In this article we shall discuss the basic set of rules for the decision making on the part of board of directors and will discuss the matters where probability of director’s disqualification exists.
There is the provision to allow director to take decision without the ceremonial board meeting, provided company’s articles allows to do so. As far as Model Articles are concerned, director is required to convey decision in the written form and for the authorization and legal status of the decision/order, this written resolution must be signed by every member of Board of Directors to ensure unanimous consent on this particular matter or decision.
Recording Written Resolutions
As per the instructions given in Model Articles, it was mandatory to keep the record of company’s minutes of meetings for at least 10 years since the date of meeting. But, written resolutions enjoy exception and there is no such provision in Cap.622. However, private companies, who adopted Model Articles are required to keep the record of written resolution for the next 10 years. It seems that public companies may also need to retain the record of written resolution but Section 481 of Cap.622 does not clarifies the jurisdiction of keeping the records, this confusion and complexity was rectified by Companies Bill 2018. According to Clause 55 of Companies Bill 2018, company’s are required to retain the record of every resolution passed by board without meeting.
Validity of Informal Meetings
Informal meetings can have the validity even if they were carried out in an informal manner. Law recognises this informality and understands the situation of family business or a closely held private company, where directors held meetings in an informal way and there is no question on the validity of such informal meetings.
However, where director’s intention does not certify the casual meeting to be called a board meeting, then there, that meeting would rather be a casual meeting and be deem invalid if it is to be considered as board’s meetings.
As long as decisions of directors are unanimous, then the obligation for any formal or informal meeting can be neglected. Sir James Bacon V-C calls such decisions of the boards as “Combined Wisdom”.
Roden’s case further elaborates this “unanimous assent doctrine”. In this case, borrowing transaction was carried out with the use of the common seal of the company and authorisation of only two directors of it, out of which one was company’s secretary. McLelland J held this transaction to be valid as it contained the authorisation of company’s director and secretary and in line with company’s articles which allows the transactions to be carried out with director’s authorisation. As the company have only two directors and both of these two directors authorised this transaction then this will be held valid as per “Unanimous Assent Doctrine”.
For the private companies who adopt Model Articles, there is the provision which allows them to authorise the informal meetings. Article 7(1)(b) and 8 of Cap.622H says that: “When the decision is made by directors on the particular issue with the affirmation of the view that they all share common view on this matter, then such decision of directors without any meeting would be considered valid.”
There is the prohibition for the directors of private companies to make any decision without board meeting, but directors can take any decision through written resolution. Article 6 of Cap.622H regards meeting and written resolution as the only way through which the decision can be taken by the directors. So, this sums up negation of “unanimous assent doctrine” in public companies.
Use of Technology for the board meetings
As discussed earlier, it was compulsory for the directors to attend the board meetings in personal capacity, however with the technological advancement and the verdict of Australian Court, it is possible to conduct board meetings through telephony conference calls. In Hong Kong, Cap.622H for company incorporation Hong Kong allows the conduction of board meeting through any electronic mean of communication, provided the company’s articles allow for such technological use.
Validity of sole director’s decision
As the private companies are allowed to have only one director, generally known as Sole Director, it is not practically possible to hold board meetings as the board would not exist in such circumstances. Legislation provides the solution to such situation and made it compulsory for the sole directors to communicate his or her decision to the company within seven days of decision in written form. Just like the record of minutes of meetings is maintained, record of sole director’s decisions should also be kept for 10 years. As per the Article of 7(2)-7(3) of Cap.622H sole director is exempted from provided provisions for director’s decision-making process, however Article 20(4) emphasis on the need of keeping the record of decisions in written form for the next 10 years.
Disqualification of Director(s)
As the second part of this article was supposed to give details on the disqualification criteria and rules. Director can be disqualified, following Pt.IVA of Companies Ordinance (Cap.32) for company incorporation Hong Kong, disqualification is carried out to make sure the protection of general public and company’s affairs from the practices and decisions of an unfit person(s).
Basis for the Disqualification
On the basis of following evidences and circumstances, disqualification orders can be issued:
However, it is the court’s prerogative to order disqualification on any grounds, however if the circumstances report of something like mentioned in Section 168H then court must disqualify the said person. Now we shall discuss all mentioned grounds in detail to have the clear understanding of merits of disqualification.
Convictions as per Section 168E of Cap.32
Following are the indicatable offences as per Section 168E of Cap.32, if the director is involved in:
Any person who has been the victim of false practice of director, or any liquidator, creditor or financial, company secretary Hong Kong can make an application to the court to order disqualification against the person who allegedly made an offence. After assessment of circumstances and arguments, court of first instance or any court who has the jurisdiction can disqualify the person on the grounds on convictable offences as per Section 168E of Cap.32.
The maximum disqualification period is 15 years if convicted by Court of First Instance, 10 years if convicted by District Court and 5 years if convicted by Magistrate. It is possible to seek the Court of First instance if the plaintiff thinks that disqualification period by the order of magistrate is not enough and should be extended. If the court, who convicted the person has not issued disqualification orders then an application can be made to the Court of First Instance to order disqualification pursuant to Section 186E, however where court considers this to be the abuse of process, it can disregard such application.
Disqualification on the basis of Section 168F
Any disqualification will be considered for to come in the jurisdiction of Section 168F, if the court has made orders to consider the person default against the:
In addition to this, a person will be considered convicted if it stands guilty for three or more defaults as per Cap.32 or Cap.622, says Section 168F (2).
It is possible to seek the help of Court of First Instance to invoke Disqualification order as per the Section 168F, however magistrate can also proceed for the prosecution of Section 168F against the defendant and such application can be lodged by anyone including Registrar, financial company secretary Hong Kong, liquidator, creditor or any past or future member of the company.
The maximum disqualification period is five years as per the Section 168F. However, in Re Civica’s case, court provided room for the longer disqualification periods depending on the seriousness of the offence. Generally, judiciary emphasised that each case should be evaluated under its own facts and observations.
Disqualification as per Section 168G – 168L
If the court finds the person liable for the debts and other liabilities of the company with the establishment of the fact that person is accuse for fraudulent trading as per Section 275, then court can order disqualification of the said person under Section 168L. But, where court finds the person to be guilty under Section 275 irrespective of the fact that person is convicted or not, it can make the said person to be disqualified as per Section 168G. Such application can be lodged by anyone including Registrar, financial secretary, liquidator, creditor or any past or future member of the company. It is found that Section 168G has wider scope than Section 168L because as per Section 168G(1)(b) court can order disqualification orders against the person who has been found guilt of breaching his or her entitled responsibilities as company’s manager or officer, during company’s winding-up.
For such cases, only Court of First Instance can issue disqualification orders and the maximum disqualification period is 15 years. However, 3 conviction brackets has been introduced as per which over 10 years disqualification is for serious cases, 6-10 years for normal cases and 5 or less years for the cases of minor nature.
Disqualification due to Section 168H
A person can be disqualified by the court, if:
Financial secretary, liquidator, creditor or any past or future member of the company can lodge application to the Court of First Instance to proceed for disqualification proceedings against the offender.
For the cases involving failure to prepare annual accounts, failure to comply with statutory obligations and breach of his or her duties owed to the company, disqualification for the period of 1-5 years will be granted. For the cases involving intentional breaching or mal-practices would make disqualification period for 6-10 years such as fraud or deception.
There is another provision under which disqualification is granted and under Section 168J, if a person is found to be misfit for running company’s managerial affairs then he or she can be convicted for the period of 15years maximum. However, depending on the circumstances, period can be minimised.
Extension of Disqualification to the Foreign Companies
Any company either Hong Kong or non-Hong Kong company or any company which is a setup offshore company in Hong Kong is the subject of Pt. IVA of Cap.32 and directors of such companies can be subjected to the disqualification, where there is the evidence of the fact that:
Contravention of Disqualification orders
If a person is found to be contradicting disqualification order, then such act of contravention would be considered as an offence, because he or she is breaching courts order and thus be made subject to the imprisonment of two years and a fine of $150,000 and would also be made personally liable for the debts or any loss of the company for which he or she is involved in managerial affairs.