What Is Corporate Governance?
Corporate governance refers to the system by which companies are directed and controlled. It encompasses the relationships between a company’s management, its board of directors, its shareholders, and other stakeholders. For Hong Kong private companies, corporate governance obligations arise primarily from the Companies Ordinance (Cap. 622).
Directors’ Duties Under Cap. 622
- Duty to act in good faith in the company’s best interests
- Duty to act for a proper purpose
- Duty to avoid conflicts of interest
- Duty not to accept benefits from third parties
- Duty to declare interests in proposed transactions
- Duty of care, skill, and diligence
Financial Reporting Obligations
Every company must prepare annual financial statements that give a true and fair view of the company’s financial position and results. These must be audited and presented to members at the AGM within nine months of the financial year-end for private companies.
Company Secretarial Requirements
A Hong Kong private company must have at least one director and a company secretary. Key tasks include: filing the Annual Return (Form NAR1) within 42 days of the anniversary of incorporation, maintaining the Significant Controllers Register (SCR), keeping proper company records, and notifying the Companies Registry of changes.
Case Study: Director Liability in a Distressed Company
The sole director of a Hong Kong trading company continued to operate the business for eight months after it became insolvent, incurring additional debts. When wound up, the liquidator brought proceedings for misfeasance and fraudulent trading. Early advice from accountants and lawyers could have enabled an orderly restructuring, limiting both financial loss and personal director exposure.