7 Board of Directors

CHAPTER 7
BOARD OF DIRECTORS
PARA.
I. Introduction .............................................................................................................................. 7.001

2. Classification of Directors ....................................................................................................... 7.002
2. l De jure. de facto and shadow directors ............................................................................. 7 .003
2.1.1 De.facto directors .................................................................................................. 7.006
2.1.2 Shadow directors ................................................................................................... 7.013
2.2 Types of directors according to functions ......................................................................... 7.016
2.2. l Managing director or chief executive officer.. ...................................................... 7.016
2.2.2 Executive directors and non-executive directors ................................................... 7.018
2.2.3 Alternate directors ................................................................................................. 7.020
2.2.4 Nominee directors ................................................................................................. 7.023
2.2.5 Reserve directors ................................................................................................... 7.024
3. Qualifications ........................................................................................................................... 7.025
4. Appointment ............................................................................................................................. 7.030

4.1 Minimum number of directors ........................................................................................ 7.030
4.2 Initial directors ................................................................................................................. 7.032
4.3 Subsequent directors ........................................................................................................ 7.033
4.4 Appointment by outsiders ................................................................................................ 7.038
4.5 Liabilities of wider-age directors ..................................................................................... 7.039
4.6 Corporate directors ........................................................................................................... 7.040
5. Vacation of Office .................................................................................................................... 7.042

5.1 Retirement by rotation ...................................................................................................... 7.042
5.2 Vacation of office ............................................................................................................. 7.043
5.3 Removal ............................................................................................................................ 7.045
5.3. l Removal by directors ............................................................................................ 7.045
5.3.2 Removal by members ............................................................................................ 7.046
5.4 Resignation ....................................................................................................................... 7.056
5.5 Notification to Registrar ................................................................................................... 7.057
6. Board Meetings ......................................................................................................................... 7.058

6.1 Calling board meetings ..................................................................................................... 7.059
6.2 Notice ............................................................................................................................... 7.060
6.3 Quorum ............................................................................................................................ 7.07I
6.4 Chairperson ...................................................................................................................... 7.072
6.5 Voting and minutes ofmeetings ....................................................................................... 7.073
6.6 Effect of irregularities ...................................................................................................... 7.075
6.6. l Meeting invalid ..................................................................................................... 7.076
6.6.2 Articles waiving the irregularity ........................................................................... 7.08 I
6.6.3 Irregularity principle ............................................................................................ 7.083
6.6.4 The Australian position ......................................................................................... 7.088
6.6.5 Effect of irregularity on third parties .................................................................... 7.092
238 BOARD OF DIRECTORS
6.7 Informal decision-making ................................................................................................ 7.093

6.7.1 Written resolutions ................................................................................................ 7.093
6.7.2 Informal meetings ................................................................................................. 7.095
6.7.3 Decision-making by unanimous consent .............................................................. 7.097
6.8 Technology ....................................................................................................................... 7.102
6.9 Sole director companies ................................................................................................... 7.104
7. Disqualification ......................................................................................................................... 7.106

7. I Introduction ...................................................................................................................... 7. I06
7.2 Conviction of certain indictable offences: s. l 68E of Cap.32 ........................................... 7.110
7.3 Persistent breaches of Ordinance: s.J68F ofCap.32 ........................................................ 7. I 13
7.4 Fraud or breach of duty in respect of company in winding-up:
ss.l68G, l68L ofCap.32 .................................................................................................. 7.l 17
7.5 Unfit directors of insolvent companies: s.168H of Cap.32 .............................................. 7.121
7 .6 Disqualification of directors after investigation of a company:
s.1681 of the retitled Cap.32 ............................................................................................. 7.127
7. 7 Miscellaneous matters ...................................................................................................... 7 .129
7.7.1 Scope of disqualification order ............................................................................. 7.129
7.7.2 Leave to manage companies ................................................................................. 7.13 l
7.7.3 Contravention of disqualification order ................................................................ 7.133
7.7.4 Foreign companies ................................................................................................ 7.135
7.7.5 Procedural matters ................................................................................................ 7.136
7.7.6 Public examinations .............................................................................................. 7.139
7.7.7 Listed corporations: Securities and Futures Ordinance (Cap.571) ....................... 7.140
1. INTRODUCTION
Scope of chapter: types of directors, qualifications, appointment, cessation of office, 7.001
and how directors make decisions. The role of directors and the scope of their powers
are discussed in Chapter 6. This chapter covers the types of directors, qualifications of
directors, and their appointment and cessation of office, as well as on how directors
make decisions. The provisions of the Companies (Winding-Up and Miscellaneous
Provisions) Ordinance (Cap.32) on the disqualification of directors are also discussed
in this chapter. The law on the duties of directors is discussed in Chapter 8.
2. CLASSIFICATION OF DIRECTORS
Concept of director. Black's Law Dictionary defines "director" as "[a] person 7.002
appointed or elected to sit on a board that manages the affairs of a corporation or other
organisation by electing and exercising control over its officers".' For our purposes,
this definition is somewhat too narrow, as under the Companies Ordinance as well as
at common law a person who has not been appointed or elected to sit on the board can
be treated as a director, as will be seen in the discussion below.
2.1 De jure, de facto and shadow directors
Persons who exercise functions of directors should not escape their legal 7.003
responsibilities by not being formally appointed. In terms of the ways in which
a person becomes (to be treated as) a director by law, directors can be classified as
appointed directors (or "de Jure directors"), de facto directors or shadow directors.
The need for treating a person who is not a de Jure director as director lies in the
necessity for ensuring that persons who exercise the functions of directors do not
escape their legal responsibilities by not being formally appointed as director. 2
Dejure director: appointed to sit on board of directors. A person who is appointed 7.004
or elected to sit on a board of directors becomes a de Jure director upon the appointment
or election.
Statutory definition of director. Companies Ordinance (Cap.622), s.2 states that 7.005
"director" includes any person occupying the position of director by whatever name
called. That definition clearly covers de Jure directors but is wider than the one quoted
at para.7.002, as a person can occupy the position of director even if he or she has
never been appointed to sit on the board. Thus the statutory definition in s.2 also
covers de.facto directors, though it does not cover shadow directors.3
' Black'.~Law Dictio11a1y(8th edn, West Publishing, St Paul, Min, 2004)492.

2 Re Hydroda11(Corl~y)Ltd [1994) BCC 161, sub nom Re Hydrodam (Corby) Ltd (1994) 2 BCLC 180; Standard
CharteredBa11kofA11straliaLtd vA111ico(1995) 18ACSR I; Dep111y Commissio11erof Taxation v Austin (1998) 28
ACSR 565; Securities a11dFutures Commissio11v Ma11darinResourcesCo,p Ltd (unrep., MCCW 348/1996, [ 1999)
Hl<EC 688); Re PaycheckServices 3 Ltd [20 I 0] I WLR 2793 (SC(E)); LisaAlford, Neil Money (as Joint Liquidators
of Snelling House Limited) v Sally Am, Barton, Philip Bart<>n,
Sarah Barton, Solipetit SL [2012) EWHC 440 (Ch).
3 However, there arc some specific provisions in Cap.622 on directors which arc expressly extended to cover
shadow directors for chepurpose of those provisions: eg. s.465 in relation to the directors' duty of care.
2.1.1 De facto directors

7.006 De facto directors: act as directors even though not properly appointed. The term
"de facto directors" refers to persons who act as directors of the company, even though
they have not been properly appointed as directors. 4
7.007 De facto director covered by definition of directors in Ordinance. The concept of
"de facto directors" is covered by the s.2 definition of "director" in the Companies
Ordinance (which defines a director as including any person occupying the position
of director by whatever name called), although the common law concept of de facto
directors predates the current statutory definition. 5
7.008 Paycheck case and common law definition of "de ft1cto director". In Re Paycheck
Services 3 Ltd; Holland v Revenue and Customs Comrnissionen,, 6 Lord Hope endorsed
the definition that Millett J formulated in Re Hydrodan (Corby) Ltd: 7
"A de facto director is a person who assumes to act as a director. He is held out
as a director by the company, and claims and purports to be a director, although
never actually or validly appointed as such. To establish that a person was a de
facto director of a company it is necessary to plead and prove that he undertook
functions in relation to the company which could properly be discharged only by
a director. It is not sufficient to show that he was concerned in the management
of the company's affairs or undertook tasks in relation to its business which can
properly be performed by a manager below board level."
Lord Collins noted that the most relevant tests of whether a person is a de facto director
which have been suggested are: (I) whether the person was the sole person directing
the affairs of the company, or if there were others who were directors, whether he was
acting on an equal footing with the others in directing its affairs; (2) whether there
was a holding out by the company of the individual as a director, and whether the
individual used the title; and (3) taking all the circumstances into account, whether
the individual was part of the corporate governing structure of the company.8 The
principles from the Re Paycheck case were applied by Deputy Judge Hunsworth in the
Hong Kong decision in Karla Otto Ltd v Bulent Eren Bayram. 9
' Aktieselskabet Oa11sk Skib~fi11allsierillg v Wheelock Mardell & C<> ltd (unrcp., Court of Appeal,
17 November 1994); Re Hydroda11( C<>rby)lid (ill liq) [I 994] BCC 161, 163, cited in Moulin Gi<>balEyecare
Ltd v Lee Si11Mei Olivia (2009] 3 HKLRD 265, 293 (CFT) (reversed by the Court of Appeal on other
l-l<>ldi11gs
grounds). Sec also Susan Watson and Chris Noonan, "Defining Directorship" http://ssrn.com/abstract= I695796.
' The definition was first introduced in the Companies Act 1900 (UK) s.30; and in Hong Kong sec Companies
Ordinance (No 58 of 191 I) s.261. On the historical background to the definition, see Corporate Affairs
Co111missio11 11 D,ysdale (1978) 141 CLR 236. However, for some provisions in the Companies Ordinance,
the context may indicate that the reference to "director" does not include de facto directors (for example, the
provisions on the minimum number of directors): Re Lo-Line Electric Motors Ltd ( 1988) 4 BCC 415, 421-2.
6 (2010) I WLR 2793, 2806, [2010) UKSC 51.
' (1994) BCC 161, 163, sub nom Re Hydrodam (Corby) Ltd (1994) 2 BCLC 180; also cited in Mo11li11Glabal
Eyecare Holdings Ltd v lee Si11Mei Olivia (2009] 3 HKLRD 265,293, CFI (reversed by the Court of Appeal on
other grounds).
• (2010) I WLR 2793, 2826, [2010) UKSC 51.
9 (2017] 2 HKLRD 124. See also Uq11idator of Wi11gFai Cmtstruction Co Ltd (i11liq) v Yip Kwong Robert (2018)
I HKC472.
CLASSIFICATION OF DIRECTORS 241
All relevant factors must be taken into account in determining whether a person 7.009
is a de facto director. Whether a person would be regarded as a de facto director is a
question of fact and degree and all the relevant factors must be taken into account. 10
It is necessary to examine the duties performed by the person in the context of
the operations and circumstances of the particular company. 11 One looks to see if
the person "was one of the nerve centres from which the activities of the company
radiated" .12 Where a person takes on an active role in top-level management
functions, and is reasonably perceived by outsiders dealing with the company as
a director, then the person may well be treated as a de facto director. 13 It is also
relevant to look at whether the person had to make major decisions and whether the
person had proper information (such as management accounts) on which to base
decisions. 14
De facto director where resigned but continued to perform directorial duties. 7.010
In Deputy Commissioner of Taxation v Austin, 15 Madgwick J held the defendant to
be a de facto director of the company for the purpose of determining his liability
for an unfair preference given in favour of Australia's tax authority. In that case, the
defendant had resigned as a director but continued to perform directorial duties such
as conducting negotiations with creditors (including the tax commissioner) on behalf
of the company, countersigning and affixing of the company's seal, as well as signing
company cheques.
Karla Otto case. In Karla Otto Ltd v Bulent Eren Bayram,' 6 the first defendant (DI) 7.01.1
became involved in the affairs of a group of companies (which included the plaintiff
company) after developing a personal relationship with Ms Otto, the founder of the
group. D l was never appointed to positions of authority in either the plaintiff company
or the group but he played an increasingly important role in the affairs of the group and
held himself out (with Ms Otto's permission) as either or both the CEO and CFO of
the group. He also became the sole administrator of the plaintiff company's UK bank
account at HSBC. In these circumstances, the Court of First Instance held that D1 was
clearly acting as a de facto director of the plaintiff.
Whether de jure director of corporate director of company can be regarded 7.012
as de facto director of company. One of the situations where a person's liability
as a de facto director can arise is where a corporate director is interposed between
the defendant, who is a de jure director of that corporate director, and the subject
company. The issue in such a situation is often whether the defendant can be
10 Re Paycheck Services 3 Ltd: Holland v Reve,we and Customs Commissioners [2010) I WLR 2793, 2810, [2010)
UKSC 51; Karla 0110 Ltd v Bulent Eren Bayram [2017) 2 HKLRD 124, [31). See also liquidator of Wing Fai
Co Ltd (in liq) v Yip Kwong Robert [2018) I HKC 472.
Co11structio11
11
Deputy Commissioner ofTaxatio11 v Austin ( 1998) 28 ACSR 565.
12 Re Mumta: Pmperties Ltd [2012) 2 BCLC 109, [47) per Arden LJ, cited in Karla 0110 Ltd v B11le111
Eren Bayram
[2017] 2 HKLRD 124, [33).
1
' Deputy Commissia11ero.(Taxation v Austin ( 1998) 28 ACSR 565.
,. Re Kaytech Intl Pie, Secreuuy ofStatefor Trade a11dI11dust1yv Kaczer [1999) 2 BCLC 351,423. Sec further Re
Red label Fashions lid [ 1999] BCC 308; Secretary of State fi>r Trade and Induslly v Jones I1999) BCC 336;
Sta11dt1rdChartered Bank of Austrolia ltd v Antico ( 1995) 18 ACSR 1.
" (1998) 28 ACSR 565.
1
• [2017) 2 HKLRD 124.
characterised as a defacto di rector where his or her actions can be attributed entirely
to the position which he or she occupied de Jure as a director of that corporate
director. Lord Hope answered this question in the negative in Re Paycheck Services
3 Ltd; Holland v Revenue and Customs Commissioners, 17 holding that it was
impossible to overcome the distinction between a company (the corporate director
here) and its directors simply by pointing to the quality of the acts done by the
director and asking whether he was the guiding spirit of the subject company. His
Lordship agreed with Millett J in Re Hydrodan (Corby) Ltd 18 that "for a creditor
of the subject company to obtain those remedies (for the defendant's breach of
fiduciary duties) the individual must be shown to have been a director, not just of
the co1pora1e director but of the subject company too (emphasis added)". 19 Jn Re
Paycheck Services, a 3:2 majority of the UK Supreme Court held that as long as the
relevant acts are done by the individual entirely within the ambit of the discharge
of his duties and responsibilities as a director of the corporate director, then the
individual would not be regarded as a de facto or shadow director of the company
in which the corporate director is director. 20
2.1.2 Shadow directors

7.013 Shadow directors: directors act in accordance with this person's directions.
Section 2 of Cap.622 defines shadow director as a person in accordance with whose
direction or instructions the directors or a majority of directors of the company are
accustomed to act.21 In Re Hydrodan (Corby) Ltd,22 Millett J held that to establish that
the defendant is a shadow director, the plaintiff must allege and prove:
"(!) Who are the directors of the company, whether de.facto or dejure; (2) that the
defendant directed those directors how to act in relation to the company or that
he was one of the persons who did so; (3) that those directors acted in accordance
with such directions; and (4) that they were accustomed so to act."
7.014 Shadow director (puppet master) different to de facto director (acting as director)
although can overlap.The concept of a shadow director is different from that of defacto
director, although in some situations there could be an overlap.23 The pmpose of the notion
of shadow director is to identify those with real influence in the corporate affairs of the
company, although it is not necessary that such influence should be exercised over the whole
field of its corporate activities.24 A shadow director has been described as like a "puppet
17 [2010) I WLR 2793, [2010) UKSC 51.

" [1994) BCC 161, sub nom Re Hydrodam (Corby) Ltd [1994] 2 BCLC 180.
19 [2010] I WLR 2793, [2010] UKSC 51, [43].
2<l [2010] I WLR 2793, [2010] UKSC 51, [42], [53]-[54], [96] (sole director ofa corporate director of another
company held not to be de.facto director of the latter company for the purposes of liability for misfeasance).
z, However, a person is not to be considered as a shadow director by reason only that the directors or a majority of
them act on advice given by the person in a professional capacity: Cap.622 s.2 definition of"shadow director".
zi [1994] BCC 161, J63, sub nom Re Hytlrodam (Corby) lid [1994] 2 BCLC 180; cited in Karla 0110 Ltd v Bule11t
Ere11Bayram [20 I 7] 2 HKLRD 124, [35].
" Aktieselskabet Dansk Skibsji11a11sieri11g v WheelockMarden & Co Ltd [1994] 2 HKC 264; Secretc11y of State.for
v Deverefl [2001) Ch 340.
T,r,dea,ul f11tl11st1y
" Secreta1J10.fStateforTi-adea11d!11d11s11y v Devere/I [2001) Ch 340; Karla Otto Ltd v B11/e11t Eren Bayram (2017)
2 HKLRD 124, (35).
CLASSIFICATIONOF DIRECTORS 243
master who controls the actions of the board". 25 The influence or control exercised by a
shadow director may be strategic in character, defining the context in which, or conditions
upon which, the company operates, or else contriving the transactions of significance to
the company.26 For a person to be a shadow director, his or her influence over the board
must occm over a pe1iod of time and so the mere fact that the directors acted in accordance
with the person's instructions on a single occasion would not be sufficient.27
Parent company can be shadow director. A parent company can be held to be a shadow 7.015
director where its directors give directions to the board of a subsidiary entity and the
directors of that entity were accustomed to act in accordance with such directions. 28 Jn the
case of Standard Chartered Bank a/Australia Ltd v Antico, 29 where a company (P) held a
42% shareholding in another company (G), Hodgson J held P to be G's shadow director
where P imposed reporting requirements on G, exercised controls over the composition
of the board of G and had played a decisive role in relation to a number of significant
transactions entered into by G. The board of G simply accepted the decisions of P in
relation to those significant transactions as something necessary or as afait accomp/i. 30
2.2 Types of directors according to functions
2.2.1 Managing director or chief executive officer

MD: appointed as CEO; both director and employee; typically oversees day-to-day 7.016
running. The managing director is a director who is appointed by the board as the
company's chief executive officer. A managing director is both a director and a company
" Re U11isoftGroup Ltd (No 2j [ 1994)BCC 766, 775, cited in Moulin Global Eyea,re Holdi11gsLtd v Lee Sin Mei
Olivia [2009) 3 HKLRD265,293, CF! (reversedby the Court of Appealon other grounds).In Secretary of State for
li-ade a/Id lndust1y v Devere/I [200 I) Ch 340, Monitt LJ in the EnglishCou11of Appealqualified this by stating that
the requirementthat the directorsare accustomedto act in accordancewith the putativeshadowdirector·sdirections
or instructionsdoes not necessarilymean that the directors must have surrenderedtheir own discretionand were
simply subservientto the putativeshadow director.Morritt LJ consideredthat if the board were accustomedto act
on the directionsor instructionsof the putativeshadow director,it is not necessaryto demonstratethat their action
was mechanicalrather than considered. But for a critique of this approach,see Chris Noonan and Susan Watson,
"The Nature of Shadow Directorship:Ad Hoe Statutory Interventionor Core Company Law Principle?"[2006)
Journal of Business Law 763. Monitt LJ's approachwas acceptedby LewisonJ in Ultrctframe(UK) Ltd v Fielding
[2005) EWMC 1638 but Lewison J also accepted the correctness of earlier case law that held that creditors are
entitled to protect their own interestsby making demand~on the debtor company and that creditors will not be
regardedas shadow directorsmerely because the directorsagree to requirementsimposed by the creditors.On chc
latter point, sec also 8uzzle Ope,wions Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47.
26 Australian Securities Commission vA S Nominees Ltd (1995) 133 ALR 1, 52-53.
27 Re U11isoj/G1011pLtd (No 2) ( 1994) BCC 766, 775, cited in Mo11li11 Global Eyecare Holdings Ltd v Lee Sin Mei
Olivia (2009) 3 HKLRD 265, 293, CF!. In the latter case, a claim that a non-executivedirector and member
of the audit committee of a company was a shadow director of the subsidiary companies was struck out where
there was no evidence that she exercised real influence over the affairs of the subsidiaries which were, on the
evidence,controlledby the majority family ownersof the.companies.The CFI decision was reversedby the Cou11
of Appeal on other grounds: (201OJ2 HKLRD 1096. In Karla 0110 Ltd v B11le11t Ere11Bayram (2017) 2 HKLRD
124 (for the facts, see para.7.011 above), the court held that the first defendant was not a shadow director of the
plaintiffcompany as Ms Otto was not controlled by him as a puppet. Ms Otto ran the business and the companies
together with the first defendant and was not doing so under the control of the first defendant.
28 Re Hydroda11 (Corby) Ltd (1994) BCC 161, sub nom Re Hydrodt1111 (Corby) Ltd (1994) 2 BCLC 180. See also
Ho vAkai Pty Ltd (i11liq) (2006) 24 ACLC 1526;Buzzle Operations Pty Ltd (in liq) vApple Computer Australia
Pty Ltd (2011) 81 NSWLR 47. See further Stefan H C Lo, In Search o_(CorporateAcco1111tability:liabilities of
Co,porate Panicipants (Cambridge Scholars Publishing,Newcastle upon Tyne, 2015), 283-288.
29
(1995) 18 ACSR I.
30
(1995) 18 ACSR I, (63).
employee31 who is conferred, by the directors, with any of the powers exercisable
by the directors.32 During his tenure, a director so appointed is often not subject to
retirement by rotation or be taken into account in determining the rotation ofretirement
of directors.33 A typical function of the managing director is to oversee the day-to-day
mnning of the company's business and to supervise other senior executives. The precise
role of a managing director is, however, not fixed by law but determined by the tem1s
of his engagement.34
7.017 CEO. The term "chief executive officer" (CEO) is often used nowadays instead of
"managing director". The functions of a director appointed as CEO are usually similar
to those of managing directors.
2.2.2 Executive directors and non-executive directors

7.018 Executive directors full-time employees; Non-executive directors (NED) do not
have full involvement. Executive directors are full-time employees of the company.
Non-executive directors (NEDs) do not have full-time involvement with the company.
They are also known as part-time, outside or independent directors. NEDs are often
able to provide a perspective that is wider than executive directors in corporate
decision-making, and they are likely to be more objective and more balanced in
thinking. 35 NEDs may also be able to protect certain interests within the company
or the interest of stakeholders who do not have a voice on the board, such as small
shareholders and creditors. 36 Another important function ofNEDs is that they serve as
a check on the executive directors' control of company management. 37
7.019 For listed companies at least 1/3 of board should be NEDs. Listed companies, under
the Listing Rules of the Stock Exchange of Hong Kong, must appoint at least three
independent non-executive directors who represent at least one-third of the board.38
Whether a non-executive director is regarded as "independent" is determined with
reference to the factors set out in Listing Rules (Main Board) r.3.13 and Listing Rules
(GEM) r.5.09.
There is little doubt that NEDs are subject to the same fiduciary obligations as
executive directors. 39 NEDs are also subject to the duty of care, skill and diligence. 40
2.2.3 Alternate directors

7.020 Acts in place of director unable to attend or otherwise function. An alternate
director is a person appointed to act in the place of a director when the latter is
" A11de1:rnnv James Sutherland (Peterhead) Ltd [I 941) SC 203.

" Model Articles (public companies) (Cap.622H), art.33; predecessor CO, Table A, reg. I I I (repealed).
33 Model Articles (public companies) (Cap.622H), art.33(2); predecessor CO, Table A, reg.109 (repealed).
30 Harold Holdsworth & Co (Wakefield) lid v Caddies [ 1955) I WLR 352 (HL).
" E J Jacobs, "Non-executive Directors" [ 1987) .Joumal of8usi11ess law 269.
¥> Ibid.; Saleem Sheikh, "Non-cxccucivc Directors: Self-regulation or Codification?" (2002) 23(10) Company
Lawyer 269-270.
" Sec E J Jacobs, "Non-executive Dircccors" [ 1987) Journal of Business Law 269, 270.
38 Listing Rules (Main Board), rr.3.10, 3.1 OA;Listing Rules (Growth Enterprise Markee (GEM)), rr.5.05, 5.05A.
39 ASIC v Adler (2002) 168 FLR 253; affirmed on appeal Adler v ASIC (2003) 179 FLR I; sec also ASIC v Vizard
(2005) 145 FCR 57.
,,i The scope of the duty as imposed on NEDs is discussed in Chapter 8.
CLASSIFICATIONOF DIRECTORS 245
unable to attend meetings or otherwise function as a director. The appointment of an

alternate director is possible if the articles of the company authorise a director to do so.41
Alternate director as agent of director. Under Cap.622, s.478(1), unless the company's 7.021
articles provide otherwise, whether expressly or impliedly, an alternate director is deemed
to be the agent of the director who appoints him or her and the director who appoints the
alternate director is vicariously liable for any tort. committed by the alternate director
during his or her office. The alternate director, however, remains personally liable for any
act or omission. 42 Section 478 alters the common law position which is illustrated by the
Australian decision of Anaray Pty Ltd v Sydney Futures Exchange Ltd. 43 In that case, the
alternate appointed by a director attended a board meeting and voted for a resolution on a
matter on which the appointor director had a personal interest. A number of the articles of
the company prohibited directors from voting on proposed resolutions on matters where
they had a personal interest. The validity of the resolution that the alternate director voted
for was challenged on the basis that the alternate director was disqualified from voting
as he was his appointor's agent. The Supreme Cou1t of New South Wales rejected the
contention that an alternate director was an agent of his appointor. The basis of the court's
decision on this point was that there were no provisions in the articles making an alternate
director an agent of his appointor, nor was there any suggestion of any collusion between
the alternate and his appointor. Tn Australia, there is no equivalent of Cap.622, s.478,
which deems the alternate the agent of the appointing director.
Generally same position as director and subject to same duties. Generally speaking, 7.022
an alternate director is treated as being in the same position as any other director and is
consequently subject to the nonnal duties that a director owes to his or her company. 44 An
alternate director is, however, not subject to directorial duties unless and until he or she
has assumed directorial authority. Thus, a person who has been appointed as an alternate
director but who has never been called upon to fulfil this role cannot be held liable for
breaching ofa directorial duty, if under the company's articles an alternate does not have
any duty to exercise power until he or she is called upon to fulfil the role.45 Also, an
alternate has no status as a director when his or her appointor is present at the meeting. 46
2.2.4 Nominee directors

Nominee directors appointed to represent interest of particular stakeholders. At 7.023
a general level, the term "nominee director" can be used to refer to "persons who,
independently of the method of their appointment, but in relation to their office, are
expected to act in accordance with some understanding or arrangement which creates
an obligation or mutual expectation ofloyalty to some person or persons other than the
company as a whole". 47 In practice, a nominee director can be appointed to represent
41 See, e.g., Model Articles (private companies) (Cap.622H) art.28; Model Articles (public companies) (Cap.622H)
art.30. The Table A articles in the predecessor CO did not have provisions for alternate directors.
" Cap.622, s.478(2).
' 3 ( 1988) 6 ACLC 271.
" Markwell Bros P~vLtd II CPN Diesels Quee11sla11d Pty Ltd [1983) 2 Qd R 508, 519,perThomas J.
" Playcorp Pty lid v Shaw ( 1993) 10 ACSR 212.
"' Markwell Bros v CPN Diesels (Qld) Pty Ltd [ I983) 2 Qd R 508; Plc,ycorp Pty Ltd v Shaw (1993) 10 ACSR 212.
" Companies and Securities Law Review Committee (Australia), Nominee Directors and Alter11ate Directors
(Report No.8, 1989) 8.
the interest of a particular stakeholder, such as a party to a corporate joint venture, the
holding company,48 a creditor, 49 or even employees or a government body.50
2.2.5 Reservedirectors
7.024 One-person company can nominate reserve director in event of death. Under Cap.622,
s.455, a private company with one member, who is the sole director, may, in general
meeting, notwithstanding anything in the company's articles of association, nominate a
person (other than the company itself) of 18 years or above to be a reserve director of the
company to act in the place of the sole director in the eventofhis or her death. The nominee
will cease to be the reserve director where: (i) he or she has resigned from this post;
(ii) the company in general meeting has revoked his or her nomination; or (iii) the
director in respect of whom the reserve director was nominated has ceased to be the sole
director.51
3. QUALIFICATIONS
7.025 Generally no professional or educational requirements. Generally speaking,
the law does not prescribe any minimum professional or educational requirements
before persons can act as director. Historically, in the 19th century, directors were not
necessarily appointed for their business acumen. For example, well-known figures
might be appointed to the board in order to attract investors to the company on
the basis of their reputation. Greater managerial abilities are expected of directors
of commercial enterprises today,52 but the law only provides for certain minimal
qualifications for persons to be appointed as directors.
7.026 Natural person 18 years or above. A natural person can be appointed as director only
if the person is of 18 years of age or above.53 There is no maximum age limit unless
provided for in the articles.
7.027 Undischarged bankrupt and disqualified person cannot act as a director. An
undischarged bankrupt is prohibited from acting as a director or taking part in
the management of a company, either directly or indirectly, without the leave of
the court: Cap.622, s.480. A person who contravenes this prohibition commits an
offence 54 and also becomes personally liable for the debts and liabilities of the
company incurred at a time when the person was involved in the management
of the company in contravention of that s.480. 55 A person against whom a
40
Scollish Co-operarive Wholesale Soc Ltd v Meyer [ 1958]3 All ER 66.
'9 Levin v Clark [ 1962]NSWR 686.
$-0 Phillip Lipton, et al., Understanding Company law ( 16thedn, LBC 2012) 384.
s, Cap.622,s.455(2).
52 SecChapter8.
SJ Cap.622,s.459(I). Secalso para.7.039below.
" Cap.622,s.480(2).
" Cap.32,ss.I68O(I)(a) and I68O(3)(a). A personwho is involved in the managementof the companyand actsor
is willing to act on instructionsgiven by a personwho is an undischargedbankrupt will also be personally liable
to the extent set out in ss.168O(1)(b)and 168O(3}(b).Section 1680ofCitp.32 is not repli,ced and continues to
haveeffect after the commencementof Citp.622.
APPOINTMENT 247
disqualification order has been made is also banned from acting as a company
director. 56 The articles of companies also commonly provide that a director must
not be of unsound mind. 57
Where articles impose share qualification. The predecessor CO, s.155 (repealed) 7.028
provided that where the articles of association of the company impose a share
qualification upon the company's directors, the directors who are not so qualified
are under an obligation to obtain such qualification within two months after their
appointments unless the articles provide a shorter period. 58 This provision is not
reproduced in Cap.622 and was repealed upon the commencement of Cap.622.
Body corporate not permitted for public company but permitted for private 7.029
company. The Companies Ordinance imposes restrictions on the possibility of
appointing a body corporate as director. Appointing a body corporate as a director
is not permitted for public companies and companies limited by guarantee, but is
generally permitted for private companies (although the company must have at least
one director who is a natural person): see further para.7.040 below.
4. APPOINTMENT
4.1 Minimum number of directors
Public company and company limited by guarantee must have at least 2 directors; 7.030
private company at least 1. A public company must have at least two directors. 59
A company limited by guarantee is also required to have at least two directors.60 A
private company, on the other hand, is required to have at least one director.61 As
mentioned previously, where a private company has only one director who is the sole
member, the company may nominate a reserve director who would act in case of the
death of the director.62
Registrar's power to direct company to appoint director where statutory 7.031
minimum not met. The Registrar has power under Cap.622, s.458 to direct a company
to appoint a director or directors to comply with the statutory requirements where the
number of directors of the company has fallen below the statutory minimum. If the
company fails to comply with the direction within the time period specified by the
Registrar (which must be not less than one month or more than three months after
the date on which the direction is given), the company and every responsible person 63
commits an offence. 64
5• Cap.32, Pt.IVA. See paras.7.106 ff below for further discussion on disqualification.

57 E.g. Model Articles (private companies) (Cap.622H), art.25(c); Model Articles (public companies) (Cap.622H),
art.27(c); predecessor CO, Table A reg.90(d) (repealed).
58 Sec also predecessor CO, Table A rcgs.79 and 90(a) (repealed).
59 Cap.622. ss.453(1)(a) and 453(2).
"' Cap.622, ss.453(1 )(b) and 453(2).
61 Cap.622, s.454( I).
62 Sec para.7.024 .
•, See Cap.622, s.3.

"' Cap.622. s.458(6).
4.2 Initial directors
7.032 First directors are those named in incorporation form. The first directors of a
company are those named in the incorporation form submitted to the Registrar.65 The
appointment of initial directors is subject to the written consent of the appointees. 66
4.3 Subsequent directors
7.033 Rotation, retirement and appointment of directors under Model Articles. Under
the Model Articles for public companies, 67 all of the first directors are required to
retire from office at the first annual general meeting ("AGM"). At the AGM of every
subsequent year, one-third of the directors, or if the number of directors is not three or
a multiple of three, the number nearest one-third, are to retire from office, although a
retiring director is eligible for election. 68 Vacancies created by retirement of directors
are to be filled through an election to be conducted at the same meeting at which a
director retires and in default, a director who has offered himself or herself for election
is regarded as having been reappointed. 69 Directors are elected by ordinary resolution
in accordance with the relevant stipulations in the articles. 70 No provisions are made
for the rotation of directors in the Model Articles for private companies, but the general
meeting has power to appoint new directors by ordinary resolution. 71
7.034 Rejecting appointment of one director without having to reject others. Where
the company is a public company or a company limited by guarantee, no motion for
the appointment of two or more persons as directors by a single resolution can be made,
unless a resolution that such an appointment can be so made has first been passed at
the meeting without any vote against it.72 The rationale behind this prohibition on
composite motions is to preserve the member's ability to refuse the appointment of a
director without having to reject others. 73
7.035 Casual or additional vacancies can be filled by board or general meeting. The
power to appoint directors to fill casual vacancies or as an addition to existing
directors can be vested in the board or the general meeting exclusively or granted
concurrently to both corporate organs. The latter approach is adopted in the Model
Articles. 74 However, any director appointed by the board only holds office until the
65 Cap.622, ss.453(2) and 454(2).

66 Cap.622, s.74.
67 Model Articles art.24 (public companies) (Cap.622H): Companies (Model Articles) Notic-e (Cap.622H), Sch. I.
This provision is similar to those in the predecessor CO, Table A regs.91, 94 (repealed).
•• Model Articles art.25 (public companies) (Cap.622H).
(f) Model Articles art.24(8) (public companies) (Cap.622H). However, the retiring director is not regarded as having
been reappointed if (a) at the meeting at which the director retires, it is expressly resolved not to fill the vacated
office, or (b) a resolution for the reappointment of the director has been put to the meeting and lost: Cap.622H,
arl.24(9).
7<l Sec Model Articles art.23 (public companies).
" Model Articles art.22 (private companies): Companies (Model Articles) Notice (Cap.622H), Sch.2.
'1 Cap.622, s.460.
" Clive M Schmitthoff(cd.), Palmer'sCompany Law (Vol 1, 24th edn, Stevens & Sons 1987) 878.
,. Model Articles (private companies), art.22; Model Articles (public companies), art.23. See also the discussion on
this concurrent power in Chapter 6, section 3.3 (Concurrent powers).
APPOINTMENT 249
next AGM. 75 If he or she is to continue in office after the AGM, it would be necessary
for reappointment by the general meeting.
Notice to registrar of appointment. Where a new director is appointed, the company 7.036
must send notice to the Registrar of the appointment, with particulars specified in its
register of directors (name, identification number and residential address) together
with a statement signed by the director stating that he or she has accepted the
appointment, and a statement that the appointee has attained the age of 18, if that
person is a natural person, within 15 days from the appointment. 76 The company must
also enter the details of its directors in its own register of directors. 77
Appointment of managing directors and alternate directors. The managing director 7.037
is appointed by the board of directors for such period and on such terms as they think
fit. 78 Where articles so provide, a director may appoint an alternate director to act in
his absence. 79
4.4 Appointment by outsiders
Outsider, eg supplier of capital or debt finance, can acquire right to appoint. It is 7.038
possible for an outsider to acquire a right to appoint a director pursuant to contractual
arrangements. The supplier of either capital or debt finance, for example, may be granted
the right of appointing a director pursuant to a term in the company's articles 80 or of a
contract. 81 Where the 1ight to nominate is conferred under a contract, however, this may
not be specifically enforceable, as the court may be reluctant to compel the company
to appoint the nominee where, for example, the nominee is unsuited for the office. 82
Directors may also delegate 83 their powers to appoint directors to enable the supplier of
debt finance to nominate a director to protect the lender's interest. 84 Where the company
is an incorporated joint venture, joint venturers may appoint nominee directors where
such power is conferred under the terms of the shareholders' agreement. 85
4.5 Liabilities of under-age directors
Appointment void but under-age director can still be liable. A natural person 7.039
director must be at least 18 years ofage at the time ofappointment. 86 An appointment
" Model Articles (private companies), art.22(4); Model Articles (public companies), art.23(4).
16 Cap.622, s.645. The new requirement for notification of a correspondence address under ss.643( I)(a)(ii) and 645
has not yet commenced operation at the time of w1iting: see para.1.133 in Chapter I.
17 Cap.622, ss.641 and 643.
18
Model Articles (public companies), art.33; predecessor CO, Table A reg. I09 (repealed).
19 Model Articles (private companies), art.28; Model Articles (public companies), art.30. Alternate directors would
be within the Cap.622, s.2 definition of "director", and so notification of their appointment to the Registrar is
required pursuant to Cap.622, s.645.
80 British M11racSyndicate Ltd v Alpeno11R11bherCo lid [ 1915] 2 Ch 186.
81 Rubber Ltmds Ltd (1915) 85 U Ch 801.
Pltmtotio11sTi-ustLtd v Bila (S11111tltra)
82 Plantations Ti·ustLtd v Bila (Sumtltra) Rubber Ltlnds Ltd (1915) 85 L.JCh 801,802, per Eve J.
83 Pursuant to the directors' power of delegation as conrerred under the articles: Model Articles (private companies),
art.5; Model Articles (public companies), art.4; predecessor CO, Table A reg.83 (repealed).
8' Robert R Pennington, Company Law (8th edn, OUP 200 I) 651.
8' Re Broadcasting Station 2GB Pty Ltd (1964-1965) NSWR 1648.
86 Cap.622, s.459(1).
250 BOARDOF DIRECTORS
made in contravention of the statutory provision is void, 87 but an under-age person

who purports to act as director or shadow director can still be liable under any
provision of the Companies Ordinance (Cap.622) or the Companies (Winding-
Up and Miscellaneous Provisions) Ordinance (Cap.32) notwithstanding that the
person could not be appointed director: Cap.622, s.459(3). This provision is
modelled on s.157(5) of the Companies Act 2006 (UK). In the United Kingdom,
the provision was introduced to deal with concerns that, notwithstanding the
statutory provision, child directors were sometimes appointed in order to exploit
their immunity from prosecution or the reluctance of enforcement authorities to
pursue young persons. 88
4.6 Corporate directors
7.040 Prohibitions. There is an outright prohibition on public companies appointing a body

corporate as director.89 Corporate directors also cannot be appointed for companies
limited by guarantee. 9° For private companies, there is an absolute prohibition on
corporate directors for such companies which are members of a group of a company
of which a listed company is member.91 Other private companies can appoint corporate
directors, but there is a requirement that the private company must have at least one
director who is a natural person.92
7.041 Issues with corporate directors regarding lack of transparency and
accountability. The issue of corporate directorships had been the subject of public
consultation in 2008, 93 with a suggestion being made that the prohibition on public
companies having body corporate directors be extended to private companies as
well. This was on the basis of ensuring transparency and accountability, as the
interposing of a corporate director between individuals and the subject company
can mean that the individuals escape personal responsibility for compliance with
directors' legal obligations. 94 The lack of transparency also caused concerns on the
possibility of the use (abuse) of corporate directors to facilitate money-laundering
(as control of the company by individuals can be concealed). 95 On the other hand,
there is the argument that corporate directors can serve legitimate purposes:
signing of documents etc. can be facilitated by the use of a corporate director where
individual directors are often out of Hong Kong; and corporate service providers
can provide professional directorial services more conveniently and efficiently
through the use of corporate directors rather than natural persons. In the event,
., Cap.622, s.459(2).
88 Hansard, HL GC Day 2, Vo) 678 col I67 (I February 2006).
89 Cap.622, s.456(1)(a).
90 Cap.622, s.456(1)(c).
91
Cap.622, s.456( I)(b).
•• Cap.622, s.457.
93 FSTB, CO Rewrite • Company Names, Directors Duties, Co1port11e DireCl()rShip, Registrt11io11of Clwrges:
Co11sultatio11Paper (April 2008), [4. l]-[4.7], and Co11sulta1io11 (December 2008), [25)-(30].
Co11c/usio11s
94 Sec para.7.012 above whether the individuals would be defac10 directors oft he subject company.
9' Financial Action Task Force, The Misuse of Corporate Vehicles, lnc/11di11g1h1st and Company Service Providers
( 13 October 2006).
VACATIONOF OFFICE 251
Cap.622, s.457 aims to strike a balance by requiring at least one director of private
companies to be a natural person. 96
5. VACATION OF OFFICE
5.1 Retirement by rotation
1/3 retire by rotation under Model Articles (public companies). As mentioned in 7.042
section 4.3 above, after the first AGM, under the Model A1ticles for public companies
(Cap.622H), art.24, one-third, or the number nearest to one-third of the directors, are
to retire from office by rotation every year. Those who are to retire shall be those
who have been the longest in office since their last election. As between persons who
became directors on the same day, who to retire, unless they agree among themselves,
is to be determined by lot.97 Where the company has adopted Model Articles (public
companies), art.24, and the number of directors is reduced to two, neither needs
to retire. 98 The Model Articles for private companies do not contain provisions on
rotation, but the resolution of the general meeting appointing a director can specify a
pe1iod of time for the appointment. 99
5.2 Vacation of office
Ceasing to be director. Under the Model Articles, 100 a person ceases to be director 7.043
if the director: (a) ceases to be a director under the Companies Ordinance (Cap.622)
or under the Companies (Winding-Up and Miscellaneous Provisions) Ordinance
(Cap.32); 101 (b) becomes bankrupt or makes any arrangement or composition with
his creditors generally; (c) becomes a mentally incapacitated person; 102 (d) resigns in
accordance with Cap.622, s.464; (e) for more than six months has been absent from
directors' meetings without prior pennission of the directors; or (f) is removed from
office by ordinary resolution.
Whole board vacating automatically when failed to hold AGM. In certain 7.044
circumstances, it might happen that the whole board vacates office automatically
where the company has failed to hold an AGM. This may happen where the company's
articles provide for the retirement of all the directors every certain number of years.
The failure to hold an AGM in the year where all of the directors are required to retire
96
The provision follows the UK approach in the original s. I 55 of the Companies Act 2006 (UK), as enacted.
However, the UK has since proposed a general ban on corporate directors for all companies, with s. I 55 to be
repealed and news. I 56A to be introduced by the Small Business, Enterprise and Employment Act 20 I 5 (UK).
Regulations made under new s.1568 can provide for exceptions. These amendments were previously intended to
come into operation in 20 I 7 but implementation of the provisions has been delayed.
1
• Model Arlicles (public companies), art.24(6).
98 Re Moreley& Sons lid [ I 939) Ch 719.
99 Model Articles (private companies), ari.22(2).
100
Model Articles (private companies), art.25; Model Article.s (public companies), art.27. For the former Table A,
sec reg.99 (repealed).
101
The provisions on disqualification of directors are contained in the retitled Cap.32: see further par.i.7.106 below.
102
As defined: see Model Articles (Cap.622H), art. I.
will result in a situation where the company is without a board, as no director would
have been elected to replace the directors who have vacated office. 103
5.3 Removal
5.3.1 Removal by directors

7.045 Board compelling director to resign. Where the company's articles provide for the
power of the board to compel a director to resign through a written request of his or her
fellow directors, the director must resign. The validity of a written resignation notice
cannot be impugned merely because one or more of the directors may have exercised
their power to expel one of their number in bad faith. To hold otherwise may introduce
into the management of the company an element of uncertainty which is unlikely
to have been intended by the signatories of the articles and by those who become
shareholders subsequent to the incorporation of the company. Hl4
5.3.2 Removal by members

7.046 Removal by ordinary resolution. By Cap.622, s.462, the company has the power
to remove directors through an ordinary resolution notwithstanding anything in its
articles or any agreement between the company and the di rectors. 105 Section 462 is
derived from the predecessor CO, s.157B (repealed), which was originally introduced
in 1984. To preserve the rights of existing directors at the time, neither predecessor
CO, s.157B nor the current Cap.622, s.462 applies to a private company where a
director held office for life as of 31 August 1984.106 Before amendments made to the
predecessor CO, s.157B under s.60 of the Companies (Amendment) Ordinance (No 28
of 2003) (which came into effect on 13 February 2004), a removal of directors under
the statutory provision required a special resolution.
7.047 CO does not allow for weighted voting rights on removal of directors. Except
for listed companies, '°7 companies can generally issue shares with weighted voting
rights. Previously, this could be used to entrench directors in office, for example
where the shares held by a director are to carry a greater number of votes on a
resolution to remove the director from office. 108 However, this is no longer possible
in Hong Kong. Under Cap.622, s.462(7) 109 on a resolution to remove a director before
the expiration of his or her period of office, no share can carry a greater number of
votes than it would carry in relation to the generality of matters to be voted on at a
general meeting. Where a share carries special voting rights 110 in relation to some
matters but not others, the reference to the "generality of matters" means the matters
in relation to which the share carries no special voting rights} 11
103
Alexander Ward& Co Ltd v Samya11gNavigation Co Ltd [ 1975] I WLR 673.
i().J Samuel Tak Lee v Chou ll~n Hsien [ 19&4) I WLR 1202.
•05 Cap.622, s.462(1).
106 Cap.622, s.462(2); predecessor CO,s.157B(I) (repealed).
101
Sec Chapter 16.
168 Bushell v Paith [1970) AC 1099.
10
• Derived from predecessor CO,s. I 578(5) (repealed).
11
• Namely rights different from those carried by other shares.
111
Cap.622,s.462(8).
Special notice required of resolution. Special notice is required of a resolution to 7.048

remove a director or to appoint a person in place of the director so removed at the meeting
at which the director is removed. 112 On the meaning of special notice, see Chapter 9. On
receipt of the notice of an intended resolution to remove a director, the company must
forthwith send a copy of this notice to the director concerned and the director is entitled
to be heard on the resolution at the meeting. 113
Director can claim compensation or damages for removal. The statutory provisions 7.049
on the company's power to remove directors do not deprive a person of compensation or
damages payable to that person in respect of the termination of, inter alia, that person's
appointment as director. 114 In fact, the dismissal of a director can be costly where
there is a service contract between the company and the director entitling the director
to hold that position for a fixed period, or giving him the right not to be dismissed
without prescribed or reasonable notice. Where a dismissal entails a breach of the
abovementioned terms in the service contract, the director may be entitled to damages
for breach of contract. 115 Where no service contract subsists between the company and
the director, and the relevant a11icleprovides that the director's appointment is subject
to determination ipso.facto, the company can remove the director without notice and
the director has no ground for suing for wrongful dismissal. 116 Where, however, the
plaintiff is engaged as a managing director without a formal service contract and
no resolution has been passed on his or her remuneration, if he or she has, in fact,
pe1formed his or her duties and received a salary accordingly, he or she may, at least
for some purposes, be treated as an employee of the company and sue for unfair
dismissal. 117
Statutory provision can be relied upon despite anything in articles or agreement 7.050
between company and director. The statutory power of the members to remove
directors by ordinary resolution may be inconsistent with the members' removal power
or a director's 1;ght not to be removed from his or her office provided in the company's
articles or shareholders' agreement, or even a director-cum-member's right to
participate in company management on the basis of quasi-partnership. Section 462( l)
expressly provides that the statutory provision can be relied upon despite anything in
the articles or an agreement between the company and the director. In Muir v Lampl, 118
Lam J also held that the predecessor CO, s.157B (now Cap.622, s.462(1)), being an
important provision governing the power structure of a limited company, could not
be circumvented or abrogated by a contract between the shareholders. His Lordship
held that an unqualified agreement not to remove a particular person as a director
constituted an unlawful fetter on the statutory power conferred under the statutory
provision. It is conm1on for joint venture agreements to confer on the individual joint
venture parties the right to appoint nominee directors to the board. Lam J observed
112
Cap.622, s.462(4).
113
Cap.622.s.463.
114
Cap.622, s.462(9).
'" Southem Foundries (1926) Ltd v Shirlaw [1940] AC 701.
'" ReadvAstoria Garage (Streatlwm) l!d(l952) I Ch 637.
'" Folami v Nigerline {UK) Ltd [ 1978) !CR 277.
118 [2005) I HKLRD 338.
that this can be legitimate in protecting the interests of a particular shareholder or joint
venture party, but considered that absolute immunity from removal is not justified (as
such immunity would mean that even a majority of shareholders could not remove a
director who acted seriously in breach of his duties).
7.051 Situations where director might be able to contest removal: quasi-partnership
where removal amounting to unfairly prejudicial conduct. However, notwithstanding
1\1/uirv Lampl, there are some cases which suggest that there might be some situations
where a director may be entitled to contest a s.462( l) based removal. In Re Mandarin
Capital Adviso,y Ltd, 119 Harris J stated, by way of obiter dicta, that a director could
be entitled to an injunction to restrain a removal where there is "a written agreement
between shareholders, to which a company is not a party, which contains an express
prohibition against removal of a director all the time he remains a shareholder, which
can be enforced by injunction". 120 It appears that Harris J's comments are directed
towards the situation of quasi-partnership companies where there is an agreement or
understanding between the shareholders that each of them is entitled to participate in
the management of the company. Breach of such an agreement or understanding can
amount to unfairly prejudicial conduct which could entitle the director to remedies
under Cap.622, ss.724-725. 121
7.052 Shareholders' agreement providing for equal participation in management. In Re
China NTG Investment Ltd,' 22 an application was made (under the predecessor CO,
s. l 14B (repealed), now Cap.622, s.570 123) for the court to order the convening of a
general meeting for the purpose of changing the composition of the board of directors.
Deputy Judge Louis Chan ordered a meeting to be convened but refused to authorise
the applicant to propose a resolution for the removal of directors. His Lordship's refusal
was based on the possible existence of an oral shareholders' agreement that allegedly
provided for equal participation in management by all members. The applicant had
denied the existence of the oral agreement and had argued that the leave requested
should be granted and that if the respondents wished to seek a remedy on the basis of
the alleged agreement, they would have to issue proceedings under predecessor CO,
ss. l 68A124 and 177(1). Acceding to this request would, according to the judge, amount
to a decision on the existence of the oral agreement in favour of the applicant and,
because of the doctrine of res judicata, the relevant respondents would be prevented
from relying on that oral agreement in further proceedings.
7.053 Where a proposed removal is one of the grounds for a winding-up petition. A
similar approach was taken in Lo Sui Lin v Chan Hung Fook,'25 where Deputy Judge
Le Pichon declined to grant an order under Cap.622, s.570 for a general meeting to be
convened for the purpose of removing an existing director of a family-run company
from office in circumstances where the ouster of the director was one of the grounds
II? [2011) 2 HKLRD 1003.

120 Re Mtmdarin Capital Adviso,y Ltd (2011) 2 HKLRO I003, I014.
121 Sec further Chapter 10.
122 [2012)2 1-lKLRD296.

123 Sec Chapter 9.
'" That is, the unfair prejudice remedy: see now Cap.622, ss.724-725.
"' [2017) 3 HKLRD 746.
for a separate petition brought by the minority shareholders (including the director in
question) to wind up the company on just and equitable grounds, where there was an
alleged informal agreement that the majority shareholder (who applied for the order
under Cap.622, s.570) was not intended to be involved in management of the company,
and where that majority shareholder had in fact not been involved in the affairs of the
company for the past 28 years. The court considered that it would be wrong to allow the
status quo to be dramatically changed given the winding-up petition that was pending.
No injunction to prevent removal of director where insufficient evidence to show 7.054
agreement entitling director's participation in management. [n Re £-Harbour
Services Ltd, 126 Peter Ng J allowed an application (under predecessor CO, s.114B)
for an order for a meeting to be held for the purpose of removing a director from
office. In this case, there was also an argument that the order should not be made
because of the existence of an oral agreement between the shareholders that the
company will be operated on the basis of joint control and management. The applicant
disputed the existence of the agreement. The court held that the mere assertion
of a quasi-partnership or an oral agreement or understanding between the only two
shareholders as to joint management of the company is normally not a sufficient
ground for refusing to order a meeting which will enable a majority shareholder to
exercise his statutory right to remove a director. Justice Ng expressed some doubt
as to whether it was indeed possible for an agreement for joint control to ovenide
the statutory power of members 127 to remove a director, citing Muir v Lampl. 128 His
Lordship stated, however, that even assuming that such a contractual restriction is
legally permissible, it will require strong evidence of an unqualified right to participate
in the management of the company. Justice Ng favoured the view of Harris J in
Re 1\1andarinCapital Adviso,y Ltd 129 that ordinarily it would be necessary to show the
existence of a written agreement containing an express prohibition against removal.
Re £-Harbour Services Ltd was distinguished in lo Sui Lin v Chan Hung Fook130
on the basis that the company in the latter case was a small family company that
was only used as an asset-holding vehicle, where it was wholly unrealistic to expect
written agreements; while both Re £-Harbour Services Ltd and Re Mandarin Capital
Advisory Ltd involved shareholders in a commercial setting who had entered into the
business arrangements at arms' length. It was also relevant in lo Sui Lin v Chan Hung
Fook that the proposed ouster of the director was one of the grounds in a pending
petition to wind up the company on just and equitable grounds. 131
Alternative procedures for removal in articles can be relied upon. If the articles 7.055
have set out alternative procedures for removal of a director from office, those
126 [2014] 5 MKLRD 180.

127 i.e. Cap.622, s.462(1).
128 [2005] I HKLRD 338. On Peter NgJ's approach, it appears that, although the court might not prevent the majority
members from exercising their scarutory power to remove a director from office, the director-cum-member may
still seek other remcdie.s under Cap.622, ss.724-725 (such as a compulsory buy-out order) if the removal is
in breach of an agreement or understanding for joint participation in management and amounts to unfairly
prejudicial conduct.
" 9 [2011] 2 HKLRD 1003. Sec also Re Roeders (China) ltd(unrcp., HCCW 68/2016, (2016] HKEC 1337).
1
.1-0 [2017) 3 HKLRD746.
'" See para.7.053 above.
procedures can be relied upon as an alternative to Cap.622, s.462(1). While the

articles cannot displace the operation of this s.462(1), it is possible for the members
to rely on any alternative procedures for the removal of a director as permitted by the
articles. However, even where the members rely on a separate right under the articles
for removal of the director, the procedural protections in ss.462-463 of Cap.622 are
still applicable-namely the provisions for special notice, the directors' rights to make
representations in relation to the proposed removal and the restrictions on weighted
voting rights. That s.462(3) of Cap.622 expressly states that those provisions are
applicable irrespective of whether the proposed removal by resolution is made under
that s.462( I) or otherwise.
5.4 Resignation
7.056 Can resign at any time unless articles or agreement provides otherwise. A director
may resign from office at any time unless the articles or an agreement between the
company and the director provides otherwise. 132 Where notice of the resignation is
required to be given by the articles or by an agreement with the company, the resignation
does not take effect unless notice is given in accordance with the requirement or by
sending it by post to, or by leaving it at, the registered office of the company.133
5.5 Notification to registrar
7.057 Notify Registrar of change in directors. When there is a change in the directors of
the company, the company must notify the Registrar of the change within 15 days of
the change. 134 The company would also need to update its own register of directors
kept pursuant to Cap.622, s.641. 135
6. BOARD MEETINGS
7.058 Directors must act collectively. The powers conferred on the board of directors
under the Companies Ordinance (Cap.622) or the articles are conferred on the
body of directors as a whole. Directors must act collectively (via a meeting of the
directors or a unanimous decision of the directors), and so an individual director 136
cannot himself or herself exercise the powers conferred on the board. 137 Where the
Ordinance or the articles refers to "the directors", this is generally a reference to the
directors acting as a board, and so for example a provision in the articles conferring
management powers on "the directors" means that the management powers must
be exercised by or under the authority of the board and cannot be exercised by an
H2 Cap.622, s.464(1).
133 Cap.622, s.464(5).
,;, Cap.622, s.645(4). In 1he case of resignation, if there arc reasonable grounds for believing that the company will
not give no1icc, then lhe director resigning mus1 himself give notice co the Regis1rar: Cap.622, s.464(3).
rn Cap.622,s.643.
IS(> .Except
in the case of sole directorcompanies.
'" Re HaycraftGoldReductio11 and MiningCo (1900) 2 Ch 230; Mitchell& Hobbs (UK)LtdvMil/[1996] 2 BCLC 102.
BOARDMEETINGS 257
individual director acting by himself or herself' 38 (unless delegated with authority

from the board).
6.1 Calling board meetings
By notice. Under the Model Articles, any director may call a directors' meeting by 7.059
giving notice to the directors or by authorising the secretary to give notice. 139
6.2 Notice
Must be given to every director. Neither the company law legislation nor the previous 7.060
Table A contains detailed rules on the notice for board meetings. The Model Articles
do set out some requirements in relation to notice for board meetings, but the legal
rules are largely governed by the common law. Under the Model Articles, notice must
be given to each director. 140 Notice must also be sent to any alternate director who is
acting in place of his or her appointor. 141 The above requirements under the Model
Articles reflect the common law position where the courts have held that notice must
be given to every director. 142
Need not be in writing. Under the Model Articles (Cap.622H), the notice need not 7.061
be given in writing. 143
Notice period as per articles; if articles silent must be reasonable. As to the period of 7.062
notice required, where the company's articles provide for the period, the regulation must
be complied with. A failure to comply may render the meeting ineffective and void. 144
Where the articles are silent on this matter, the period of notice given must be reasonable.145
Test of reasonableness appears to be whether given early enough to enable 7.063
directors to attend. The rationale behind the adequate notice requirement is to ensure
that the directors will be able to make representations of the interest they have in their
hand. The company is entitled to the benefit of the collective wisdom and contribution
of all directors. 146 The reasonableness of the notice depends on the circumstances
in which the notice was given. The test of reasonableness appears to be whether the
notice is given early enough to enable directors to attend. 147 Thus, where the director's
'" Mite/tell & Hobbs (UK) Ltd v Mill [ I996) 2 BCLC I02.
"' Model Articles (private companies), mt.9; Model Articles (public companies), art.7. For the predecessor CO,
Table A, see reg. I00 (repealed).
'"" Model Articles (private companies), aii.9(3); Model A11icles(public companies), art.7(5).
141
See Model Articles (private companies), art.29; Model Articles (public companies), art.31.
142 Billion £<press llld,mrial Ltd v Tsang /i1111gKong [2012) 5 MKC 51; Hansen International Ltd v High Fashion
Apparel Ltd (unrep., MCA 1724/2014, [2014) HKEC 1484). See also Petsch v Ke1111edy (1971) I NSWLR 494;
Eastern Resources oJAustralia Ltd v Blass Reinforced Products (GRP) P~yLtd ( 1986) IOACLR 496; Mitropoulos
v Greek Orthodox Church (1993) 10 ACSR 134; Yick Hok Wing v Chan Yook Ming [ I 997) I HKC 49.
1
"; Model Article.s{privatecompanies), art.9(3);Model Articles(publiccompanies), art.7(5).
"' Je11aslwrePry Ltd v Lembrib Pty Ltd (1993) 11 ACSR 345. But sec para.7.075 below.
,., Re Homer District Consolidated Gold Mines Ltd Exp Smith (1888) 39 Ch D 546; Broadview Commodities Pre
Ltd v Broadview Finance Ltd [ 1983) HKLR 384; Toole v Flexihire Pty Ltd ( 1991) 6 ACSR 455.
" 6 Bell v Burt<m(1993) 12 ACSR 325, 329,perTaclgcll; SEG Investment Ltd v SEG Intl Securities (HK) Ltd(unrcp.,
HCMP 4211/2003, (2005) HKEC 1633), (I I).
'" Broadview Commodities Pre Ltd II Broadview Finance Ltd (1983) HKLR 384,388.
office is five minutes' walk from the venue of the board meeting, a notice ofless than
ten minutes may be sufficient where the director is available, 148 whereas a few hours'
notice may be insufficient where one of the directors cannot be reached until at least
the next day, as he or she is overseas. 149 Where there is evidence that the purpose of
giving other directors sh011notice is to make a pre-emptive strike on a scheduled board
meeting and to entrench the position of the notice giver as a director, the meeting
called through such short notice will be invalid. 150
7.064 Model Articles: time and place. The Model Articles require the notice to
indicate the proposed date and time of the meeting, and where the meeting is to
take place. 151
7.065 Generally no need to state nature of business to be transacted. As a general
principle, there is no need to state the nature of business to be transacted in the
notice. 152The rationale behind this rule is summarised by Lindley LJ in La Compagnie
de Mayville v Whitley:153
"It is not uncommon for directors conducting a company's business to meet on stated
days without any previous notice being given either of the day or of what they are
going to do. Being paid for their services - as they generally are, ... it is their duty to
go when there is any business to be done, and to attend to that business whatever it is."
7.066 Subject to considerations of reasonableness. This rule, however, is subject to the

overriding consideration of reasonableness in all circumstances. As Deputy Judge A
To points out in SEG Investment Ltd v SEG Intl Securities (HK) Ltd:
"It is not a rule without qualification. If it were, some directors at a meeting may,
upon finding it opportune to do so, pass any resolution which they know would
not be passed had other directors been present at the meeting .... The result would
be a state of anarchy". 154
7.067 Whether some notice required if business important or extraordinary. Deputy

Judge A To was of the view that the rule applied only where the business to be
transacted at the meeting was ordinary business. His Lordship believed that if the
business to be transacted at the meeting was important or extraordinary, some notice
of the nature of the business to be transacted at the board meeting must be given. The
level of the need to state the nature of the business in the notice, His Lordship added,
should be proportional to the level of importance of the business. 155
"8 Browne v L 1H11idad(1887) 37 Ch DI.

"' Re Homer District Co11solidaied Gold Mines Exp Smith [ 1888] 39 Ch D 546. Note, however,that former Table A
reg. I 00 (repealed) provided that it is not necessaryto give notice to any director for the time being absent from
Hong Kong. There is no equivalent of this provision in the Model Articles.
,so YickHokWi11gvClu111YookMi11g[1991] 1 HKC49.
'" Model Articles (private companies) art.9(2); Model Articles (public companies) art. 7(4).
"' La Compagnie de Mayville v Whitley [ 1896] J Ch 788; Kwok Slw11On v Wo11gSai Wing [2001]3 HKLRD 811.
"' ( 1896] 1 Ch 788. 797
,,., SEG Invest111e111 Ltd v SEG bul Securities (HK) Ltd (unrep., HCMP 421 J/2003, [2005) HKEC 1633), [ 13).
"' SEG lnves/111e11t Ltd v SEG /111/Securities (HK) Ltd (umep., HCMP 421 J/2003, (2005) HKEC 1633), ( 13).
BOARDMEETINGS 259
Voluntary winding-up by board. The facts in SEG Investment Ltd v SEG Intl 7.068
Securities (HK) Ltd involved a purported board resolution for winding-up. A special
feature of the law on voluntary winding-up under Cap.32 is that it is possible for
the board, as distinguished from the shareholders themselves, to initiate a members'
voluntary winding-up. 156 A voluntary winding-up initiated by directors under s.228A
of Cap.32 has the same effect as a members' voluntary winding-up provided under
that previous s.228 of Cap.32. As Deputy Judge A To observed in SEC investment, if a
s.228 winding-up required a notice of 21 days specifying the intention to propose the
resolution as a special resolution, it cannot be the law that the safeguards provided in
the case of a voluntary winding-up be completely dispensed with where the winding-
up is initiated by directors. 157
Failure might suggest avoiding opposition of co-directors. Deputy Judge A To's 7.069
view on the need for stating in the notice the nature of the business to be transacted
at the board meeting is supported by Re Homer District Consolidated Gold Mines,
where North J held that a failure to state in the notice what was to be done at a
board meeting may suggest that the aim of the directors who sent out the notice
was to secure the passing of a resolution that would bind the company through
getting rid of the opposition of their co-directors. 158 The resolution to be deliberated
at the meeting in that case was on the allotment of shares to an external party; the
allotment of which had been ruled out in the previous board meeting attended by
all the directors.
Notice when director absent. If a director is beyond physical reach and has the 7.070
board's permission to be absent from office, it is unnecessary to send notice to the
director, as a notice requiring the director to attend a board meeting would be wholly
inconsistent with the permission given. 159 Under the prior Table A, reg. I 00 (repealed),
it was unnecessary to give notice to a director who was, at the time, absent from
Hong Kong. This provision is not reproduced in the Model A11iclessince the giving
of notice to persons outside Hong Kong is not difficult under modern communication
technologies (and since meetings can be held without the need for every person to be
present at the one location 160).
6.3 Quorum
Quorum generally 2; if director has interest he is not counted under Model 7.071
Articles. For companies adopting the Model Articles or the formerTableA, the quomm
for transacting business at board meetings is two, unless the directors have determined
otherwise. 161 Where a director is interested in a transaction, arrangement or contract
with the company and the interest is material, the director must not be counted in the
156
Cap.32, s.228A. For a more detailed discussion on this topic, see Chapter 19.
15' SEG f11vestme11tLtd v SEG fntl Securities (HK) Ltd (unrcp., HCMP 4211/2003, (2005] HKEC 1633), [14).
"8 Re Homer District C<>nsolidatedGold Mines Exp Smith [ 1888] 39 Ch D 546, 550.
" 9 Hal/fax Sugar R~fi11ingC<>v Frtmkly11( 1890) 59 LJ Ch 591.
160 Sec para.7.102 below.
161
Model Articles (private companies), art. I I; Model Articles (public companies), art.9; predecessor CO, fonner
Table A reg.102 (repealed).
quorum present at the meeting, subject to certain exceptions. 162 An alternate director
will be counted towards quorum, at least where the company's articles so provide. ' 63
6.4 Chairperson
7.072 Can appoint chairperson for meeting. Under the Model Articles, the directors
may elect one of their number to be the chairperson of their meeting. 164 Where
no such chairperson is elected, or if at any meeting the chairperson (or deputy
chairperson, if any) is not present within 10 minutes after the time appointed for
the meeting, the directors present have the power to choose one of their number to
chair the meeting. 165
6.5 Voting and minutes of meetings
7.073 Majority of votes; chairperson has casting vote in case of equality. Under the Model
Articles, the board of directors passes resolutions by a majority of votes. 166 In case of
equality of votes, the Chairperson of a board meeting has a second or casting vote. 167
Directors interested in a contract being considered by the board may be prohibited
from voting under the articles. 168
7.074 Minutes. The minutes of all proceedings of the directors must be recorded, and the
record of minutes must be kept by the company for at least IO years from the date of
the meeting. 169 A breach of the obligations with regard to the recording and keeping
of minutes of board meetings constitutes an offence. 170 Directors have a common
law right to inspect the board's minutes. 171 Members do not have an absolute right to
inspect the minutes of board proceedings but may apply to the court for inspection
pursuant to Cap.622, s.740. 172 Minutes purporting to be signed by the chairperson
of the meeting, or by the chairperson of the next directors' meeting, are evidence of
the proceedings at the meeting 173 and are prima jacie evidence that the meeting was
162
Model Articles (private companies), art. I6; Model Articles (public companies), art.15; predecessor CO, former Table
A reg.86 (repealed).
163 For an example of this type of article, see reg. 122 of the Bye-Laws of Moulin Global Eyecare Holdings Ltd in Re
Moulin Global Eyecare Holdings Ltd (unrep., HCCW 470/2005, (2008) HKEC 923), (102).
164
Model Articles (private companies), art.13; Model Articles (public companies), art. I I; predecessor CO, former
Table A, reg. I03 (repealed).
165 Model Articles (private companies), art.13(4); Model Articles (public companies), ait.11(5). CJ predecessor CO,
former Table A, reg. I 03 (repealed) (where the period is five minutes).

166 Model Articles (private companies), art.7(l)(a); Model Articles (public companies), art.12; predecessor CO,
former Table A, reg. I 00 (repealed).

161 Model Articles (private companies), art.14; Model Articles (public companies), art.13; predecessor CO, former
Table A regs. I00 and I06 (repealed).

168 Model Articles (private companies), art.16; Model Articles (public companies), art.15; predecessor CO, former
Table A rcg.86 (repealed); and sec further Chapter 8.

1•• Cap.622, ss.481 (I) and 481 (2). The provision in Cap.622, s.48) (2) for retention of the records for IOyears is new.
Under the predece.ssor CO, s.119 (repealed), nothing was said as to how long the records must be kept.
°
17 Cap.622, s.481 (3) (maximum fine at level 5 and daily default fine of $1,000).
171
Sec Chapter I 1.
172 See further Chapter 11.
113
Cap.622,s.482(1).
BOARD MEETINGS 261
duly held and proceedings thereat duly taken place. 174 However, the minute books
are not conclusive evidence. 175 The articles can provide otherwise though, and in that
situation, the minutes can only be challenged on the basis of bad faith or fraud 176 or
error on the face of the minutes. 177
6.6 Effect of irregularities
Prima facie irregular if not convened or conducted in manner prescribed. 7.075

Company proceedings are primafacie irregular if they are not convened or conducted
in the manner prescribed under the articles or the law. This usually renders the
meeting invalid. However, it may be otherwise depending on relevant provisions in
the company's articles. 178 Also, there may be some situations where the irregularity
principle 179 or the unanimous consent doctrine 180 can apply so as to enable the meeting
to be regarded as valid notwithstanding the irregularity.
6.6.1 Meetillg illvalid

Generally irregularity renders meeting void. The general rule is that an irregularity 7.076
in the convening or holding of a board meeting would render the meeting void, such
that any decisions made at the meeting would be invalid. 181 This is illustrated by the
following cases.
SEG Investment case. In SEG Investment Ltd v SEG Intl Securities ltd, 182 the second 7.077
defendant was a minority member but had control at the level of the board. The
board was divided into t\vo factions. In anticipation that she would lose control in
the upcoming extraordinary general meeting, the second defendant called a directors'
meeting to wind up the company voluntarily under Cap.32, s.228A. The second
defendant gave a director of the other faction oral notice over the phone without
mentioning the real purpose of the meeting two days before the scheduled meeting.
Upon the request of the latter, she, the second defendant, sent a notice in writing the
following day, again without mentioning the purpose of the meeting.
SEG Investment case: inadequate notice in circumstances. Deputy Judge A To held 7.078
the meeting to be irregular and the resolution passed void and ofno effect on the basis
that the notice was inadequate. His Lordship's reasons were that the notice: (i) was too
short in the circumstances (where the business was to wind up the company); and (ii)
did not inform the director to whom the notice was given of the real purpose of the
meeting (the necessity of incorporating such a statement was again determined by the
nature of the proposed resolution). 183
174
Cap.622~s.482(2).
i,s Beus & Co lid v Macnaghte11[ 191OJ I Ch 430.
176 Kerr vJohn Molleram lid [1940] Ch 657.
"' Re Car(J(el (New) Mines Ltd [I 902] 2 Ch 498.
178
Sec para.7.08I below.
119
Sec para.7.083 below.
"'" See para.7.097below.
181
Gn111dField Group Holdings Ltd vTsang Jfoi l1111 Wayland (No 2) [2010] 4 HKLRD 487.
181 (unrep., HCMP 4211/2003,[2005) HKEC 1633).
183
(unrep., HCMP 4211/2003,(2005) HKEC 1633), (71)-{76).
7.079 Togge11burgercase. In Christian Emil Toggenbwger v Beaiiforte Investors Corp Ltd, 184
the board was divided into two factions: the C faction and the T faction. Cheung, of
C faction, gave four-homs notice on 27 December 2006 for a board meeting. The
resolution proposed was the removal of two T faction directors. It was during the
holiday season. Some directors were overseas. Even some of the directors who were in
Hong Kong could not make it, given the short length of notice. A resolution was passed.
7.080 Toggenburger case; notice too short in circumstances. Reyes J held that the meeting
was invalid because the notice was too short in the circumstances, given that the matter
to be deliberated in the proposed meeting (removal of directors) was not urgent. Also,
it was the holiday season. The company should have given directors allowance for the
fact that some of them were going overseas while others might remain in Hong Kong
to meet year-end deadlines. Any notice for non-urgent matters in or around the end of
December should have given the directors enough opportunity to alter their plans or
to re-arrange their schedules to be able to attend a meeting in person, by telephone or
through an alternate.
6.6.2 Articles waiving the irregularity

7.081 If articles provide irregularity does not affect validity of decision it can be ignored.
If, according to the company's articles, the procedural irregularity would not affect the
validity of the decision, then the irregularity can be ignored and the decision would
be valid. In Peter H Yip v Asian Electronics, 185 the plaintiff challenged the effect of a
board meeting on the ground of inadequacy in the period of notice given. Regulation
88 of the company's articles provided:
"A resolution agreed upon by at least 75% of the directors shall be valid and
effectual whether or not it shall be passed at a meeting of the directors duly
convened and held."
Le Pichon J refused the plaintiff's application, as there was no doubt that the resolutions
in question were agreed upon by over 75 percent of the directors.
7.082 Director waiving entitlement to notice. Another example is art.7(6) of the Model
Articles for public companies (Cap.622H), which provides that if notice of a meeting
has not been given to a director, the director can waive his entitlement to notice by
giving notice to the company not more than seven days after the meeting. If there
is such waiver, then according to art.7(6), the absence of notice does not affect the
validity of the meeting.
6.6.3 Irregularity principle

7.083 Irregularity principle applied to members' meetings; and relevant to board
meetings. The irregularity principle, originating from the rule in Foss v Harbottle, 186
has traditionally been applied in the context of members' meetings, to enable meetings
is-, (unrcp., HCMP 3712007, (2007] HKEC 171).

18
' (1998) 2 HKC 96.
18• (1843)2Hare461,67£R 189.
BOARD MEETINGS 263
to be regarded as having been held despite there being some procedural irregularity. 187
However, there is some judicial acceptance that the p1inciple can also be relevant for
board meetings.
Lawfulness cannot be questioned if mere informality and irregularity and 7.084
intention clear. In Peter HYip v Asian Electronics,188 Le Pichon J said:
"The irregularity principle really comes to this: the lawfulness ofa decision taken
by a meeting of members or board cannot be questioned if the only facts alleged
to make it unlawful is a mere informality and irregularity and the intention
of the meeting is clear. This is particularly so if there is no evidence that the
decision of the meeting would have been different if the correct procedme had
been observed. In this connection, it is appropriate to refer to what Cotton L.J.
observed in Browne v. Le Trinidad (1888) 37 Ch. D. I at page 10: 'A Court of
Equity refuses to interfere where an irregula1ity has been pe1mitted if it is within
the power of the persons who have permitted it at once to correct it by calling a
fresh meeting and dealing with the matter with all due formalities."'
In the above case (see also the facts outlined at para. 7 .081 above), Le Pichon J accepted
that the irregularity principle could be applied as an alternative basis for the validity
of the directors' resolutions.
Relief refused when irregularity could be cured and result would inevitably be 7.085
same. The irregularity principle was also applied in the context of directors' resolutions
in Bentley-Stevens v Jones. 189 In that case, P, D 1 and D2 were directors of H Co. S Co
was a wholly owned subsidiary of H Co. P, DI, D2 and M were the directors of S Co.
D 1 sent a notice to P, infonning him of a board meeting for H Co scheduled for the
following day. D 1 also tried to phone P on the day the notice was sent, to no avail, as
the latter was away. For the same reason, P did not receive the notice until the evening
of the following day, by which time the board meeting had been held.
A resolution was passed at the board meeting to autho1ise D 1 to give special notice to
S Co for the pmpose of removing P from its board. H Co subsequently requisitioned
an extraordinary general meeting of S Co. D 1 called an EGM of S Co. The notice
convening that meeting was expressed to be given by order of the board. In fact, no
board meeting was held and no notice of the alleged board meeting was given to either
P or M. The EGM resolved to remove P from the S Co board.
P challenged the decision on his removal on the bases of, inter alia, that the initial
board meeting of H Co was invalid due to the lack of notice and that the alleged board
meeting where the decision to call the EGM was also irregular (as that meeting was
never held). Plowman J refused the interlocutory injunction sought by P, holding that
the alleged irregularities could all be cured by going through the proper processes and
the ultimate result would inevitably be the same.
187 Sec Chapter 9.

188 [ 1998)2 HKC 96, [20).
189 (1974)1WLR618.
7.086 Principle has narrower scope of operation than in context of members' meetings:
directors fiduciaries and act collectively.However, it seems that the irregularity p1inciple
may have a narrower scope of operation in the context of board meetings compared with
members' meetings. [n Billion Express Industrial Ltd v Tsang Hung Kong, 190the issue was
whether a meeting for which no notice was provided to Ming, one of the four directors, was
valid. The comt ruled that no meeting was in fact held, but that even ifthere was a meeting,
the purported resolution passed at the meeting would be invalid. The court declined to
apply the irregularity principle as it was of the view that the deliberate withholding of
notice to a director was more than a mere informality and irregularity. In its judgment,
the court appeared to confine the scope of application of the irregularity principle in the
context of board meetings as compared with members' meetings. The comt emphasised
the difference between directors and members, pointing out that directors are fiduciaries
and have a duty to act in the interest of the company. Also, the power of management is
delegated to the board as a whole and the directors should act collectively. It is therefore
inappropriate for a number of directors to act without meeting or at a meeting of which
notice has not been given to the whole body of directors. 191 The court pointed out that the
company is entitled to have the collective wisdom and contribution of all directors and
a director has a right to paiticipate in the board meeting not merely to vote but also to
express his views on any matters to be discussed in the meetings:
"His contribution as director is not limited to his vote, but extends to his providing
his opinion to the board as part of the collective wisdom that the company is
entitled to obtain from its board." 192
7.087 Irregularity principle cannot be applied if possibility decision would have been
different. In any event, the irregularity principle cannot be applied if there is any
possibility that the decision of the meeting would have been different if the correct
procedure had been observed. In cases where the irregula1ity arose because of a
purpose of denying certain directors the right to attend the meeting in question, the
outcome of the meeting might well be different had they attended and had the correct
procedure been followed. As noted by Reyes J in Christian Emil Toggenburger:
" ... if sufficient notice had been given and more directors had attended, the
advocacy of one or other ... , may have swayed their colleagues to vote against the
resolution"( emphasis added). 193
6.6.4 The Australia11positio11

7.088 Meetings not invalidated unless irregularity causes substantial injustice. In
Australia, the effect of procedural irregularities is provided under s.1322 of the
190 [2012) 5 HKC 51. See also Hansen fntenu,tional Ltd v High Fashion Apparel ltd(unrep., HCA 1724/2014,
[2014) HKEC 1484).
191
[2012) 5 HKC 51, [95). Sec also N Sinclair, et al., Company Directors: ltJw and Liability (Looseleaf, Swecl &
Maxwell 1997).
192 [2012) 5 HKCSI, (97).
193
Christian Emil Togge11burgerv 8eauforte Investors Co1p Lid (unrep., HCMP 37/2007, (2007) HKEC 171), (73).
BOARDMEETINGS 265
Corporations Act 2001 (Aus). This provision stipulates that company proceedings
(including board meetings, general meetings and creditors' meetings) are not
invalidated by procedural irregularities unless the irregularity causes substantial
injustice. It is helpful to consider the Australian position here as the jurisprudence that
has been developed on s.1322 helps, it is submitted, construct a conceptual framework
on the effects of irregularity.
Procedural vs substantive irregularity. Section I 322 as noted above applies 7.089
only where the alleged irregularity is procedural irregularity as distinguished from
substantive irregularity. 194 How are the t\vo types of irregularities to be distinguished?
In Cordiant Communications (Aust) Pty Ltd v The Communications Group Holdings
Pty Ltd, 195 Palmer J of the New South Wales Supreme Court stated the following:
• "what is a 'procedural irregularity' will be ascertained by first detennining

what is 'the thing to be done' which the procedure is to regulate;
• if there is an irregularity which changes the substance of 'the thing to be
done', the irregularity will be substantive;
• if the irregularity merely departs from the prescribed manner in which
the thing is to be done without changing the substance of the thing, the
irregularity is procedural."
Deliberate withholding of notice to director not mere irregularity. The "substantive 7.090
irregularity" or "procedural irregularity" paradigm seems to be similar to the analysis of
the court in Billion Express Industrial, where it had been considered that the deliberate
withholding of notice to a director was not a mere irregularity. Under the Australian law,
this would amount to a "substantive irregularity". The proceedings cannot be validated
under the Australian s.1322 where there is a substantive irregularity, although Palmer J
had also accepted that in cases where a substantive irregularity could have made no
difference to the result of the meeting, the court may, in the exercise of its discretion
upon equitable principles, make a declaration that the meeting is valid. 196
Substantial injustice shown if different result might have resulted. For the purpose 7.091
of the Australian s. 1322, substantial injustice would be shown if a different result
may have been produced at a company proceeding had a procedural irregularity not
occurred. 197 This is similar to the analysis undertaken for applicability of the common
law irregularity principle, as outlined above.
6.6.S Effect of irregularity 011 third parties

Third party might be entitled to enforce contract despite irregularity. The discussion 7.092
above considers the internal effects on the company in relation to irregularities in
1
" Cordia,11Co1111111111icatio11s GroupHoldi11gsPty Ltd (2005)55 ACSR185,207.
{Aust)Pty Ltd v The Co1111mmica1ions
19
' (2005)55 ACSR 185,206.
196 (2005)55 ACSR 185,206.
197
Mamouney v Soliman (1992) 9 ACSR63, 71; Sutherland (as liq of Sydney Appliances Pty Ltd (in liq)) v Robert
Bosch (Aust) Pty Ltd (2000)33 ACSR680,689; Cordiant Communications (Aust) Pty Ltd v The Commu11icatio11s
Group Holdings Pty Ltd (2005) 55 ACSR 185.207.
the convening or holding of board meetings. Further considerations arise where the
position of third parties is affected. For example, there may have been an irregularity
at a board meeting where a resolution was passed authorising the company to enter
into a contract with a third party. Notwithstanding the irregularity and the defect in
the company's authorisation of the contract, the third party may be entitled to enforce
the contract as against the company on the basis that the third party dealing with the
company is entitled to assume that the relevant internal governance rules have been
complied with. 198The rules relating to this issue are considered in Chapter 12.199
6.7 Informal decision-making
6.7.1 Written resolutions

7.093 Decisions in absence of meetings: written resolutions require unanimous
approval. The articles of a company commonly contain provisions enabling directors
to make their decisions in the absence of an actual meeting. The Model Articles allow
the directors to make decisions in the form of a written resolution, which is as valid
and effectual as if it had been passed at a directors' meeting duly convened and held.200
The passing of such a written resolution requires unanimous approval by the directors
who are eligible to vote on the matter, and is generally done by each eligible director
signing on one or more copies of the resolution.201
7.094 Requirement to keep record of written resolutions. As noted above,202 a company
is required to retain minutes of its board meetings for at least 10 years from the date
of the meeting. There is no express provision in the Companies Ordinance dealing
with retention of the copies of written resolutions. For private companies adopting the
Model Articles, there is, however, an express requirement in the articles for written
resolutions passed in sole director companies to be retained for at least 10 years.203
For companies which use the predecessor CO, former Table A, reg.108 (repealed)
provides that a written resolution "shall be as valid and effectual as if it had been
passed at a meeting of the directors". On the basis of such a provision, it seems that
the written resolution can be treated as a resolution of a board meeting, and hence the
statutory provision requiring retention of the records ofboard meetings would apply.204
The provision in art.19 of the Model Articles for public companies (Cap.622H) has
wording similar to that quoted above from former Table A reg. I 08 of the predecessor
CO. However, there is no equivalent wording for the provisions in the Model Articles
'" Royal British Bank vTurqua11d(1856) 6 E & B 327, I 19 ER 886; Cltar/erltouseInvestment Tn,sl Ltd v Tempest
Diesels Ltd (I 985) I BCC 99, 544; Poliwka v Heven Holdings Pty Ltd (1992) 8 ACSR 747.
19
• See para.12.056.
200 Model Articles (private companies), arts.7(1)(b) and 8(2); Model Articles (public companies), arts.6(b) and
17-19; fonnerTable A reg.108 (repealed).
1 Model Articles (private companies), art.8(2) (signing or otherwise indicating agreement in writing is sufficient);
2<J
Model Articles (public companies), arts.17 and 18 (signing by each eligible director is necessary). The number
of eligible directors agreeing to the re.solution must satisfy the quorum requirements in order for the resolution
to be effective: Model Articles (private companic.s), arc.8(4); Model Articles (public companies), art.18(2).
202 Sec para.7.074.
2<lJ Model Articles (private companies), art.20(4).

"" See Paper to the Bills Committee on Companies (Amendment) Bill 2002 (May 2003, CB( I)(I 800/02-03(2))
para.7-10.
BOARD MEETINGS 267
for private companies. Unless it is possible to interpret Cap.622, s.481 as implicitly

covering written resolutions even in the absence of a provision in the articles deeming
the written resolution to take effect as a resolution at a meeting, then it seems that there
may be a gap in the Ordinance dealing with the record-keeping obligation with respect
to written resolutions generally. This gap will be addressed by amendments proposed
under the Companies (Amendment) Bill 2018. Clause 55 of the Bill proposes to amend
Cap.622, s.481 to expressly include a requirement on companies to keep, for I Oyears,
records of all resolutions passed by the directors without a meeting.
6.7.2 /,~formal meetings

Informal meetings valid: business reality. A board meeting can be validly held even 7.095
if it is an informal meeting of the directors. Particularly in cases where the company is
a family business or a closely held private company, directors' meetings are often held
in an informal way and the law recognises this reality.205
Cannot be treated as board meeting if directors do not intend to treat it as such. 7.096
However, a casual meeting of the directors, even if it took place in the boardroom,
cannot be treated as a board meeting if any of the directors do not intend to treat the
meeting as a board meeting. 206The following principles were set out in Billion Express
Industrial Ltd v Tsang Hung Kong. 207 Whether a gathe1ing is a directors' meeting does
not depend on any particular formality. However, a gathering of the directors will be
a directors' meeting only if that was intended to be so on the part of the directors who
attended the gathering. 208 Or to ask the question in another way, do they intend that any
decision made at the meeting would be treated as a decision of the board binding on
the company? The intention of the directors is to be ascertained objectively.
6.7 .3 Decision-making by unanimous consent

Decisions can be made in absence of meetings so long as unanimity. Subject to any 7.097
restrictions in the articles, board decisions can be made in the absence of meetings,
formal or informal, so long as the directors unanimously agree 209 or acquiesce 210
with the decision. The basis of a board decision appears to be what Sir James Bacon
V-C call "combined wisdom" of directors, which "can be most effectively secured
by correspondence, by transmission of messages, or by other means which may be
resorted to". 211
Unanimous and informed concurrence of directors required. The mm1mum 7.098
requirement for the existence of a board decision under the unanimous assent
doctJine appears to be a unanimous and info1med concurrence of the directors
,os Swiss Screens(A11s()Pty Ltd v 811rgess( I987) 11 ACLR 756.

'°" Barron v Poller [1914] I Ch 895.
,o, (2012] 5 HKC 51, [52]-(59].
208 The intentions of directors who did not attend the gathering arc not relevant: [2012] 5 HKC 51, [56]-(59].
'"' 8011ellis"Telegraph Co, Re Collies Claim (1871) LR 12 Eq 246; R1111ci111a11 Pie [1993]
v Walter R1111cima11
BCC 223; Base Metal Trt1di11gLtd v Sha1111,ri11 (2005] BCC 325; Poliwka v 1-fevenHoldings Pty Ltd (1992)
8 ACSR 747.
216 Clumerho11se lnveslmelll 1h1st Ltd v Tempest Diesels Ltd (I 985) I BCC 99, 544.
211
Bonellis"Telegraph Co, Re Collie's Claim (1871) LR 12 Eq 246,258.
on the matter concerned. 212 The concurrence can be manifested by the directors'
conduct. In Roden v Intl Gas Applications, 213 for example, a secured borrowing
transaction, which was executed by the use of the company's common seal in the
presence of the company's only two directors (one of whom was also the company
secretary) who signed as director and secretary respectively, was held to be valid.
This was notwithstanding the fact that no board meeting was held to consider this
transaction. McLelland CJ held that, on the basis of the relevant provision in the
company's articles, the determining fact of the validity of a transaction of this nature
was the directors' authorisation, the requirement of which was fulfilled. His Honour
added that in any event the presence of the two corporate officers and their actual
concurrence and consensual participation in the sealing process were sufficient to
constitute an effective decision of the directors. In other words, the company's only
two directors' consensual execution of the transaction constituted their concurrence
on the transaction in dispute.
7.099 Limitations as when unanimous consent can be treated as having reached
through board meeting. There are, however, limitations as to the circumstances
in which unanimous consent can be treated as decisions reached through properly
convened board meetings. For example, the fact that every member of the board 214
is aware of a matter does not mean that a disclosure of that matter has been made to
a "meeting of directors" if the duty to disclose to the board is statutorily imposed. 215
Also, an informal agreement between the only two directors who are in the same
time in a trust relationship may not amount to a corporate decision if the agreement
is more appropriately characterised as one between the trustee and the cestui que
trust.216
7.100 Model Articles private companies: provides for possibility of informal decisions.
For private companies adopting the Model Articles (Cap.622H), the possibility of the
directors making decisions informally without a meeting (and without using a written
resolution) is expressly provided for. Under arts.7(l)(b) and 8 ofCap.622H, a decision
of the directors may be made when all directors entitled to vote on the matter indicate
to each other by any means that they share a common view on a matter.217
7.101 Model Articles public companies: decisions must be made at meeting or by written
resolution. For public companies adopting the Model Articles, it is not possible for
the directors to make a decision otherwise than at a meeting or by way of written
resolution. Article 6 of Cap.622H states that those two methods are the only ways
that a decision of the directors may be taken. Accordingly, the common law principles
allowing directors to make a board decision on the basis of unanimous consent are
inapplicable for public companies which adopt the Model Articles.
m Swiss Screens (A11stralia) Pty Ltd v 811rgess(1987) 11 ACLR 756, 758-759; Matilda & /lr,r Memorial
Hospital v David Hentlerso11[ 1997] HKLRD 360.
m (1995) 18 ACSR 454.
2" Poliwka v Heve11f-loldi11gsPty Ltd (1992) 8 ACSR 747.
"' G11i1111ess ( 1990) 2 AC 663 (HL).
Pie v Sa1111ders
216 Poliwka v f-leve11
Holdi11gsPty Ltd (1992) 8 ACSR 747.
"' The number of eligible directors agreeing to the matter must satisfy the quorum requirements in order for the
decision to be effective: Model Articles {private companies), art.8(4).
BOARD MEETINGS 269
6.8 Technology
Telephonic meetings can be held. There are earlier case authorities that the directors 7.102
must meet in person, unless the company's articles provide otherwise. 218 In the
Australian case Magnacrete Ltd v Robert Douglas-Hill, 219 Perry J held that board
meetings could not lawfully be held by separate phone calls to directors but said that:
" ... [i]t may be that a meeting of directors would be held on a conference
telephone .... " 220
The courts in a number of subsequent Australian cases have expressed their

endorsement of Perry J's view on board meetings by telephone conference. 221 The
uncertainty of the law on the use of technology to call or hold board meetings in
Australia has since been removed by the enactment of s.248D in the Corporations Act
2001 (Aus). Section 248D provides that board meetings may be called and held using
technology consented to by all the directors. There is no equivalent of this provision
for board meetings under Cap.622 in Hong Kong. However, in the Hong Kong case
of Grenville House (JO) v Wong Tak Keung Stanley, 222 Deputy Judge Katherine Lo
upheld the validity of a telephonic conference meeting of the Management Committee
of the plaintiff incorporated owners of building, citing some of the abovementioned
Australian cases as case authorities. 223
Articles can provide for possibility of holding meetings through technology. The 7.103
articles can provide for the possibility of holding meetings through the use of technology
without the need for the directors to meet at the one place. Under the Model Articles
(Cap.622H), a meeting can be held regardless of where a director is, so long as the
directors can communicate with each other any information or opinions on any particular
item of the business of the meeting.224 For companies using the predecessor CO, former
Table A, reg. I (repealed) provides that a requirement in the articles for meetings of the
directors to be held can be satisfied by the meeting being held by such lawful electronic
means and in such manner as may be agreed by the company in general meeting.
6.9 Sole director companies
Sole director: can take decision at any time so long as written record. It is possible 7.104
for a private company to have only one director.225 Where the company has a sole
"' Re Portuguese Consolidated Copper Mines Ltd ( 1889) 42 Ch D I60; Re Bankruptcy of Associated Colour
Laboratories Ltd ( I 970) 12 DLR (3d) 338; ( 1970) 73 WWR 566.
119 (1988) 15 ACLR 325.
'l<l (1988) 15 ACLR 325,333.
'" Bell v 8urto11 (1993) 12 ACSR 325, 328-9; Wag11erv /111/Health Promotio11s(admi11,ipptd) (1994) 15 ACSR
419; Mulco11Pty Ltd v MYT Engineering Pty Ltd ( 1996) 14 ACLC, 1,054, (NSWSC); MYT £11gi11eeri11g Pty Ltd v
Mulco11Pty Ltd (1997) 15 ACLC, 1,057; Re !11ve111ive
Ma1*eti11gPty Ltd (in liq) (2000) 36 ACSR 206.
222 (2012] I HKLRD 315.
"' (2012] I HK.LRD315, (51]-(52].
"' Model Articles (private companies). art.10; M<>del
Articles (public c<>mpanies),
art.8.
22j Cap.622. s.454.
director, there is no need, nor is it practically possible, for the director to make decisions
through board meetings. The effect of Cap.622, s.483 is that a sole director may make
a decision at any time, which can take effect as a decision of the board, so long as the
director provides the company with a written record of that decision within seven days
after the decision is made. The record is sufficient evidence of the decision having been
taken by the director.226 The record must be retained for at least 10 years from the date
of the decision.227
7.105 Or written resolution. Section 483 expressly excludes the need for a written record
where the decision is made by way of written resolution. The section therefore
contemplates the possibility of a sole director making a decision by way of a written
resolution. This is confirmed in the Model Articles for private companies (Cap.622H),
where arts.7(2)-7(3) allows the sole director to take decisions without regard to any of
the provisions in the articles relating to directors' decision-making. Under art.20(4),
the resolution must be kept for at least IOyears, similar to the requirement for written
records of decisions generally.228
7. DISQUALIFICATION
7.1 Introduction
7.106 Disqualification prov1s1ons. Directors may be disqualified from acting as such

pursuant to Pt.IVA of the Companies (Winding-Up and Miscellaneous Provisions)
Ordinance (Cap.32). 229 Unless indicated otherwise, the sections referred to below are
sections in Cap.32.
7.107 Protect public from unfit persons. The purpose of the disqualification provisions is
to protect the general public by prohibiting unfit persons from managing the affairs
of companies. 230
7.108 Grounds. The court may make a disqualification order against a person on any of the
following grounds:
• conviction of certain indictable offences (s.168E ofCap.32);

• certain breaches of Cap.32 or Cap.622 (s. l 68F of Cap.32);
• fraudulent trading or other fraud in winding-up (ss. I 68G and I 68L of
Cap.32);
226 Cap.622, s.483(2).

227 Cap.622, s.483(3).
m However, it seems that this obligation arises only pursuant to the articles rather than pursuant to Cap.622:
sec further para.7.094 above.
"' Part TVAwas outside the scope of the CompaniesOrdinance Rewrite that led to the enactment of Cap.622.
z;o Report of the Review Committee of Insolvency Law anti Practice (Cmnd 8558, 1982) (Cork Report) at [ 1808].
The Hong Kong provisionswere introduced in 1994pursuant to the SCCLR's recommendations:SCCLR, Eighth
A1111ualReport (1991). 96-103; Ninth A1111ualReport (1992), 45-46; Tenth A1111ualReport (1993), 9-12. For
comparableprovisionsin Englan(~see CompanyDirectorsDisqualificationAct I986 (UK) (formerlyCompanies
Act 1948 (UK) s.188 and CompaniesAct 1976 (UK) s.28).
DISQUALIFICATION 271
• conduct of directors rendering them unfit to manage companies (ss.168H

and 168J ofCap.32).
Disqualification generally discretionary. Generally, the court's power to make 7.109

a disqualification order is discretionary, but in the case of s. l 68H, the court must
disqualify the person if the person is found to be unfit.
7.2 Conviction of certain indictable offences: s.J68E of Cap.32
Types of offences. A disqualification order may be made against a person who has 7.110
been convicted of an indictable offence (whether on indictment or summarily) in
connection with the promotion, formation, management or liquidation of a company; or
in connection with the receivership or management of a company's property; or which
necessarily involves a finding that the person has acted fraudulently or dishonestly:
s.168£ of Cap.32. Common law offences not provided for by way of statute are
indictable offences. Whether a statutory offence is an indictable offence depends
on the particular legislation in question. Persons have been disqualified under this
s. J68E for offences involving false accounting in contravention of Theft Ordinance
(Cap.210), s.18D,231 and under the equivalent English disqualification provision, for
offences involving cheating the Commissioners of the Inland Revenue.232
Applications for order. The Court of First Instance or the court by or before which 7.111
the person is convicted of the offence has jurisdiction to make a disqualification order
under s.168E of Cap.32. 233 Application for a disqualification order against a person
may be made by the Official Receiver, Financial Secretary, or by the liquidator or any
past or present member or creditor of any company in relation to which the person
has committed an offence.234 In the course of a proceeding for the prosecution of an
offence, the court may also make a disqualification order if it thinks fit whether or not
any person applies for such an order.235
Period of disqualification; alternative application under s.168H of Cap.32. 7.112
The maximum period of disqualification that can be made under s.168E of Cap.32
is 15 years (if order made by the Court of First Instance), l O years (District Court)
or 5 years (magistrate). 236 Where a disqualification order is made by a magistrate,
the Official Receiver, or the liquidator or past or present member or creditor of the
company affected can apply to the Court of First Instance for a longer period of
disqualification. 237 Where the court by which the person was convicted has not made
a disqualification order, it is also possible for a separate application to be made to the
Court of First Instance under s. l 68E seeking a disqualification order; however, the
23' liKSAR v Cha11Kar Le1111g

(unrep., CACC 287/2004, [2006] MKEC 181 (disqualification periods of 5 and
10 years for the various defendants).
m R v Youell [2007] EWCA Crim 225 (disqualification for I 0 years under s.2 of the Company Directors
Disqualification Act 1986(UK)).
"' Retitled Cap.32s.168E(2).
234 Cap.32,s.168P(2)(b).
23' Cap.32,s.168P(4).
2.Ki Cap.32,s.168E(3).
237
Cap.32,s.168E(4).
court will refuse the subsequent application if it amounts to an abuse of process. 238
The court must ask itself whether it would be manifestly unfair to a party or would
otherwise bring the administration of justice into disrepute among right-thinking
people to allow the proceedings to continue. 239 Fairness to the defendant meant that he
should not be exposed to the same claim on multiple occasions by different litigants
unhappy with the outcome of the earlier claim.240
Where a disqualification order has been made under this s.168E as part of the sentence
in criminal proceedings, that in itself does not prevent the institution of Cap.32,
s.168H proceedings for a disqualification order on the grounds of unfitness; and it is
only in rare cases where the s. l 68H proceedings would amount to an abuse of process,
because of the existence of a very substantial overlap between the matters taken into
account in the criminal proceedings and the matters to be taken into account in the civil
proceedings, that it would be appropriate to deny relief under s. 168H.241 Similarly, the
fact that no disqualification order was made in the criminal proceedings does not
mean that proceedings cannot subsequently be brought under s. l 68H.242
7.3 Persistent breaches of Ordinance: s.168F of Cap.32
7.113 Persistent breach of filing obligations. The court may make a disqualification
order against a person who has been persistently in default in relation to provisions
of Cap.32 or Cap.622 requiring any return, account or other document to be filed
with, delivered or sent, or notice of any matter to be given, to the Registrar: s. l 68F
of Cap.32. Under that s. l 68F(2), a person is conclusively proved to be persistently in
default where the person has been adjudged guilty of three or more defaults in relation
to the abovementioned provisions in the five-year pe1iod ending on the date of the
application for the disqualification order. A person is "adjudged guilty" of a default if
the person has been convicted of the relevant offence or the court has made an order
in relation to a default under: (i) Cap.32, s.279 (order requiring liquidator to make
returns, etc.); (ii) Cap.32, s.302 (order requiring receiver to make returns, etc.); or (iii)
Cap.32, s.306/Cap.622, s.898 (order requiring officers to comply with Ordinance). 243
7.114 Persistent. Section 168F(2) of Cap.32 does not provide an exclusive ground for
showing that a person was persistently in default of the relevant provisions, and
so even if a person has not been convicted of the relevant offences, other evidence
can show that the person was persistently in default. 244 In Director of Corporate
238
Secreta,:vof Statefor Busi11ess.
l1111ovatio11 (2014] BCC 581, (38), (39).
a11dSkills v Wesro11
"' Secretary ofSrare_fi>rB11si11ess,
fll11ovario11 [2014] BCC 581, [39).
2
•• Secrew,y ofSrarefor B11si11ess, a11dSkills v Wesro11[2014]BCC 581, [5 I).
/1111ovario11
24' Official Receiver v Chan Kwong H1111g (unrep., 5 December 2006, HCMP 3294/2004, Barma J, CF!), [ I 9].
Sections 168E and 168Mare different provisions dealing with two different statutory jurisdictions, and hence
in most situations, a subsequent application under s. 168H would not amount to an abuse of process. However,
that is differcm to a situation discussed above (text to rootnotcs 229 to 231) where the two applications arc made
pursuant to the same provision (s. 168H): sec Secrewry of Su,refor 811si11ess, /1111ovc,rio11
[2014) BCC 581, [21].
2' 2 Secreta,y of St(Jfefor Trade & !11dustryv Rayna [2001] 2 BCLC 48, 57-60; Official Receiver v Chow Hue11 Chu11
Crispi11(unrep., 7 December 2004, HCMP 5002/2003, Kwan J, CF!), [19).
243 Cap.32,s.I 68F(3).
,... Director of Corporate Enforce111e11r v McGowan [2008) IESC 28, (2008) 4 IR 598 (Supreme Court, Ireland).
Enforcement v McGowan, 245 the dictionary meaning of "persist" was referred to ("to
continue finnly or obstinately in a state, opinion, purpose, or course of action, esp.
against opposition"), with the cowt adding:
"To persist is to do more than to continue, although repetition is involved. It

implies an element of determination." 246
In that case, the directors were held to have been persistently in default where they had
failed to file annual returns for the company for 13 years.
Applications for order. The Court of First Instance has jurisdiction to make an order 7.115
under Cap.32, s. l 68F.247 It is also possible to apply for an order before the magistrate
in the proceedings for prosecution of the person in respect of the relevant default. 248
Application for an order may be made by the Registrar of Companies, Official Receiver,
Financial Secretary, or by the liquidator or any past or present member or creditor of
any company concemed. 249 In the course of a proceeding for the prosecution of an
offence, the court may also make a disqualification order whether or not any person
applies for such an order.250
Maximum period of disqualification five years. The maximum period of 7.116
disqualification under Cap. 32, s. l 68F is five years. In Director of Corporate
Enforcement v McGowan, above, the court noted that the type of persistent and
flagrant failure by the directors in that case would ordinarily warrant the making of a
disqualification order, but the cowt declined to do so in that case on the basis that a
disqualification order is not punitive but protective and that a disqualification order
in the present circumstances would serve no useful purpose but would disrupt the
ongoing business of the company.251 Jn Re Civica lnvestments, 252 the court held that
longer periods of disqualification should be reserved for cases where the defaults and
conduct of the person have been of a serious nature, for example where defaults have
been made for some dishonest purpose, or wilfully and deliberately, or where they have
been many in number and have not been substantially alleviated by remedial action
and convincing assurances that they will not recur in the future. In that case, there had
been 298 separate defaults in respect of filing of accounts and annual returns. The
court imposed a disqualification order for a period of one year, noting that a longer
period would have been imposed if the defaults had not been substantially remedied.
The court though emphasised that each case must depend on its own facts.253
245 [2008] IESC 28, [2008] 4 IR 598, [37) (dealing with Companies Act 1990 (Ireland) s.160).
246 DirectorofCo,porate E11jorce111e111 v McGowan [2008) IESC 28, [2008) 4 IR 598, [37] (dealing with Companies
Act 1990 (Ireland) s. 160).
''' See s.2 of Cap.32 for the definition of"court".
2"s Cap.32, s.168F(4).
'' 9 Cap.32, ss.168P(2)(a) and 168P(2)(b).
m Cap.32, s.168P(4).
,s, The two directors were husband and wife in a small private company with 12 employees. The following
circumstances were relevant: that the breaches were remedied by the directors filing all outstanding returns; and
an accountant replaced one of the two original directors under a restructuring to avoid repetition of the defaults.
"' [ 1983] BCLC 456 (on the comparable English provision).
"' See also Re Arctic Engineering Ltd (No 2) [ 1986) 2 All ER 346 (accountant had failed to lodge returns as a
liquidator; there was persistent default but cou,t declined to order disqualification in the circumstances).
7.4 Fraud or breach of duty in respect of company

in winding-up: ss.168G, 168L of Cap.32
7.117 Declared liable for fraudulent trading (s.sl68L) and appears guilty of fraudulent
trading (s.168G). Where the court has declared a person to be liable for the debts or
liabilities of a company under Cap.32, s.275 for fraudulent trading,254 the court may
make a disqualification order against the person: s. l 68L of Cap.32. The court can
make the order on its own initiative. Where, in the course of winding-up, it appears
that a person is guilty of an offence of fraudulent trading under that s.275 (whether
the person has been convicted or not), the com1 can also make a disqualification order
under s. l 68G of Cap.32. Here, the application can be made by the Official Receiver,
the Financial Secretary, or any past or present member or creditor of the company.m
Also, in the course of a proceeding for the prosecution of an offence, the court may
make a disqualification order whether or not any person applies for such an order.256
7.118 Section 168G wider than s.168L. Section 168G of Cap.32 is wider than s.168L in
that under s. l 68G( l )(b ), the court can also make a disqualification order against a
person where, in the course of winding-up, it appears that the person has been guilty,
while an officer, 257 provisional liquidator or liquidator258 of the company, or receiver
or manager of its property, of any fraud in relation to the company or of any breach of
his duty as such officer, liquidator, receiver or manager.
7.119 CFI makes orders. In both ss.168L and 168G ofCap.32, the relevant court for making
the order is the Court of First Instance.259
7.120 Disqualification periods. The maximum period of disqualification under both
provisions is 15 years. The courts divide this into three brackets: the top bracket, over
I O years, is for serious cases; the middle bracket, 6 to I O years, is for serious cases
which did not merit the top bracket; and the minimum bracket, 5 years or less, is for
relatively not very serious cases. 260
7.5 Unfit directors of insolvent companies: s.168H of Cap.32
7.121 Unfit directors of insolvent companies. The court must make a disqualification order
against a person if it is satisfied that:
• the person is or has been a director261 of a company which has at any time
become insolvent262 whether while he or she was a director or subsequently; and
254
See Chapter 20.
255 Cap.32, s.168P(2)(b).
256 Cap.32, s. I68P(4).
2 1
s "Officer" includc.s a shadow director: s. I 68G(3); and sec also s.2 definition of"officer''.
258 For examples involving disqualification of a liquidator, sec Re Well 8011dGroup Ltd (2008] 5 HKLRD 147;
Official Receiver v Chan Kin Hang Danvil [2012] 4 HKLRD J3 (CA).

2
s• Cap.32, s.2 definition of"court".
260 Re Well8011dGroup ltd (2008] 5 HKLRD 147.
261 Director includes shadow director: s.168H(3).
262 Under Cap.32, s. 168H(2), a company becomes insolvent if: (a) the company goes into liquidation at a 1ime when
its assets are insufficient for the paymen1 of its debts and other liabilities and 1he expenses of the winding-up; or
(b) a receiver of the company is appointed.
• his or her conduct as a director263 of that company (alone or taken together

with his conduct as a director of other companies 264) makes him or her unfit
to be concerned in the management of a company: Cap.32, s. l 68H(l ).
Applications for order. Applications under s. l 68H are made to the Court of First 7.122
Instance, 265 and may be made by the Financial Secretary or the Official Receiver
if it appears to be in the public interest that a disqualification order should be
made. 266 The liquidator of a company being wound up or a receiver of a company
must report the matter to the Official Receiver (who may then report to the
Financial Secretary) if it appears to the liquidator or receiver that s. l 68H( I) is
applicable to a person. 267
Determining whether unfit: having regard to Sch.15. In determining whether a 7.123
person is unfit to be concerned in the management of a company, the court must
have regard to the matters Iisted in the Sch.15 of Cap.32. 268 These include breaches
of duties by directors, misapplication of company property or money and the extent
of the director's responsibility for the company's failure to comply with specified
provisions of the Ordinance (relating to the company's registers, 269 keeping of
minute books and accounting records, 270 filing of annual returns 271 and preparation
of the company's financial statements 272). For insolvent companies, further matters
are listed, including the extent of the director's responsibility for the insolvency or
for the company's failure to supply goods or services paid for or for the company's
entry into transactions or preferences voidable under Cap.32, ss.182, 265D, or 266;
and failure by the director to comply with specified statutory provisions in the
winding-up. 273
Can take into account factors other than in Sch.15. The courts are entitled to 7.124
take into account factors other than those specified in Sch.15 of Cap.32, whether
or not the conduct involves a breach of directors' duties. 274 A director will be
held to be unfit if the conduct of the director, viewed cumulatively and taking
into account any extenuating circumstances, had fallen below the standards of
263 Conduct as a director of a company that has become insolvent includes the person ·s conduct in relation to any
matter connected with or arising out of the insolvency of the company: s. l 68H(2) of Cap.32.
264 For the scope of relevance of the person's conduct as directors of other companies, see further Re Citre11dServices
Ltd (2008) HKLRD 279 (CA).
265 Section 2 ofCap.32 for definition of"court".
266 Cap.32, s.1681(I). Section 1681(2) sets a time limit of four years from the commencement of winding-up or the
day on which the receiver vacated office (as the case may be), although the coun can grant leave for applications
outside that period.
26' Cap.32, s.1681(3). See also the Companies (Reports on Conduct of Directors) Regulation.
263 Cap.32, s.168K(l).
2~ Cap.622, ss.335, 336, 341, 342,627,628,630,641, 642( I), 643,645,648, 649(1), 650, and 652.
2
7(1 Cap.622,ss.373,374,377, and619.
271
Cap.622.ss.662and664.
272 Cap.622,ss.387and429.
273 These arc Cap.32: ss.190 (statement of affairs); 211 (delivery or property to the liquidator); 228A (special
procedure for winding-up); 241 (meetings of creditors in voluntary winding-up); 274 (proper accounts not kept);
and 300A (infonnation where receiver or manager appointed).
21• Re Copyright Ltd: Official Receiver vCha11C/11111 Yan[2004) 2 HKLRD 113.
probity and competence appropriate for persons fit to be directors of companies. 275
Directors have been held to be unfit not only for having committed fraudulent
or intentional breaches of fiduciary duties, 276 but also for breaches of duties not
involving dishonesty. 277 If there have been only minor breaches though, then
the court would not conclude that the director is unfit. 278 Simply making a bad
commercial judgment would not render a director unfit to manage companies,
but a director will be held to be unfit if there is incompetence or negligence
in a very marked degree. 279 For example, disqualification orders were made in
Re Peregrine Holdings Ltd; Official Receiver v Philip Leigh Tose,280 where the
directors' serious incompetence in monitoring the company's lending business and
in failing to ensure there were risk management and internal auditing procedures
to assess credit risk had led to the company's collapse in the 1997 Asian financial
crisis. ln line with the duty of care imposed on all directors (whether executive
or non-executive), non-executive directors who do not carry out their monitoring
or supervising role cannot escape a finding of unfitness by having delegated or
relied on others in the company. 281 Isolated failures to comply with statutory filing
obligations might not be sufficient to show that a director is unfit, 282 but persistent
failures can lead the court to conclude that a director is unfit. 283 While previous
cases serve as guidance, they do not operate as precedents and each case depends
on its own facts. 284
7.125 If matters made out court must make disqualificationorder.Where a director is held
to be unfit and the court is satisfied of all the matters in Cap.32, s. l 68H(1), the court must
make a disqualification order. There is no discretion whether to order disqualification.
The minimum period of disqualification is l year, and the maximum period is 15 years.285
The division of the period into three brackets, discussed above for Cap.32, s.168G is also
applicable in relation to s.168H.286 In setting the periods of disqualification, the courts are
to have regard to the purpose of disqualification, namely protection of the public from
persons whose past record as director shows them to be a danger to creditors and others.287
However, deterrence to protect the wider interests of the public is also relevant, but not
punishment.288
"' Re Copyright Ltd; Official Receiver v Chan Chun Yan (2004) 2 HKLRD 113, 123.
276 £.g. Re China Tale111 Ltd (unrep., HCMP 4189/2002, (2004) HKEC 468); Re Hoida
lntlematio11al Develop111e11t
Industrial Co Ltd (2004] I HKLRD 744; Re Regal Motion industries Ltd (2005] I HKLRD 461.
277 E.g. Official Receiver v Li Ping Clumg (unrep., HCMP 511/2003, [2004) HKEC 1516); Re Looe Fish Ltd [ 1993]
BCLC 1160 (allotment of shares for improper purposes though director acted honestly).
"' Re Time Utilising Business Systems Ltd [ 1990) BCLC 568; Re C/adrose Ltd [ 1990] BCLC 204.
279 Re Copyright Ltd: Official Receiver v Chan Chun 1'<111 (2004] 2 HKLRD 113; Re Citrend Services Ltd (2008]
HKLRD 279; Re Stylands Holdings Ltd [2011 J I HKLRD 96; Secreta,y of State v Lubrani [ 1997] 2 BCLC 115.
"" (unrep., 8 October 2004, HCMP 112/2002, Kwan J, CFI).
18' See Re Copyright Ltd, Official Receiver v Chem C/11111 llw [2004] 2 HKLRD I 13, 124.
m Re £CM (Europe) Electronics [ I992] BCLC 814; Re China Talent flltemational Develop111e11t Ltd (unrep.,
HCMP 4189/2002, [2004) HKEC 468), [55].
zu Re Wealth Pr<,pertyAgency Co ltd (unrcp., HCMP 5157/2001, [2003] HKEC 168), [25); Re Hoit/a Industrial Co
Ltd [2004] I HKLRD 744, 75 I.
28' Re Copyright Ltd; Official Receiver v Chan Ch1111 Yan [2004] 2 HKLRD 113.
2s, Cap.321 s.168H(4).
286 E.g., Re Citrend Services Ltd [2008) HKLRD 279, 288 (CA); Re Sty/and l-loldi11gsLtd [2011] 1 HKLRD 96.
281 Re Copyright Ltd. Official Receiver v Chan Clum Yan (2004) 2 HKLRD 113, 123.
288 Re Hoida Industrial Co Ltd (2004) I HKLRD 744, 752.
Different brackets of period of disqualification. Examples of cases falling within 7.126

the minimum period (one to five years) include failure to prepare annual accounts, 289
failure to comply with statutory filing obligations 290 and breaches of directors'
duties not involving fraud or intentional wrongdoing. 291 Cases involving intentional
wrongdoing have been considered to fall in the middle bracket (6 to l O years)292 or at
least at the high end of the minimum bracket. 293 Cases involving fraud or deception
fall at least in the middle bracket. 294 Mitigating factors can be taken into account, 295
such as cooperation with the liquidator,296 admission of the allegations before tTial,297
age, 298 health, 299 the length of time that the director has been in jeopardy 300 and the
fact that the person has already served a prison sentence for the same conduct. 301
However, each case depends on its own facts and previous decisions do not operate
as precedents. 302
7 .6 Disqualification of directors after investigation of a company: s. t 68J of Cap.32
Application by Financial Secretary for disqualification order on public interest 7.127

grounds. Inspectors may be appointed by the Financial Secretary to investigate
in a company's affairs, 303 or the Financial Secretary may require the production of
documents or information from a company.304 If it appears to the Financial Secretary
from the inspector's report or from the documents or infonnation obtained that it is
expedient in the public interest that a disqualification order should be made against any
person who is or has been a director or shadow director of any company, the Financial
Secretary may apply to the court for such an order: Cap.622, s.879(6). The court may
make a disqualification order if it is satisfied that his or her conduct in relation to the
company makes him or her unfit to be concerned in the management of a company:
Cap.32, s.1681( I). Section 168K and Sch.15 of Cap.32, and the principles discussed
above, would be relevant in determining the question of unfitness as prescribed in
s.1681.
289 E.g., Re Emperor Hotel Management Co lid [2002) 3 HKLRD 805.

290 E.g., Re WealthPropertyAgency Co lid (unrep., HCMP 5157/2001, [2003) HKEC 168).
291 E.g., Re PeregrineHoldingslid; OfficialReceiver v Philip Leigh lose (unrep., 8 October 2004, HCMl' 112/2002,
Kwan J, CF!) (negligence). But breaches by directors of listed companies could be regarded as being more
serious and can fall within the middle bracket even though there is no fraud: Re Sty/and Holdings Ltd [201 I)
I HKLRD 96; Securities and Futures Commissionv ClteungKeng Citing (2011) 4 HKC 453.
292 E.g., Re WealthPropertyAgency Co lid (unrep., HCMP 5157/2001, (2003) HKEC 168).
293 E.g., Official Receiver v Clteung Gin H1111g

[2005) I HKLRD A I.
294 E.g., Re Hoida Industrial Co Lui [2004) I HKLRD 744; Re Regal Motion Industries Ltd [2005) I HKLRD 461.
295 Re WestmidParkir,gServicesLtd [1998) 2All ER 124.
296 Re PeregrineHoldingsLtd; OfficialReceiver v Philip Leigh Tose(unrep.,HCMP 112/2002, [2004) HKEC 1214).
291 Re PeregrineHoldingsLtd; OfficialReceiver v Philip Leigh Tose(unrep., HCMP 112/2002, [2004) HKEC 1214);
cf Re Yan Chim Kee Co Ltd (unrep., HCMP 407/2004, [2005) HKEC 514).
298 Re fon Chim Kee Co Ltd (unrcp., HCIVIP407/2004, [2005) HKEC 514).
'"' Official Receiver v Cheung Gin Hung (2005) I HKLRD A I.

300 Re Citrend Services Ltd [2008) HKLRD 279.
301 Re Regal Motion Industries Ltd [2005) I HKLRD 461.
302 Re Citre11d Services Ltd [2008) HKLRD 279, 289 (CA).

305 Cap.622,Pt.19Div.2.
304 Cap.622.Pt.19Div.3.
7.128 Disqualification period. The maximum period of disqualification under s.168J 1s

15 years. 3o;
7.7 Miscellaneous matters
7.7.1 Scope of disqualificatio11 order

7.129 Scope. The order for disqualification that a court can make is an order that the person
must not, without the leave of the court:
• be a director of a company;
• be a provisional liquidator or liquidator of a company;
• be a receiver or manager of a company's property; or
• in any way, whether directly or indirectly, be concerned or take part in the
management, formation or management of a company: Cap.32, s. l 68D(l ).
7.130 Management. "Management" is not confined to actions at the level of the board,
and can cover the making of decisions as to the direction of the company, even
though the decision is subject to approval by a higher officer. However, carrying out
predetermined policies is not regarded as management, even if the person might be
described as a "manager" who is in charge of a branch or division. 306
7.7.2 Leave to ma11agecompanies

7.131 Application can be made during or after disqualification proceedings. A person
who is the subject of a disqualification order may apply for leave of the court to be
involved in management of a company or otherwise participate in a company in one of
the ways prohibited under s.l 68D( I): s.l 68Q( I) of Cap.32. The application for leave
could be made during or immediately after the actual disqualification proceedings. 307
7.132 Parties who must appear; factors to consider. Where the disqualification order had
been made on application by the Financial Secretary, the Registrar, the Official Receiver
or a liquidator, the relevant applicant must appear at the proceedings for leave and call
the attention of the court to any matters which seem to him or her to be relevant, and
may himself or herself give evidence or call witnesses. 308 In deciding whether to grant
leave, the court would take into account factors including on the one hand, the need for
protection of the public, and on the other hand, the need of the disqualified person to
earn a living or the need of a company to have the work done by the disqualified person
for the purposes of its business. 309 The court may grant leave subject to conditions. 3 io
J-Ol Cap.32, s. I 68J(2).

l-06 Cullen v Co,porate Affairs Commission (NSW) (1988) 14 ACLR 789; 0.,111missio11erfi>r Corp<>rate
Affairs v
Bracht [1989)VR 821; Re Campbell[ 1984]BCLC 83.
J-O, SecreU11y [ 1994)2 BCLC I l 3.
ofSt(lle v W<>rth
l-08 Cap.32, s. I 68Q(2).
J-O• Secretc11ycl_/Statev 8ame11[1998) 2 BCLC 64; Re TTL Realisations Ltd [2000) BCC 998.
"" Re Gibson Davies Ltd [I 995) BCC II; Re Majestic RecordingSwdios (I 989) BCLC I; Re ClenawareSystems
and Skills (2015) BCC 283.
Ltd. Harris v Secretaryof Statefor Business,/1111ovatio11
7.7.3 Contravention of disqualification order

Liable to imprisonment or fine; personal liability for debts. If a person acts in 7.133
contravention of a disqualification order, the person commits an offence and is liable to
imprisonment for a maximum of two years and to a maximum fine of $150,000. 311 If a
disqualified person is involved in the management 312 of a company in contravention of
a disqualification order, the person would be personally liable for debts and liabilities
of the company incurred at a time when that person was involved in the management
of the company.313
Person acting on instructions of disqualified persons is personally liable for debts. 7.134
Where a person involved in the management of the company acts or is willing to
act on instructions given by a person whom he or she knows to be disqualified, the
firstmentioned person would also be personally liable for the debts or liabilities of the
company incurred at a time when he or she so acts or was willing to act. 314
7.7.4 Foreign comptlnies

Extension to foreign companies. "Company" in Pt.IVA ofCap.32 is defined315 to include 7.135
both Hong Kong companies and registered non-Hong Kong companies,316 and also any
other company (wherever incorporated) which is carrying on or has carried on business
in Hong Kong and which is capable of being wound up under Cap.32.317 The effect of
the extension of the disqualification provisions to foreign companies within the above
descriptions means, for example:
• where a director of a Hong Kong company has been involved in running such
a foreign company, his or her conduct with respect to the foreign company
can be relevant in determining whether the director's conduct comes within
the provisions setting out the grounds for disqualification;
• a person who is director of such a foreign company can also be the subject of
a disqualification order under Cap.32, s.168O; and
• a person who has been disqualified under Cap.32, s.168O will also be
disqualified from acting as a director etc. of such a foreign company.
7.7.5 Procedural matters

COOP Rules. Section 168P(l) of Cap.32 and the Companies (Disqualification of 7.136
Directors) Proceedings Rules (Cap.32K) (COOP Rules) apply to applications for
3 11 Cap.32, s.168M and Sch.12.

312 A person is involved in management if the person is a director of the company or if he is concerned, whether
directly or indirectly, or takes part, in the management of the company: Cap.32, s.1680(4).
3' 3 Cap.32, ss.1680( I)(a) and 1680(3)(a).
3" Cap.32, ss.1680(1)(b) and 1680(3)(b).
"' Sec Cap.32, s. 168C( 1).
316 See Cap.622 1 Pt. I 6.
317 This category of foreign company is caught by reason of s.168C(l)(b) which refers to unregistered companic.s
carrying on or which have canied on business in Hong Kong. For the concept of "unregistered companies",
see Cap.32, s.326.
disqualification orders other than applications made in the course of a proceeding for
the prosecution of an offence.
7.137 Procedure. The applicant for an order must give at least 10 days' notice of the
intention to seek an order to the person against whom the order is sought. 318
Applications for an order are made by originating summons and the Rules of the
High Court will apply accordingly. 319 The CDDP Rules deal with other matters
relating to the application, service of the summons, the filing of evidence, date of
hearing of the application and time of commencement 320 of any disqualification
order that is made. 321 Under s.168P(I) of Cap.32, the person against whom a
disqualification order is sought may appear and himself or herself give evidence or
call witnesses. On the hearing of any application made by the Registrar, the Official
Receiver, the Financial Secretary or a liquidator, the applicant must appear and call
the attention of the court to any matters which seem to him or her to be relevant,
and he or she may also give evidence or call witnesses. 322 The standard of proof is
on the balance of probabilities as the proceedings for a disqualification order are
civil proceedings. 323
7.138 Carecraft procedure. The courts allow the use of what is referred to as the Carecraft
procedure, which 01iginated from Re Carecraji Construction Co Ltd, 324 to enable the
court to deal with the application summarily in order to reduce the time and cost of
the proceedings. Under this procedure, the parties can provide the court with a set
of agreed facts and an agreed period of disqualification. If the court accepts that a
disqualification order as proposed is appropriate, then the court can make an order
for the agreed period (or a different period if the court determines appropriate). If
the court considers that the agreed facts are insufficient for disqualification, then the
applicant can pursue the application via a full hea1ing, otherwise the court would
dismiss the application.
7.7.6 Public examinations

7.139 Public examination where prima facie case that render him liable to
disqualification. Under s. l 68IA of Cap.32, the Official Receiver may apply for
a public examination of a person if the Official Receiver is of the opinion that a
prima facie case exists against a person that would render him or her liable to a
disqualification order under Pt.IVA of Cap.32. On such an application, the court
may direct the person to attend before the court to be publicly examined as to the
318 Cap.32, s.168P( l ).

31 1} CDDP Rules, r.3.
,io Cap.32, s.168D( I) states that the period of disqualification commences from the date of the order, and CDDP
Rules, r. IOprovides that unless the court orders otherwise, the disqualification order takes effect at the beginning
of the 21 st day after the day on which it is made. The effect is that r. IOsuspends the effect of the order such that
the disqualificacion period commences after the 21 days: Secreta,y oJSu11ejor Tmde ond Industry v Edwards
[ 1997) BCC 222; Re Contine111al AssuranceCo Pie [ 1997) BCLC 48.
'" Sec also the Companies (Disqualification Orders) Regulation for obligations of specified officers of che courc 10
notify the Registrar of che making of disqualification orders or the granc of leave.
-'22 Cap.32.s.168P(3).
"' Re CopyrightLtd; OfficialReceiver v Chan Chun Yan [2004) 2 HKLRD 113, 123-124.
"' (1994) I WLR 172. See Re EmperorHotel ManagementCo Ltd [2002) 3 HKLRD 805.
conduct of the business and affairs of a company or as to his or her conduct and
dealings as a director. Section l 68IB of Cap.32 expressly abolishes the privilege
against self-incrimination in relation to an examination under that s. J68IA.
7.7.7 Listed corporations: Securities and Futures Ordinance (Cap.571)

Disqualificationwhere affairsconductedin mannerthat is oppressiveor prejudicial 7.140
to members. In the case of listed corporations, disqualification orders can also be
made under s.214(2)( d) of the Securities and Futures Ordinance (Cap.571) (SFO) upon
the application of the Securities and Futures Commission (SFC). The ground for a
petition under s.214 is that the affairs of the business or affairs of the corporation have
been conducted in a manner that is oppressive or unfairly prejudicial to its members;
involving defalcation, fraud, misfeasance or other misconduct towards its members;
or resulting in its members not having been given all the information with respect to
its business or affairs that they might reasonably expect. The court may order a person
wholly or partly responsible for the business or affairs of the corporation having been
so conducted must not, without leave, be a director or liquidator of a corporation, or
receiver or manager of a corporation's property or business; or in any way, directly or
indirectly, be concerned, or take part, in the management of a corporation. The maximum
period of disqualification under s.214 of the SFO is 15 years. For examples of cases
involving disqualifications under s.214, see Securities and Futures Commission v Fung
Chiu325 and Securities and Futures Commission v Cheung Keng Ching. 326 The Carecraft
procedure can also be adopted for disqualification applications under s.214.327 As to the
SFC's duty of disclosure in disqualification proceedings, see Securities and Futures
Commission v Wong Yuen Yee.328
m (2009] 6 HKC 423 ("misconduct" within s.214 includes breach of directors' duty of care).
'" (2011] 4 HKC 453 (CA). Sec also Securities tmd Fwures Co111111issio11 v Li Hej,111[2017] 4 HKLRD 785;
Re Free111tm Fin TechCo,p Ltd [2018] 1 HKLRD 320.
"' Securities and F,m,res Commission v Ftmg Chiu (2009) 2 HKC 19.
328 (2017) 2 HKC 332.

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7 Board of Directors

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CHAPTER 7

I. Introduction .............................................................................................................................. 7.001

3. Qualifications ........................................................................................................................... 7.025

4. Appointment ............................................................................................................................. 7.030

5. Vacation of Office .................................................................................................................... 7.042

6. Board Meetings ......................................................................................................................... 7.058

6.7 Informal decision-making ................................................................................................ 7.093

7. Disqualification ......................................................................................................................... 7.106

2.1 De jure, de facto and shadow directors

' Black'.~Law Dictio11a1y(8th edn, West Publishing, St Paul, Min, 2004)492.

2.1.1 De facto directors

2.1.2 Shadow directors

17 [2010) I WLR 2793, [2010) UKSC 51.

2.2 Types of directors according to functions

2.2.1 Managing director or chief executive officer

2.2.2 Executive directors and non-executive directors

2.2.3 Alternate directors

" A11de1:rnnv James Sutherland (Peterhead) Ltd [I 941) SC 203.

unable to attend meetings or otherwise function as a director. The appointment of an

2.2.4 Nominee directors

5• Cap.32, Pt.IVA. See paras.7.106 ff below for further discussion on disqualification.

•, See Cap.622, s.3.

4.2 Initial directors

4.3 Subsequent directors

65 Cap.622, ss.453(2) and 454(2).

4.4 Appointment by outsiders

4.5 Liabilities of under-age directors

made in contravention of the statutory provision is void, 87 but an under-age person

4.6 Corporate directors

7.040 Prohibitions. There is an outright prohibition on public companies appointing a body

5.2 Vacation of office

5.3.1 Removal by directors

5.3.2 Removal by members

Special notice required of resolution. Special notice is required of a resolution to 7.048

II? [2011) 2 HKLRD 1003.

122 [2012)2 1-lKLRD296.

126 [2014] 5 MKLRD 180.

procedures can be relied upon as an alternative to Cap.622, s.462(1). While the

5.5 Notification to registrar

individual director acting by himself or herself' 38 (unless delegated with authority

6.1 Calling board meetings

7.066 Subject to considerations of reasonableness. This rule, however, is subject to the

7.067 Whether some notice required if business important or extraordinary. Deputy

"8 Browne v L 1H11idad(1887) 37 Ch DI.

6.5 Voting and minutes of meetings

former Table A, reg. I 03 (repealed) (where the period is five minutes).

former Table A, reg. I 00 (repealed).

Table A regs. I00 and I06 (repealed).

Table A rcg.86 (repealed); and sec further Chapter 8.

6.6 Effect of irregularities

Prima facie irregular if not convened or conducted in manner prescribed. 7.075

6.6.1 Meetillg illvalid

6.6.2 Articles waiving the irregularity

6.6.3 Irregularity principle

is-, (unrcp., HCMP 3712007, (2007] HKEC 171).

187 Sec Chapter 9.

6.6.4 The Australia11positio11

• "what is a 'procedural irregularity' will be ascertained by first detennining

6.6.S Effect of irregularity 011 third parties

6.7 Informal decision-making

6.7.1 Written resolutions

2<lJ Model Articles (private companies), art.20(4).

for private companies. Unless it is possible to interpret Cap.622, s.481 as implicitly

6.7.2 /,~formal meetings