An Analysis of Director’s Duties to Avoid Conflicts of Interest: A Perspective on HKEX’s Guidelines

An Analysis of Director's Duties to Avoid Conflicts of Interest: A Perspective on HKEX's Guidelines

The Hong Kong Exchanges and Clearing Limited (HKEX) has recently issued an Enforcement Bulletin, focusing on directors’ duties towards conflicts. It discusses various cases to illustrate potential pitfalls directors might encounter and provides practical tips and best practices on conflict management. The report concludes with a summary of enforcement cases from the first half of 2023.

While there isn’t an all-encompassing solution to managing conflicts of interest and duty, HKEX emphasizes that disclosure and transparency are the cornerstones of good corporate governance.

Understanding Director’s Responsibilities

A director’s responsibilities include a fiduciary duty of loyalty to the company, which encompasses an obligation to avoid conflicts of interest. This duty mandates that a director must always prioritize the company’s interests over personal ones, refraining from exploiting their position for personal gain. As per the Listing Rules, this critical responsibility applies uniformly to all directors, be they executive or non-executive.

The obligation to avoid conflicts isn’t limited to cases where a conflict is obvious or has already occurred. The requirement is broader, and directors need to address and manage any potential conflict situation. Even a remote possibility of conflict requires action. Ignoring potential conflicts could result in a breach of duties, even if the conflict doesn’t directly involve the directors.

Examples of Conflict Scenarios

HKEX’s bulletin outlines several scenarios where conflicts of interest may occur:

  • Director making secret profit: The Agritrade Resources Limited case is an example where a director exploited the company for personal gain, by secretly orchestrating the sale of debentures from Agritrade’s subsidiary to a company he and his wife beneficially owned, and subsequently converting these debentures into a 15% stake in Agritrade’s power plant, worth US$75 million.
  • Competing businesses: The Agile Group Holdings Limited case reveals conflicts can occur within family-run property development companies, when the executive director provides financial aid to the son’s property development business without informing the board.
  • Controlling shareholders’ interests: Directors who are also shareholders need to ensure that what benefits them also benefits the company.
  • Directors serving multiple companies: In situations like the one observed in Fusen Pharmaceutical Company Limited, directors serving on various boards, whether for related or unrelated companies, need to manage potential conflicts of interest diligently.

Best Practices for Managing Conflicts

Rather than banning business activities that may lead to conflicts, HKEX suggests managing conflicts effectively through several steps:

  • Declaration of interest: Directors should declare all interests and roles held in other corporations upon joining the board and update these declarations regularly.
  • Policy and practices: Establish clear written procedures, actively monitor their implementation to ensure compliance, regularly reviewed and update these procedures to ensure their effectiveness and provide regular training to ensure understanding and adherence to these rules.
  • Board meetings: Conflicts should be declared at the beginning of board meetings and managed effectively. The board, excluding the conflicted director, should assess the situation and decide on the appropriate course of action. The meeting’s minutes should clearly record the conflict and how it was handled.
  • Segregation of duties: Assign different roles to different individuals to provide checks and balances.
    Professional advice: Directors should seek professional advice when necessary.


In conclusion, as highlighted by the HKEx’s bulletin, the effective conflict management can significantly reduce the risks associated with conflicts of interest and non-compliance with the Listing Rules. In contrast, poor conflict management can lead to negative consequences, as evidenced by the array of enforcement cases in the first half of 2023.

HKEX’s ongoing commitment to penalize issuers and directors who neglect to manage potential conflicts of interest highlight the critical importance of this issue. The 18 sanction cases published by HKEX in the first half of 2023 serve as a reminder of the consequences of non-compliance and the importance of due diligence. It’s essential for directors to regularly review their actions and decisions for any potential conflicts, ensuring they’re always transparent, fair, and acting in the company’s best interests. Please be aware that for more severe cases involving the SFC or CCB, the penalties may extend beyond mere sanctions or reprimands.

The question then arises – how well-prepared are you and your organization to manage and navigate potential conflicts of interest? If you are interested in obtaining a summary of best practices for managing conflicts in a listed company, please do not hesitate to contact us at

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An Analysis of Director’s Duties to Avoid Conflicts of Interest: A Perspective on HKEX’s Guidelines
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