febrero 21 2024

Hong Kong Stock Exchange Censures Directors for Breach of Fiduciary Duties


In a recent disciplinary action, the Hong Kong Stock Exchange (HKEX) censured directors of a listed company for failure to fulfil fiduciary duties and duties of skill, care and diligence to a standard at least commensurate with the standard established by Hong Kong law.

This is rather unusual in that no specific Listing Rule requirement is in question – but a general common law director duty, codified under Rule 3.08.

In this particular case, a subsidiary of the company had cash flow difficulties and was unable to secure funding.

The chairman of the company, without informing the board of directors, used his privately-owned company as a borrowing vehicle to obtain loans of over RMB500 million for the subsidiary’s use.

Such loans were reflected neither in the subsidiary’s financial statement, nor in regular updates to the company’s board of directors.

Ultimately, the subsidiary defaulted – with lenders sending hostile debt collectors to its office demanding immediate repayment of the loans, plus default interest of 24% per annum.

Without notifying the board, the chairman then submitted and arranged for the subsidiary to pay the outstanding principal and default interest, recording the default interest paid as “other receivables” in its financial statements, on the basis that a refund could be negotiated.

Eventually, the company recorded an impairment loss of RMB49.4 million on its “other receivables”.

The Listing Committee found that the relevant directors (the chairman and two other directors involved in arranging the loans) were in breach of directors’ general duties by failing to follow the company’s internal control policies and retain proper documentation in respect of the loans.

The chairman was further censured for failing to avoid a conflict of interest in his capacity as a director of the company, and using ownership of his private company as borrowing vehicle.


Good intention is never a reason for circumventing the internal control policies of a listed company. Material matters must be brought to the attention of the board of directors for consideration and approval.


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