You are setting up a company in Hong Kong with several investors or plan to raise money soon? Keep in mind that as director of the company, you need to fulfil your fiduciary obligations and you are exposed to claims from various third parties, so it is important you put in place a Directors and Officers liability insurance.
Fiduciary duties as director of Hong Kong companies
Business environment in Hong Kong is one of the best in the world, but running a company implies to respect a certain number of basic rules. As director of a company in Hong Kong, you have to respect the following duties as listed in the company Act:
- To act honestly and in good faith in the interest of company
- To avoid conflict of interest
- To not misuse power and information
- To exercise care, skill and diligence
Failing in respecting those 4 duties will expose you to claims from various parties. It is clear that all information the director has on the company should be only used for the interest of the company and not its personal interest as it will expose directors to potential civil or criminal lawsuit.
Type of Directors & Officers liability claims
- Third party bodies
Your clients, vendors or even general public could sue your company and directly its directors and officers for wrongful act, breach of contracts or agreement if they consider your have failed in your duty as directors and officers
- Company shareholders and employees
Investors in your company, minority or not, could sue you for non-performing or considering you have been involved in unfair practices. Staff, on the other hand, could sue the company for discrimination or wrongful dismissals. Many issues could raise, or being emphasized by social media
- Regulatory threats
Businesses in Hong Kong should follow a number of rules and regulations. Failing to do so could bring a claim from local authorities, whether it is due to health and safety measures, tax issues or import/export issues. These claims could impact your business and lead to regulatory fines.
To protect yourself and the management against such risks, a D&O liability insurance policy is needed. See below what D&O policy will cover:
- Covers claims related to wrongful Act: breach of duty, breach of trust, error, misstatement, misleading statement, breach of warranty of authority, etc,… done or wrongfully attempted.
- Covers claims for tort but not breach of contract unless provided for in the policy or where the claim is one that could have been brought in either contract or tort
- D&O insurance will not cover dishonest or fraudulent act
Running a business is not without risks, whether in Hong Kong or elsewhere. To mitigate the risk, don’t forget Directors and officers liability insurance!
If you are setting up a company in Hong Kong or running an existing business but did not buy D&O policy, contact us now to cover your risks.
To know more about D&O, visit our website.