Lecture 3 Directors (25 JAN 2016)

7/23/2019 Lecture 3 Directors (25 JAN 2016)

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ROLE, POWERS & DUTIES OF

THE BOARD OF DIRECTORS

25 January 2016


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CUHK Business School

DISCUSSION

W

hat do you understand from the term

director?

W

hat are the parameters of their powers?


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DIRECTORS DEFINEDDIRECTORS DEFINEDSection 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

irectors are Responsible Persons as defined under s !


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APPOINTMENT"apacity to be

appointed as a directoro#ge of majority and of

sound mind

o$ot undischargedban%rupt or dis&ualified

o'imitations underarticles of company

oody corporate forexempt private companies s *+

"onsent to act at

formation"asual appointment

-ection *. re&uires/egistrar to maintain an

0ndex of irectors


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DISQUALIFICATIONDISQUALIFICATION

1

ndischarged ban%rupt2 s *34

5

art 06# Companies (Winding-Up & Miscellaneous Provisions)

Ordinance("ap !7) empowers the court to ma%e dis&ualification

orders of up to 8+ years

"onvicted of certain offences pertaining to promotion, formation or

management

5ersistent breach of Companies Ordinance

eclaration under section 7.+ C(WUMP)OC(WUMP)O

1nfit to manage


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POWERS OF THE BOARDPOWERS OF THE BOARD

roadpowers of management

ecisionby majority provided that there is &uorum

5owersmay be delegated

o9anagingdirector

ooardcommittees

o5ower of#ttorney

-ection*8 validates actions of directors even if their appointments are defective


7/25CUHK Business School

IS THE BOARD AN AGENT OFIS THE BOARD AN AGENT OFTHE GENERAL MEETING?THE GENERAL MEETING?

utomatic Self-Cleansing Filter Syndicate vCunninghame ("h 8:4)

ohn Shaw Sons !Salford" v Shaw(;nglish "# 8:!+)


8/25CUHK Business School

DISCUSSION


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TWO ISSUESTWO ISSUES

o =he common law DUTYof care, s%ill and

diligence

o =he codified STANDARD OF CARE under

s *+ of the Companies Ordinance

effective ! 9arch 748*


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=o act in

good faith

obona fide in

interest of companyouse power

for a proper purpose

oretain

discretionary power

oavoidconflicts of interest

=o exercise

due care diligence and s%ill

FIDUCIARY DUTIES


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Percival v

#right ("h 8:47)

Allen v $yatt (5"8:8*)

Coleman v

%yers ($>


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STANDARD OF CARESTANDARD OF CARE

AT COMMON LAWAT COMMON LAW

eference is often made to the decision of /omer 'D in

Re City )*uitable Fire +nsurance

0ndividual s%ill and expertise

$ot fullCtime commitment

elegation is possible

o$ote that under s 466 the conse&uences of actual or threatened

breach of the duty specified in section *+(8) are the same as would

apply if the common law rules or e&uitable principles that section

*+(8) replaces applied@


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A

B

C

S&E


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REFLECTION OF THE TIMES?REFLECTION OF THE TIMES?

(,Jan of &ondon &td (;ng


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STATUTORY STANDARD OFSTATUTORY STANDARD OF

CARECARE

ection *+(8) re&uires directors to exercise reasonable care,

skill and diligence

ection *+(7) defines this to mean the care, s%ill and diligence

that would be exercised by a reasonably diligent person with2

(a) the general %nowledge, s%ill and experience that may reasonably be

expected of a person carrying out the functions carried out by the director in

relation to the companyF andand

(b) the general %nowledge, s%ill and experience that the director has@


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OBJECTIVE PLUSOBJECTIVE PLUS

=he Objective C irectors must exercise the

%nowledge, s%ills and experience that would reasonably

be expected of a director carrying out the same functions

=he Plus =he director must also bring his or her own

general %nowledge, s%ills and expertise to the table


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A

B

C

S&E


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BENCHMARKS?BENCHMARKS?

ENGLANDo /owers v Premier #aste %anagement G7488H ;W"# "iv :7!

AUSTRALIAo AS+C v $ellicar G7487H


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REMEDIES FOR BREACHREMEDIES FOR BREACH

=o the COMANY

amages

#ccounting for profits

/escission of contract andor injunctions

/eturn of property

China )verbright-+$( Pacific v Ch,ng Poh("I# 744!)

Royal 0runei Airlines v /an 5o1 %ing (5" 8::+)


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REMEDIES FOR BREACHREMEDIES FOR BREACH

=o MEM!ERS

"ommon law limitations

-tatutory erivative #ctions

=o CREDITORS


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RATIFICATION & EFFECTRATIFICATION & EFFECT

-ection *.! re&uires a resolution by

DISINTERESTEDshareholders@ 0f there are nonethen the approval must be obtained by a unanimous

consent of all shareholders

#pplies to conduct amounting to negligence,

default, breach of duty or breach of trust


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JUDICIAL DISCRETIONJUDICIAL DISCRETION

-ections :4!C:4* empower courts to grant relief for

misconduct if director acted honestly and reasonablyand ought fairly be excused

(orchester Finance Co &td v Stebbing (;ng


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WHAT ELSE IS NEW?WHAT ELSE IS NEW?"

oncept of a "es#onsi$%e #e"son2 section !

#n officer or shadow director of the company or nonC


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ADDED PROTECTIONADDED PROTECTION

-ec *3 ;xtension of permitted indemnities for

directors but not against specified fines, penalties and

costs

-ection 88. protects outsiders by2o being assumed to have acted in good faith

o

not being re&uired to en&uire into limitations of directorspowers to bind company andor authorise others to do so

o being able to ta%e documents at face value in the absence of

reason to doubt its authenticity

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FAIR DEALING BYFAIR DEALING BYDIRECTORSDIRECTORS-ectio

ns *3C*33 extends persons connected for purposes of prohibitions on

loans by company

;xemptions from foregoing subject to prescribed approval by shareholders2 ss

+44C+4*

-ectio

n +4+ creates a new exception for small loans not exceeding + percent of

net assets or called up capital

;xcep

tion for defence of proceedings or investigationregulatory action2 ss +4.

L +43

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Documents

Lecture 3 Directors (25 JAN 2016)