Restricting Corporate Directorship in Private Companies
Under the current Companies Ordinance (Cap 32), a private company which is not a member of a group which includes a listed company, can appoint a body corporate as the sole director of the company.
With the commencement of the new Companies Ordinance, every private company must have at least one director who is a natural person, to enhance transparency and accountability. Public companies or companies limited by guarantee are remain restriction on appointing corporate director, and the company must have at least 2 individual directors.
There will be a grace period of 6 months after the commencement date of the new Companies Ordinance for the existing companies to comply with the new requirement.
If a company fails to comply with the new regulation, the company and every responsible person of the company is liable to a fine of HK$100,000, and for a continuing offence, a further fine of HK$2,000 for each day during the period of non-compliance.
Directors’ Statutory Duties
Under the current Ordinance (s.162), any director of a company, who is directly or indirectly interested in a contract or proposed contract with the company shall, which is of significance to the company’s business and if the director’s interest in such contract or proposed contract is material, disclose the nature of his interest at the first board meeting.
The new Ordinance maintains the disclosure requirement and will further extend to shadow / nominee directors. Shadow / nominee directors (影子董事), in relation to a company, means a person in accordance with whose directions or instructions the directors or a majority of the directors of the company are accustomed to act.
Declaration to directors: procedures
The director should make a declaration to the company to disclose his interests in any contract. The director may made the declaration at a director’s meeting or made it by a general notice in writing to the company and the other directors. A general notice must state clearly the nature and extent of the director’s interest in the specified body corporate or firm; or the nature of the director’s connection with the specified person. (s.539). The general notice must be given before the date on which the question of entering into the contract is first taken into consideration on behalf of the company.
The new Ordinance provides that the director will be required to disclose the “nature and extent” of the interest, instead of just the “nature” of the interest under current Ordinance (Cap.32). A director or shadow director who fails to make disclosure is commit an offence and is liable to a fine.
Right of member to inspect and request copy
Any member of a company is entitled to inspect a copy of a contract or a written memorandum kept by the company under section 543.
Directors’ duty of care, skill and diligence
The new Ordinance provides that a director of a company must exercise reasonable care, skill and diligence.
Reasonable care, skill and diligence mean the care, skill and diligence that would be exercised by a reasonably diligent person with 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 the general knowledge, skill and experience that the director has. (s.465)