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Directors
• Function of the board
• Model Article (Public Co) s2, (Private Co) s3
“Subject to the Ordinance and these articles, the
business and affairs of the company are managed by
the directors, who may exercise all the powers of the
company.”
• Requirement for directors:
• Public companies: minimum of 2 (s 453).
• Private companies: minimum of 1 (s 454-455).
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Appointment
• MA (public) s23, (private) s22
23. Appointment and retirement of directors
(1) A person who is willing to act as a director, and is permitted
by law to do so, may be appointed to be a director—
(a) by ordinary resolution; or
(b) by a decision of the directors.
(2) A director appointed under paragraph (1)(a) is subject to
article 24.
(3) An appointment under paragraph (1)(b) may only be made
to—
(a) fill a casual vacancy; or
(b) appoint a director as an addition to the existing directors
if the total number of directors does not exceed the number
fixed in accordance with these articles.
(4) A director appointed under paragraph (1)(b) must retire
from office at the next annual general meeting
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Appointment
• Notification to registrar: s 67-70.
• Registrar's index of directors: s 647.
• Company's register of directors: s 641-647.
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Qualifications
• Age: at least 18 (s 459)
• Body corporate: s456-458
• s 456
(1) This section applies to—
(a) a public company;
(b) a private company that is a member of a group of companies
of which a listed company is a member; and
(c) a company limited by guarantee.
(2) A body corporate must not be appointed a director of the
company.
(3) An appointment made in contravention of subsection (2) is void.
• s457
(1) This section applies to a private company other than a private
company that is a member of a group of companies of which a listed
company is a member.
(2) The company must have at least one director who is a natural
person.
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Qualifications
• Undischarged bankrupt: s 480
• Disqualification orders: Part IVA of Cap 32
• Conviction of certain indictable offences (s168 E)
• Certain breaches of Cap 32 or Cap 622 (s168F)
• Fraudulent trading or other fraud in winding-up (s168G
and 168L)
• Conduct of directors rendering them unfit to manage
companies (s168H and 168J)
• Other grounds specified in the Articles of
Association or individual contracts
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Vacation of Office
Model Article (private) art. 25, (pubilc) art. 27.
27. Termination of director’s appointment
A person ceases to be a director if the person—
(a) ceases to be a director under the Ordinance or the Companies
(Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) or is
prohibited from being a director by law;
(b) becomes bankrupt or makes any arrangement or composition
with the person’s creditors generally;
(c) becomes a mentally incapacitated person;
(d) resigns the office of director by notice in writing of the resignation
in accordance with section 464(5) of the Ordinance;
(e) for more than 6 months has been absent without the directors’
permission from directors’ meetings held during that period; or
(f) is removed from the office of director by an ordinary resolution of
the company.
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Who is a director?
• Definition s2: director (董事) includes any person
occupying the position of director (by whatever
name called)
• Appointed directors (de jure directors)
• De facto directors: Corporate Affairs Commission v
Drysdale (1978) 141 CLR 236
• Drysdale was appointed a director to fill a casual vacancy.
His appointment was not considered at the next general
meeting. According to the articles, he is no longer a
director. However, he continue to participate in the
management as if he is a director. The court held that,
despite the defect of his appointment, he is deemed to be
a director.
• De facto director is covered by s2 of the definition of
directors. A de facto director is one who carries out the
function of a director, but has not, for some reason, been
validly appointed.
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Who is a director?
• Shadow director (幕後董事) s2
“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”
• Reserve directors: s 455.
(1) If a private company has only one member and that
member is the sole director of the company, the company
may by a resolution passed at a general meeting,……,
nominate a person (other than a body corporate) ……. as
a reserve director of the company to act in the place of
the sole director in the event of the sole director’s death.
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Types of directors
• Executive director
• Executive directors are full-time employees
• Non-Executive director (NED)
• NED are part-time, outside or independent director. They
serve as a check on the executive directors’ control of
company management. For listed companies, at least 1/3
of the board should be NEDs.
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DIRECTOR’S DUTIES
- DUTY OF CARE
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Directors' duties
• Directors as fiduciaries: owe duties to
company.
• Fiduciary: A person undertaking to act for or in
the interests of another in the exercise of
powers or discretions which affects the interests
of the other person in a way where the latter
would be in a position of vulnerability vis-à-vis
the fiduciary.
• Fiduciary duties aim to ensure that the fiduciary
exercises his or her powers in the interests of
the person to whom the duties are owed.
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Directors' duties
• Duty of Care, Skill and Diligence
• Fiduciary Duties
• Act in good faith in the interests of the company
• Exercise powers for proper purposes
• Avoid conflicts of interest
• Not to make secret profits
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Summary
• Standard of care in HK:
• unclear in the past.
• Now follows CO s465 minimum objective standard.
• A higher standard might be imposed due to the special skills or
experience of the director
• All directors (including non-executive directors) are subject to
the same duties: Law Wai Duen; Dorchester Finance
• Duty of care requires monitoring co’s performance
• Must have rudimentary understanding of the business of the co.
• Must keep informed about the activities of the co. Must take
reasonable steps to make sure that reasonable safeguards are in
place. (risk management)
• Should maintain familiarity with the financial status of the co by a
regular review of financial statements.
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