7. Part 10 Directors and Company Secretaries

7. Part 10 Directors and Company Secretaries

This part deals with the appointment, removal or resignation of directors or company secretaries.

Number of Directors

Section 454 requires that all Private Companies have at least one director.

Section 453 requires that Public Companies and Companies with a limited Guarantee have at least two directors.

Section 457 restricts corporate directorship by requiring a private company (other than one in the same group as a listed company) to have at least one director who is a natural person.

Directors’ Duty of Care, Skill and Diligence

As stated in section 465(1), a director must exercise reasonable care, skill and diligence.

In deciding whether a director has exercised reasonable care, skill and diligence, his or her conduct is compared to the standard that would be exercised by a reasonably diligent person having –

1. the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company (section 465(2)(a)); and
2. the general knowledge, skill and experience that the director has (section 465(2)(b)).

The test is a mixed objective and subjective test.

Section 465(5) states that the duty applies to a shadow director.

Section 466 preserves the existing civil consequences of breach (or threatened breach) of the duty.

Ratification of the Conduct of Directors involving Negligence, etc.

Section 473 states that any ratification by a company of conduct by a director amounting to negligence, default, breach of duty or breach of trust in relation to the company must be approved by a resolution of the members of the company disregarding the votes in favour of the resolution by the director, any entity connected with the director, or any person holding shares of the company in trust for the director or for the connected entity.

Section 473(7) states that section 473 does not affect:

1. any other Ordinance or rule of law imposing additional requirements for valid ratification; or
2. any rule of law as to acts that are incapable of being ratified by the company.

Indemnity to Directors

Section 469 permits a company to indemnify a director against liability incurred by the director to a third party if the specified conditions are met.

Certain liabilities and costs must not be covered by the indemnity, such as criminal fines, penalties imposed by regulatory bodies, defence costs of criminal proceedings where the director is found guilty, or defence costs of civil proceedings brought against the director by or on behalf of the company or an associated company in which a judgment is given against the director (section 469(2)).

A company which provides any permitted indemnity to its directors or its associated company’s directors must disclose the indemnity provision in the directors’ report (section 470) and make it available for inspection by any member on request (sections 471 and 472).