Friday, 24 January 2014

Hong Kong Updates- revised guidelines on directors' duties

The Companies Registry has issued revised guidelines on directors' duties, to reflect the changes in the Companies Ordinance. The guidelines, incorporating previous descriptions of directors' do's and don'ts, can be found here:

but the key changes is in the codification of directors' duty of care, skill and diligence.

Until the change, Hong Kong has adopted the subjective test in determining the standard of care, skill and diligence expected of directors; i.e. a director does not have to exhibit a greater degree of care and skill than might reasonably be expected from a person of his knowledge or experience. This is different from the standard developed in a number of other common law jurisdictions, where case law or statute have developed a hybrid standard of directors' responsibility.

Hong Kong is now following other jurisdictions and the new Ordinance (s, 465) codifies the duty of care, skill and diligence, adopting a similar mixture of objective and subjective standards. Following the change, the standard against which a director's conduct is to be measured is that which would be exercised by a reasonably diligent person with:

1. the general knowledge, skill and experience that may reasonably be expected of a director (the objective test), and
2. the general knowledge, skill and experience that particular director has (the subjective test).

The objective test sets the minimum standard, which can be adjusted upwards to reflect any special skill, knowledge and experience possessed by a particular director but cannot be adjusted downwards to accommodate someone who is incapable of attaining the basic standard of what can reasonably be expected of the reasonably diligent person carrying out the same function.

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