The new Hong Kong Companies Ordinance (CAP. 622) comes into effect on March 3, 2014. It had increase the legal liability of Directors for both Public and Private companies. And of course, as a listed company in Hong Kong, in addition to the Hong Kong Companies Ordinance, you will be subject to Securities Law and Listing rule.

Being appointed as a Director is a significant responsibility. With responsibility, comes liability.

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Since a director is essentially the custodian of a company, they are accountable to shareholders, third-party, creditors, employees, suppliers, customers, potential investors, competitors, and of course to the regulators. Even for the directors and officers working in private companies, one can be personally sued by employees, vendors, competitors, investors, customers, or other parties, for actual or alleged wrongful acts in managing a company.

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Of course, Director is not the only one face with liability. Officers are at risk as well.

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The new Companies Ordinance did not clearly define who is considered as an officer, it uses “Responsible person” in a broad sense. CEO, CFO, head of department, managers can fall within the definition of Responsible person, thus share the liability.

 

But perhaps, the most important changes to the Ordinance is:
1) The company are forbidden to compensate Directors on their liability to the company, and
2) Only under specific circumstances can a company provide compensation to a third party on behalf of the director

It means Directors are now personally liable for their wrongful act. Face with such substantial liability, where can a director or officer turn to protect themselves?

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Fortunately, Directors and Officers Liability Insurance can help.
 

Directors and Officers Liability Insurance help protect against legal claims for wrongful acts performed by corporate directors or officers as part of their corporate duties. Wrongful acts include omissions, errors, misstatements, misleading statements, neglect or breach of duty. Directors and Officers Liability Insurance provide coverage on Monetary Damages and Defence Costs. We protect Directors and Officers against liability arising from Employment Practice Error. We can even cover Retired Director on account of a Management Error, Employment Practice Error or Defamation committed / allegedly committed before they retired.

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Directors and Officers Liability Insurance help protect against legal claims for wrongful acts performed by corporate directors or officers as part of their corporate duties.

Wrongful acts include omissions, errors, misstatements, misleading statements, neglect or breach of duty. Directors and Officers Liability Insurance provide coverage on Monetary Damages and Defence Costs. We protect Directors and Officers against liability arose from Employment Practice Error. We can even cover Retired Director on account of a Management Error, Employment Practice Error or Defamation committed / allegedly committed before they retired.

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A company wants to bring on best people to be their director. However, with so much at stake, it is not hard to imagine a knowledgeable director will only join the company that had a Directors and Officers Liability Insurance in place.

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Grand Trust Underwriters can help tailor the Directors and Officers Liability Insurance to fit your company’s special needs. To learn more on how we can help or get a quotation, please feel free to contact us.

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