In November 2025, the Stock Exchange of Hong Kong Limited (HKEX) published Issue 13 of its Listing Regulation and Enforcement Newsletter addressing what the HKEX terms “common misunderstandings” in relation to directors’ duties and other corporate governance matters. The Newsletter draws upon recent HKEX disciplinary cases and Hong Kong court decisions as well as the Rules Governing the Listing of Securities on the HKEX (HKEX Listing Rules) to clarify directors’ obligations and responsibilities in six key areas: delegation of duties, reliance on professional advice, commercial interests versus HKEX Listing Rule compliance, the role of independent non-executive directors (INEDs) in maintaining internal controls, re-appointment of directors removed by shareholders’ votes, and the company secretary as gatekeeper of good corporate governance.

The HKEX emphasises that directors are pivotal in shaping the governance framework and strategic direction of companies the shares of which are listed on the HKEX (HKEX Listcos). Misunderstandings about director duties can lead to significant legal, regulatory and financial repercussions for both directors and HKEX Listcos. The guidance provided serves as an important reminder to directors of their ongoing obligations under Hong Kong law and the HKEX Listing Rules.

Delegation of HKEX Listco Directors’ Duties

The HKEX addresses a common misunderstanding that delegation absolves directors of their responsibilities. Directors have sometimes argued that where a particular task or responsibility had been delegated and the delegated personnel did not alert them to any issues, there was nothing they could have done to prevent or detect the HKEX Listco’s breach of the HKEX Listing Rules or loss of assets.

The HKEX confirms that whilst delegation or division of duties is permissible, directors retain a core non-delegable duty to exercise reasonable skill, care and diligence in the performance of their director duties. Directors are expected to:

• ensure the delegation to be reasonable, particularly considering the delegated personnel’s knowledge and capability in the subject matter; and
• after delegation, actively supervise the discharge of the delegated functions, by continuing to acquire and maintain sufficient knowledge of the delegated matter and following up on anything untoward that comes to their attention.

HKEX Listing Rule Compliance

In the context of HKEX Listing Rule compliance, for HKEX Listcos conducting securities trading, directors should ensure regular and timely escalation of details and developments of trading activities to the board for ascertaining and complying with the HKEX Listing Rule requirements. For this purpose, directors should:

• ensure the personnel delegated to operate the activities are familiar with the HKEX Listing Rules, notably the notifiable transaction requirements; and
• put in place adequate and specific internal controls and procedures, particularly to prevent and detect non-compliance.

More generally, where the company secretary is delegated the HKEX Listco’s compliance matters, directors should take adequate action to monitor and follow up on the relevant matters to ensure that the company secretary will duly discharge the delegated duties. A director failing to do so and a company secretary failing to procure a HKEX Listco’s compliance with the HKEX Listing Rules as delegated would warrant at least public censure. This principle was applied in the HKEX’s news release dated November 2025.

Safeguarding HKEX Listed Company’s Assets

For HKEX Listcos with a money lending business, directors should minimise the chances of any monetary or impairment loss that may arise from borrowers’ defaults in repayment of loans and interest. Whilst delegating the day-to-day operation to specific personnel, directors should, among others:

• ensure adequate and specific internal controls and procedures are in place, such as those relating to (i) due diligence, (ii) assessment of credit risk and adequacy of security (including steps to be taken to ensure its enforceability), and (iii) reasonableness of loan terms and extensions at the time of grant and continuously during the duration of the loan; and
• maintain sufficient oversight of the operation by, for example, obtaining and reviewing regular updates (both operational and financial), and, in a timely manner, escalate and discuss issues coming to their attention at board meetings.

There have been instances where Director Unsuitability Statement (DUS) was imposed on directors failing to discharge such duties, as noted in the HKEX’s news release dated 8 October 2025.

Also, where the operation of any joint venture held by the HKEX Listco is delegated to a joint venture partner, directors remain obliged to take an active interest and give adequate oversight over the joint venture’s business and affairs. Excessive reliance on the joint venture partner might create an environment fostering irregularities and, in turn, result in a loss of the joint venture’s assets. The Hong Kong court has made director disqualification orders against directors failing to meet such obligations, as referenced in the HKEX’s news release dated 26 May 2021 and the Court of First Instance judgment dated 27 January 2025 [2025] HKCFI 466.

Red-Flag Handling

The HKEX has highlighted cases where, had directors taken prompt and adequate action in response to red flags of irregularities, HKEX Listcos could have avoided (or stopped further) giving unauthorised or other irregular financial assistance, making misstatements in financial statements or other publications, or acting in circumvention of the HKEX Listing Rules and internal controls.

Once becoming aware of red flags, directors should promptly escalate the matter to the board of directors which, in turn, is expected to, in a timely manner:

• make adequate enquiries to ascertain the facts, and not accept suspected culprits’ representations at face value without verification;
• take action to prevent occurrence or recurrence of the irregularities (e.g. call board meetings to devise course of action and/or seek professional advice). Simply instructing the suspected culprits not to repeat the irregularities, without taking pro-active steps to stop their recurrence (e.g. revoking their authority to do the same) is clearly inadequate; and
• investigate how the irregularities had occurred, review any deficiencies in the HKEX Listco’s risk management and internal controls, and remedy the same.

This view is endorsed by the Hong Kong court in its judgment dated 7 May 2020 [2020] HKCFI 675.

Independent Judgment

The HKEX emphasises that each director must exercise his or her independent judgment as to whether the transactions requiring his or her approval were in the HKEX Listco’s interests and compliant with the HKEX Listing Rules. A director simply relying on prior approval of another director or a management member and rubber-stamping the approval is clearly derelict of duties, and could warrant a Director Unsuitability Statement (DUS), as applied in the HKEX’s news release dated 10 September 2024.

HKEX Listco Reliance on Professional Advice

Another common misunderstanding addressed by the HKEX is that directors who had acted on a professional adviser’s advice cannot be blamed for any resulting issues.

The HKEX confirms that reliance on professional advice must be reasonable. Directors must make their own judgment on the reliability and sufficiency of advice (such as the scope of engagement and the adviser’s expertise, competence and resources to perform the engagement) and, before acting on it, exercise appropriate scepticism and common sense and make appropriate enquiries.

In one case highlighted by the HKEX, directors were sanctioned for unquestioningly relying on a land valuation by a professional valuer and adopting it in the HKEX Listco’s financial statements, despite noticing that the land value had purportedly increased seven-fold within six months only. The increase turned out to be unsubstantiated and, hence, the financial statements were materially incorrect, inaccurate and misleading.

The directors were found to have failed in their director duties as they did not:

• make proper enquiries with the valuer (e.g. on the assumptions, methodology and comparables adopted) to justify the substantial increase; and/or
• consult the HKEX Listco’s auditor or other professional advisers on the reasonableness of the substantial increase before publishing the financial statements.

This case is referenced in the HKEX’s news release dated 8 July 2024.

Commercial Interests vis-à-vis HKEX Listing Rule Compliance

The HKEX has addressed situations where directors have sought to justify a deviation from HKEX Listing Rule compliance based on commercial rationale when commercial interests intersect with regulatory compliance.

The HKEX makes it clear that commercial reasons do not override the obligation to comply with the HKEX Listing Rules, which are designed to maintain an orderly, informed and fair securities market and protect shareholders and other public investors in general. Blatant or reckless disregard for HKEX Listing Rule compliance warrants the most severe sanctions under the HKEX Listing Rules.

Director suitability concerns have arisen in cases where:

• A director procured the HKEX Listco to execute a very substantial disposal without complying with the HKEX Listing Rules. His action was unjustified, despite his insistence on commercial interests in favour of the disposal, including an alleged minimisation of the HKEX Listco’s sanction risk exposure in Russia, and a 30% premium over the disposal target’s fair value. This principle was applied in the HKEX’s news release dated 15 September 2025.
• Imminent funding needs were considered insufficient to justify a director procuring the HKEX Listco’s disposal of assets without complying with the HKEX Listing Rules, as referenced in the HKEX’s news release dated 6 March 2025.

Roles of HKEX Listco Independent Non-Executive Directors on Internal Controls

The HKEX has clarified the obligations of INEDs in relation to internal controls. To disclaim liability for irregularities, some INEDs have argued that they:

• were not privy to the irregular acts and even the HKEX Listco’s actual operation; and
• were entitled to rely on management to operate or monitor the operation of the existing internal controls and procedures.

In cases of management override of internal controls, it has also been argued that the irregularities would have been unavoidable even if the internal controls had been adequate.

The HKEX confirms that directors (executive and non-executive) have the same duties of skill, care and diligence and fiduciary duties, and must take an active interest in the HKEX Listco’s business operations and affairs. INEDs are often members of the audit committee (which the HKEX Listing Rules require to be chaired by an INED) that has primary responsibility for monitoring and ensuring that management establishes and maintains adequate and effective internal control systems.

In one case, INEDs (also the audit committee members) were considered to have failed the duty to establish and maintain effective internal controls over the transactions and arrangements made by the HKEX Listco’s chief operating officer and financial controller, who were given immense power over the group’s operations and funds (including provision of loans and advances without directors’ approval or knowledge). Nor did the INEDs procure the chief operating officer and financial controller to receive regular and adequate training on the HKEX Listing Rules. This resulted in the HKEX Listco incurring a significant impairment loss of the loans given. This case is referenced in the HKEX’s Statement of Disciplinary Action dated 13 May 2020 and theCourt of First Instance judgment dated 7 May 2020 [2020] HKCFI 675.

In another case, INEDs were considered to have failed to ensure adequate internal controls were in place before or when the HKEX Listco commenced a newly acquired money lending business. The mere existence of a general internal control policy was insufficient to demonstrate the INEDs’ proper discharge of their director duties, particularly given the policy was deficient. The management’s substantial prior experience in money lending did not absolve the INEDs of the duty to exercise independent judgment and oversight on the board’s conduct. This is referenced in the HKEX’s news release dated 4 December 2023 and the Court of First Instance judgment dated 27 November 2023 [2023] HKCFI 2932.

No Re-appointment of HKEX Listco Directors Removed by Shareholders’ Votes

Directors play a critical role in corporate governance, and any appointment must strictly comply with the company’s constitutional documents and applicable laws. Under common practice, the power to appoint directors rests primarily with shareholders, while boards may appoint additional directors or fill casual vacancies if permitted by the constitutional documents. This ensures that shareholders, as ultimate owners, retain control over who manages the company.

The HKEX has observed cases where, following a director’s appointment being voted down at a general meeting, the board of directors of the HKEX Listco re-appointed the same individual shortly thereafter. Such action raised serious concerns about whether such re-appointment, made contrary to validly passed resolutions, complied with the constitutional documents and relevant regulations.

The HKEX reminds HKEX Listcos that shareholder resolutions are binding. Respecting these decisions is fundamental to transparency, accountability and trust in governance. Any deliberate disregard of shareholder votes, or failure to rectify improper re-appointments, may call into question whether directors involved have failed to discharge their fiduciary duties.

HKEX Listco Company Secretary as Gatekeeper of Good Corporate Governance

The company secretary is an important executive of an HKEX Listco with a wide range of functions. Such functions go beyond administration: they entail duties and responsibilities personal to the named company secretary requiring his or her personal judgment and regulatory knowledge. The company secretary is also directly accountable to the board and stakeholders, including for ensuring HKEX Listing Rule compliance and promoting high corporate governance standards. Paragraph C.6 of Appendix C1 to the Main Board Listing Rules / GEM Listing Rules sets out the role of the company secretary, and the HKEX’s Corporate Governance Guide for Boards and Directors sets out a non-exhaustive list of functions expected from a company secretary.

Recently, the HKEX has identified cases where it is questionable whether the relevant individuals appointed as company secretary can properly fulfil this important role.

Situation 1: Multiple Appointments

According to guidelines of The Hong Kong Chartered Governance Institute (HKCGI), it is recommended that individuals should take on no more than six contemporaneous appointments as named company secretary for HKEX Listcos to ensure they remain able to properly discharge their expected regulatory duties. See the Company Secretary Appointment Guidelines for HKICS Members published by HKCGI in March 2018.

During the year, the HKEX noted that, at one point, more than 500 HKEX Listcos engaged a group of 48 company secretaries, each acting for multiple HKEX Listcos ranging from seven appointments to more than 40 appointments in one case.

Not only is this contrary to the guidelines by HKCGI, questions may also arise as to whether these company secretaries can devote sufficient time to equip themselves with day-to-day knowledge of the affairs of each of these appointments. Paragraph C.6.1 of Appendix C1 to the Main Board Listing Rules / GEM Listing Rules requires the company secretary to be an individual who has day-to-day knowledge of the HKEX Listco’s affairs. Given the role of company secretary is personal in nature, the fact that certain administrative functions can be delegated does not mean personal accountability can also be delegated.

In such situations, the HKEX urges HKEX Listcos and company secretary candidates to consider (among other things):

• for company secretary candidates, whether they (i) can personally devote sufficient time to take on a further appointment as company secretary, and (ii) have disclosed in writing full details of all appointments to all concerned HKEX Listcos ; and
• for HKEX Listcos, whether a company secretary candidate with multiple company secretary appointments remains capable of properly discharging his or her role.

Situation 2: Responsibilities Cannot be Limited by Contract

Company secretaries are required under Main Board Rule 3.28 / GEM Rule 5.14 to possess professional qualifications or experience that indicates their familiarity with the HKEX Listing Rules.

In practice, many HKEX Listcos appoint management members that have served in related roles for some time and are familiar with the HKEX Listco’s business and affairs as company secretary. Where the management member does not possess the qualifications or relevant experience required under the HKEX Listing Rules, the HKEX Listco would engage an external qualified person to assist. In this situation, the HKEX may, case by case, grant a waiver allowing a company secretary without the requisite qualifications to be appointed subject to an arrangement that a properly qualified person is appointed as a joint company secretary.

In a recent case where such a waiver had been granted, the individual appointed as joint company secretary based on his or her requisite qualifications and expertise had in fact contracted out of the responsibility for HKEX Listing Rule compliance in the service contract with the HKEX Listco. When certain HKEX Listing Rule breaches were observed, that joint company secretary, who had remained passive throughout the appointment, denied responsibility based on the contract-out arrangements.

The HKEX emphasises that:

• An individual appointed as a named company secretary will always remain personally responsible for discharging his or her duties as company secretary under the HKEX Listing Rules regardless of any service agreement with the HKEX Listco.
• It is not acceptable for HKEX Listcos to waive or limit the responsibilities of a company secretary under the HKEX Listing Rules by contractual arrangements.

HKEX Listco Directors Duties Conclusion

The November 2025 the HKEX Listing Regulation and Enforcement Newsletter provides important guidance on common misunderstandings regarding director duties and corporate governance matters. The Newsletter emphasises that directors cannot abdicate their fundamental responsibilities through delegation, reliance on professional advice or commercial justifications. Directors must exercise active oversight, independent judgment and maintain robust internal controls, regardless of whether they are executive or non-executive directors.

The Newsletter also addresses critical corporate governance issues, including the binding nature of shareholder resolutions on director appointments and the essential gatekeeping role of company secretaries. The HKEX makes clear that shareholder votes must be respected and that company secretaries bear personal responsibility for their duties regardless of contractual arrangements or the number of concurrent appointments they hold.

The disciplinary cases and court decisions referenced in the Newsletter demonstrate the HKEX’s willingness to impose significant sanctions, including public censures, Director Unsuitability Statement (DUS), and director disqualification orders, where directors and company secretaries fail to meet their obligations. HKEX Listcos, their directors and company secretaries should carefully review the guidance and ensure that appropriate governance structures and procedures are in place to comply with their duties under the HKEX Listing Rules and Hong Kong law.

Past disciplinary decisions do not serve as binding precedents, with each case determined on its facts and circumstances. However, the guidance provides valuable insight into the HKEX’s regulatory expectations and approach to enforcement of director duties and corporate governance standards.