Directors in Hong Kong are coming under increasing regulatory scrutiny. In recent years, the Securities and Futures Commission (SFC) has been active in its pursuit of actions against market misconduct. It has commenced proceedings in the Market Misconduct Tribunal for failing to disclose price sensitive information as soon as reasonably practicable against a manufacturer of camera products listed in the Hong Kong Main Board (and its CEO and financial controller) and against a manufacturer of metal products listed in the Hong Kong Main Board (and its senior management) respectively.
The SFC is active in imposing heavy fines on financial institutions for non-compliance of their regulatory requirements. For example, a securities trading company was fined HK$2.7 million for internal control failures and not reporting the deficiencies to the SFC in a timely manner. In 2016, the SFC has also publicly censured or criticised a number of financial institutions for breaches of the Code on Takeovers and Mergers. With effect from 3 May 2016, Mr Thomas Atkinson, who was previously the Director of the Enforcement Branch of Ontario Securities Commission in Canada, has been appointed as the head of the Enforcement Division of SFC. It is expected that the SFC will continue to adopt a robust approach in its enforcement actions.
There has been a comprehensive exercise to rewrite the Companies Ordinance in Hong Kong, culminating in a new Companies Ordinance (Cap 622) which took effect in 2014. One of the important changes under the New Companies Ordinance was the introduction of the concept of “Responsible Persons”. This concept has expanded the scope of persons who may be liable for breach of the New Companies Ordinance. Under the old Ordinance, “officers who are in default” may be liable. This meant any officer (in relation to a body corporate, this includes a director, manager or secretary) of the company or any shadow director of the company who “knowingly and wilfully” authorises or permits the default, refusal or contravention. However, the “knowingly and wilfully” threshold renders prosecution against officers quite difficult. The New Companies Ordinance replaces this with “Responsible Persons”, which means officers or shadow directors who authorise or permit or participate in the contravention or failure. The requirement for knowledge or wilful conduct is removed. Also, where a company has a corporate officer, that corporate officer’s own officers and shadow directors may also be “Responsible Persons”. Therefore, the threshold for committing an offence under the New Ordinance has been lowered.
In June 2012, another piece of significant legislation, the Competition Ordinance (Cap 619), was passed in the Legislative Council and finally came into effect in December 2015. The Competition Ordinance provides for the prohibition of anti-competitive agreements, concerted practices and decisions (the First Conduct Rule); the prohibition on the abuse of market power (the Second Conduct Rule); and the prohibition of mergers that substantially lessen competition in the telecommunications industry (the Merger Rule). The Competition Commission, an independent statutory body, has been established under the Ordinance. A company’s management and directors take ultimate responsibility for ensuring compliance with the Ordinance, which empowers the Commission to seek a disqualification order against the director of a company that has been in breach of the Ordinance, if the director’s conduct contributed to the breach or the director should have been aware of the breach. This applies equally to both executive and non-executive directors. In addition, individual employees (including directors and company secretaries) can be prosecuted for obstructing the Commission’s exercise of its investigatory powers.