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DISCUSSION
W
hat do you understand from the term
director?
W
hat are the parameters of their powers?
CUHK Business School
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
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
DISQUALIFICATION
U
ndischarged bankrupt: s 480
P
Broad
Decision
Powers
oManaging
oBoard
oPower of
Section
461 validates actions of directors even if their appointments are defective
DISCUSSION
How do
we benchmark
the
actions of directors and
enhance
the level of
their
accountability?
CUHK Business School
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
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
CUHK Business School
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
CUHK Business School
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
S&E
C
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.
CUHK Business School
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
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
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Damages
Accounting for profits
Rescission of contract and/or injunctions
Return of property
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)
N
groups and at
A
pprovals for transactions that may involve possible conflicts of
interest
CUHK Business School
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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
CUHK Business School
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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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