Question Hong Kong Law (Compan
Question Hong Kong Law(Company Law)
Lawrence, Michael and Nigel are shareholders and directors ofProsperity Ltd which is a retailer of hi-tech products. Each ofthem holds sixty-five, twenty, and fifteen per cent of thecompany’s shares respectively. Being often away on an overseasholiday, Lawrence rarely attends the board of directors’ meetings.During the year 2019, Lawrence sold the company’s product to hisfriend at a price which is substantially lower than the marketprice and he secretly obtained from his friend commission of$25,000. Prosperity Ltd has been negotiating a business deal withWealthy Ltd for sourcing a piece of automated equipment at anattractive price, but the deal went off because the company did nothave sufficient funds. Lawrence then set up his own company whichmanaged to enter into a contract with Wealthy Ltd to purchase thesame equipment. Michael and Nigel later found out about this bythemselves. They were unhappy with what Lawrence has done and theywant to bring an action against him. Lawrence is planning to ratifyhis conduct at the next general meeting.
Required: Advise Michael and Nigel as regards Lawrence’s breach ofduty as a director of Prosperity Ltd.
A detailed solution is appreciable!
Answer:
-A director is a statutory officer whom manages a company ,represents its nterest and work hard to make it succeed. A directorows fiduciary duties towards the comany.
-A director has the following duties-
1.Act in good faith
2.Use power for a proper purpose
3.Do not delegate power except with a proper authirization
4.Exercise care, skills and due deligence
5.Avoid Conflict of interest
6.Do not make transactions involving personal gain
7.Do not abuse power
8.Do not use company’s property & information if notauthorised
9.Do not accept any personal benefit from third party
10.Obey the company’s law
11.Keep accounting record
12 . Take part in company activity & decision making
-Fiduciary duties is a legal term for the responsibilities of adirector to act honestly and loyally on the befalf of thecompany.
– When a company director breaches his fiduciary dutiestowards the company, then the company can bring a claim againstsuch director.
-Section 724(1)(a)of the CO allows member/members of acompany to present a petition to the court if the company’s affairshave been conducted in a manner prejudicial to the interest of thecompany or the members.-
-According to Section 725(2) and 726 the court may passthe following orders-
- an order restraining the continuance of the conduct of thecompany’s affairs mentioned in the petition;
- an order that proceedings that the Court thinks fit be broughtin the company’s name
- an order appointing a receiver or manager
- any other order the Court thinks fit, whether for regulatingthe conduct of the company’s affairs in future, for the purchase ofshares of any member of the company by another member of the samecompany, for the purchase of shares of any member by the companyand the reduction accordingly of the company’s capital, or for anyother purpose
- an order for the company or any other person to pay any damagesthat the court thinks fit to a member of the company whoseinterests have been unfairly prejudiced by the conduct of thecompany’s affairs or by the act or omission;
- an order for alteration of a company’s articles and
- Removal of the director
In the given case Lawrence has breached the fiduciary dutyby-
1. Not attending the BOD meeting [ No activeparticipation]
2. Making personal gain
3. Using company’s assets withoutauthorization
4. Accpeting personal benefit from third partyand
5.Abuse of power
in this case , Michael andNidel, who are the shareholders and directors, have twochoices-
A. Make Civil proceedingsin the name of the Company against Lawrenec for his breach of dutyand for loss to the company
AND
B.They both as ashareholder can make a petiton under section 724(1)(a)of theCO.
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