Hong Kong directors’ duty of care, skill, and diligence

Hong Kong's director-care standard has two parts. Section 465 of the Companies Ordinance (Cap. 622) sets a baseline tied to the director's functions, then also considers the knowledge, skill, and experience that director actually brings. A director cannot rely on being inexperienced to fall below the role's objective standard; relevant expertise can raise what is expected.

The objective limb

Ask what a reasonably diligent person would know and do when carrying out the functions performed by this director in this company. The standard is not identical for every board role. A director who chairs an audit committee or takes responsibility for a specialist area may be expected to perform the functions of that role with the care reasonably expected of a person doing them.

The subjective limb

The standard also takes account of the director's own general knowledge, skill, and experience. If the director has particular financial, engineering, legal, or industry expertise, the role cannot be performed as though that knowledge did not exist. The two limbs operate together: the actual director's abilities can lift the standard above the baseline associated with the functions.

A practical example

A board receives financial statements showing a sharp cash-flow decline. A director responsible for the audit committee should ask questions reasonably expected of someone carrying out that oversight role. If that director is also an experienced accountant, the director's actual expertise matters too. “I relied on management” does not by itself answer whether the director took reasonable care to understand and respond to the information.

Keep this duty separate from other duties

Section 465 addresses care, skill, and diligence. It does not replace duties to act in good faith for the company's benefit, exercise powers for proper purposes, avoid conflicts, or comply with other statutory requirements. A question about a director's careless oversight points toward section 465; a question about using a power to secure a personal benefit may test a different duty.

• Objective limb: the functions carried out and what a reasonably diligent person in those functions would know or do.
• Subjective limb: the actual director's own knowledge, skill, and experience.
• Both apply together; inexperience does not erase the baseline, and expertise can raise the expected standard.
• The section concerns the standard of care, skill, and diligence, not a guarantee that every business decision will succeed.
• Separate carelessness from conflicts, improper purposes, and other duties of directors.

For an exam scenario, identify the director's actual functions first. Then apply the reasonable-person baseline and ask whether the director's own expertise increases the standard. That is the mixed test in section 465.

The duty is contextual

A director must exercise reasonable care, skill and diligence in performing the functions of director, judged against the statutory standard and the circumstances of the company and the particular role. The standard includes what could reasonably be expected of a person carrying out those functions and any additional knowledge, skill or experience the director actually has. A director cannot treat the role as ceremonial, but the law does not make every business decision that turns out badly a breach. The question is whether the director acted with appropriate care when deciding and supervising.

Preparation, inquiry and reliance

Directors should read board papers, attend and participate, ask for clarification where assumptions are material, and ensure adequate information reaches the board. A director may rely on competent staff, professional advisers or board committees in appropriate circumstances, but reliance should be reasonable and not blind. Red flags, inconsistencies, conflicts or repeated control failures call for further inquiry. The board should document key assumptions, alternatives considered, advice received and why the decision was made, while avoiding minutes that falsely suggest a full review took place.

Delegation and ongoing oversight

Delegation can allocate work efficiently, but it does not necessarily remove the board’s need to supervise matters reserved to it or monitor delegated authority. Directors should understand the company’s material risks, reporting systems and financial position. If the company faces distress or a serious compliance issue, the required level of attention may increase. A director should disclose conflicts, manage confidential information properly and act in the company’s interests within the governing law and constitutional documents.

Scenario and common errors

Suppose a board approves a major transaction using a short paper that omits an obvious liability raised in prior meetings. A director who did not ask about it may face questions about reasonable diligence. By contrast, a carefully informed decision that later loses money is not automatically negligent. In an exam response, discuss the director’s role, available information, inquiries made, reliance, red flags and follow-up. Avoid both extremes: “directors are liable for every failure” and “directors may simply rely on management.”

Implementation and review

Minutes should record material questions and the basis for decisions, but directors should not rely on polished minutes as a substitute for their own engagement. They should ensure conflicts are declared and handled, challenge optimistic forecasts where downside assumptions are material, and revisit decisions when facts change. A director appointed for a particular expertise may be expected to use it, while still being entitled to seek expert advice on matters outside their competence. The duty is assessed in context, including the company’s size, complexity and the director’s actual responsibilities.