Tuesday, 7 September 2010

Hong Kong: draft Companies Bill - first phase consultation conclusions

Conclusions arising from the first phase of consultation on the draft Companies Bill have been published by the Financial Services and the Treasury Bureau (FSTB): see here (pdf). Written submissions are available here.

One of the matters considered in the consultation was whether the director's duty of skill and care should be codified along the lines of section 174 of the UK's Companies Act (2006), to include a dual subjective/objective standard. According to the conclusions document, some respondents were concerned that this would be "onerous and problematic in operation and would discourage persons having good qualifications from taking up directorships in Hong Kong" (paragraph 38). The FSTB disagreed and at paragraph 40 explained:

While the subjective element of the proposed mixed test has been interpreted as raising the standard where the particular director has special knowledge, skill and experience, it does not depart significantly from the common law position in Hong Kong of directors’ duty of care, skill and diligence in this respect. Also, it seems that the concerns of some respondents may arise from a misunderstanding that the minimum objective standard of conduct of all directors would necessarily raise the standard to be followed by non-executive directors to require them to use the same care, skill and diligence of executive directors. Indeed clause 10.13 makes it clear that the courts must also take into account the “functions carried out by the relevant director”. This means that the courts should consider the different functions of executive and non-executive directors when determining whether a particular director has exercised reasonable care, skill and diligence. Clause 20.10 (in the second phase consultation) provides that the court may relieve an officer of a company from liability for any misconduct if he has acted honestly and reasonably and ought fairly to be excused having regard to all the circumstances (including those connected with his appointment). There is no obvious need to introduce a 'safe harbour' as suggested by some respondents".

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