Hong Kong: Duties of directors when companies start to experience financial distress

COVID-19 has presented a lot of challenges to businesses across the globe. Many companies are suffering from sharp decline in revenues and some are even on the brink of insolvency. Normally, directors’ primary duties are owed to the company’s shareholders and they are obliged to promote the company’s financial success. Where a company is becoming insolvent, directors will need to attach greater importance to the interests of the company’s creditors. They also need to pay extra attention when considering any transactions the company may enter into so as to avoid individual liabilities in relation to fraudulent trading, transactions at an undervalue and unfair preference. In this client briefing, we explore various issues which should be considered by directors (whether executive or non-executive) of Hong Kong-incorporated companies and Hong Kong listed companies in times of financial difficulties. This client briefing offers practical steps that directors should consider taking.