Understanding the director's duty of care in Hong Kong

Director's Duty of Care Hong Kong Companies Ordinance

The director's duty of care hong kong obliges a director to exercise the care, diligence and skill a reasonably diligent person with the director's knowledge and experience would use in the same circumstances. This duty is codified in the Companies Ordinance (Cap. 622) and operates alongside the fiduciary duties directors owe to their company.

Standard of Care Under Cap. 622 Director Duties

Section 662 of the Companies Ordinance (Cap. 622) establishes the statutory duty of care. The test contains both an objective and a subjective element. Objectively, it asks what a reasonably diligent person would do. Subjectively, it considers the director's own knowledge and experience. A director holding professional qualifications or specialist expertise is held to that higher standard.

Directors' Duties Hong Kong

The duty of care is one of several statutory duties imposed on directors. These include the duty to act in good faith, the duty to avoid conflicts of interest, and the duty to exercise powers for a proper purpose. All these duties coexist with the fiduciary duty hong kong directors owe to the company. A breach of the duty of care can lead to liability for director negligence hong kong.

Consequences of Breach

If a director fails to meet the required standard, the company may sue for negligence. The court will measure the director's conduct against the standard set by section 662. Board meetings, preparation for decisions, and proper review of company matters are all areas where a director must show reasonable diligence.

Practical Application

Directors must stay informed about the company's affairs, attend board meetings regularly, and exercise independent judgment on significant decisions. Relying solely on a company secretary or other officers without independent review can be a breach. The standard applies to executive and non-executive directors alike, though the director's actual role and responsibilities inform the assessment.

Fiduciary Duty Hong Kong

The duty of care is a statutory duty under the Companies Ordinance. The fiduciary duty owed by directors to the company is separate. Fiduciary duties cover loyalty, good faith, and avoidance of secret profits. The duty of care addresses competence and diligence. Both categories of duty are enforceable by the company and, in some circumstances, by its members.