可获授权查阅董事的住址。身份证明文件号码亦受类似限制。只有部分号码会向公众公开，而查阅完整号码只限于特定人士。但是，由于经由公司注册处已经登记的资料数量十分庞大，现有资料只会在办理申请和支付费用后才限制公众查阅。

尽管上述规定，有关保障董事个人资料的有关条款于2014年3月3日并未实施。此等条款实施日期仍未确定。

Key Contacts

Machiuanna Chu

Partner | Corporate Commercial

Email or call +852 2825 9630