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Directors of a Directors of a companycompany

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DefinitionsDefinitions

Section 2 – Section 2 –

"director" ("director" (董事董事 ) includes any person occ) includes any person occupying the position of director by whateveupying the position of director by whatever name called;r name called;

"officer" ("officer" (高級人員高級人員 ), in relation to a body c), in relation to a body corporate, includes a director, manager or orporate, includes a director, manager or secretary; secretary;

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"shadow director" ("shadow director" (影子董事影子董事 ), in relation t), in relation to a company, means a person in accordano a company, means a person in accordance with whose directions or instructions tce with whose directions or instructions the directors or a majority of the directors he directors or a majority of the directors of the company are accustomed to act; of the company are accustomed to act;

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Any provision of this Ordinance that Any provision of this Ordinance that refers (in whatever words) to- refers (in whatever words) to-

(a) the directors of a company;(a) the directors of a company;(b) the board of directors of a company;(b) the board of directors of a company;(c) a majority of the directors of a company; or(c) a majority of the directors of a company; or(d) a specified number or percentage of the (d) a specified number or percentage of the directors of a company,directors of a company,

shall, unless the context otherwise shall, unless the context otherwise requires, apply with necessary requires, apply with necessary modifications in relation to a private modifications in relation to a private company that has only one director. company that has only one director.

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Minimum Number of Minimum Number of directorsdirectors

Section 153 and 153A – Section 153 and 153A –

Public companies – TWOPublic companies – TWO

Private companies – ONEPrivate companies – ONE

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Powers of DirectorsPowers of Directors

General power of managing a company General power of managing a company as vested in the directors by AAas vested in the directors by AA

Exercise of power – Exercise of power – Collectively at meetings; or Collectively at meetings; or Individual director in accordance with delegation.Individual director in accordance with delegation. Subject resolutions, may decide informally if Subject resolutions, may decide informally if

unanimousunanimous Art. 108 of Table A: allows decision by circulation Art. 108 of Table A: allows decision by circulation

of papersof papers Not subject to resolutions passed by shareholders Not subject to resolutions passed by shareholders

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Managing DirectorManaging Director

Article 109 – directors may appoint Article 109 – directors may appoint managing directormanaging director

Powers and duties – Powers and duties – Depend on contract of service with the Depend on contract of service with the

companycompany Although no power to initiate Although no power to initiate

proceedings on behalf of company, such proceedings on behalf of company, such decision may be ratified by the boarddecision may be ratified by the board

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Duties of DirectorsDuties of Directors

As agents of the company – fiduciary As agents of the company – fiduciary duties as applicable to an agent, duties as applicable to an agent, based on requirement to show the based on requirement to show the utmost good faith to the companyutmost good faith to the company

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Generally, the duty is to the company, NOT tGenerally, the duty is to the company, NOT the shareholders:he shareholders:

Percival v Wright (1902) Percival v Wright (1902)

Exceptions – Exceptions – where directors have undertaken to act as agent where directors have undertaken to act as agent

of shareholders:of shareholders: Allen v Hyatt (1914)Allen v Hyatt (1914) Dawson International plc v Coats Paton plcDawson International plc v Coats Paton plc

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Directors are in a position of trust as regarDirectors are in a position of trust as regards the sharesholdersds the sharesholders Coleman v Myers (1977)Coleman v Myers (1977)

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Fiduciary duties owed to Fiduciary duties owed to the companythe company

To act bona fide for the benefit of the To act bona fide for the benefit of the companycompany

To Exercise powers for their proper To Exercise powers for their proper purposepurpose

Not to allow any conflict between directors’ Not to allow any conflict between directors’ duties and directors’ personal interestsduties and directors’ personal interests

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To act bona fide for the To act bona fide for the benefit of the companybenefit of the company

A director has to act honestly and in A director has to act honestly and in good faithgood faith

Re Smith and Fawcett Ltd (1942) – to Re Smith and Fawcett Ltd (1942) – to act in the interest of the company as a act in the interest of the company as a whole, not in the interest of the whole, not in the interest of the directors or only a section of the directors or only a section of the shareholdersshareholders

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Exercise powers for their proper purpExercise powers for their proper purposeose

Anything not done for proper purpose Anything not done for proper purpose is beyond director’s authorityis beyond director’s authority Piercy v S Mills and Co LtdPiercy v S Mills and Co Ltd Hogg v Cramphorn LtdHogg v Cramphorn Ltd Howard Smith v Ampol Petroleum LtdHoward Smith v Ampol Petroleum Ltd Bishopgate Investment Management Ltd Bishopgate Investment Management Ltd

(in liq) v Maxwell (No2) (in liq) v Maxwell (No2)

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Conflict of duty and interest – Conflict of duty and interest – Director is in fiduciary position in relation Director is in fiduciary position in relation

to companyto company Contract is voidable by company if directoContract is voidable by company if directo

r has a personal interest in it which is advr has a personal interest in it which is adverse to the company and profits made by terse to the company and profits made by the director may be recovered by the comphe director may be recovered by the company (unless sanctioned by articles or by shany (unless sanctioned by articles or by shareholders)areholders)

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Directors are liable even without –Directors are liable even without – FraudFraud Lack of good faithLack of good faith Loss to the companyLoss to the company

Regal (Hastings) Ltd v GulliverRegal (Hastings) Ltd v Gulliver

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Directors may be able to make an Directors may be able to make an investment on his own account after investment on his own account after his company has considered the his company has considered the same proposition and rejected it.same proposition and rejected it. Peso Silver Mines Ltd v CropperPeso Silver Mines Ltd v Cropper Queensland Mines Ltd v HudsonQueensland Mines Ltd v Hudson

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Duty of care and skill owed Duty of care and skill owed to the companyto the company

Re City Equitable Fire Insurance Co LtdRe City Equitable Fire Insurance Co Ltd not as onerous as the fiduciary dutiesnot as onerous as the fiduciary duties A director need not, in the performance of A director need not, in the performance of

his duties, exhibit a greater degree of skill this duties, exhibit a greater degree of skill than may reasonably be expected from a pehan may reasonably be expected from a person of his knowledge and experience.rson of his knowledge and experience.

A director is not bound to give continuous aA director is not bound to give continuous attention to the affairs of the company, unlettention to the affairs of the company, unless he is employed full-time.ss he is employed full-time.

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Subject to organization of the company, a Subject to organization of the company, a director may be justified in trusting that odirector may be justified in trusting that officials do perform their duties honestly.fficials do perform their duties honestly.

Dorchester Finance Co Ltd v Stebbing Dorchester Finance Co Ltd v Stebbing and Re Boldwin Construction Co Ltdand Re Boldwin Construction Co Ltd The duties of a director whether executive The duties of a director whether executive

or not are the same.or not are the same.

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Ratification of a breach Ratification of a breach of dutyof duty

Majority of members in general meetiMajority of members in general meeting may, after full disclosure, waive a bng may, after full disclosure, waive a breach of duty by a directorreach of duty by a director

Ratification could not be effective if thRatification could not be effective if the relevant contract was ultra vires the e relevant contract was ultra vires the companycompany

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The effect of a breach of The effect of a breach of dutyduty

Action may be brought for one or Action may be brought for one or more of the following remedies – more of the following remedies – InjunctionInjunction RescissionRescission DamagesDamages Account of Profits Account of Profits

Note position of third parties a constructive Note position of third parties a constructive trusteestrustees

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Power of the court to grant Power of the court to grant relief for breachrelief for breach

Section 358 – Court may relieve Section 358 – Court may relieve director of liabilitiesdirector of liabilities if he has acted honestly if he has acted honestly if he has acted reasonably, andif he has acted reasonably, and he ought fairly to be excusedhe ought fairly to be excused