Hong Kong: The Offshore Perspective and a Comparison of Directors´ Duties Amid a Global Credit Crisis

Last Updated: 2 June 2008
Article by Appleby  

Recent global economic developments have prompted a tightening of credit in various parts of the world and, amongst corporations in some of those countries, a heightened risk of insolvency. Increasingly, advice is being sought about the legal responsibilities and potential liabilities of boards whose companies may be facing some form of insolvency or credit crunch.

A seemingly simple question concerning what personal duties, or potential consequences, members of a board might face in a situation of possible insolvency can often involve a complex analysis. Today, large corporations and financial institutions comprise many businesses and entities, spread over various legal jurisdictions. The relevant laws of all these jurisdictions need to be understood, summarised and presented to the board in a practical manner having regard to the commercial context.

The following is a summary of the position in those offshore jurisdictions that Appleby currently covers:

Bermuda: Directors are under general duties to act honestly and in good faith with a view to the best interests of the company. They are also required to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. In performing these duties where a company is insolvent, or on the verge of insolvency, a director is required to afford paramount regard to the interests of the company's creditors as a whole. Directors should act with a view to minimising the potential loss to creditors, as opposed to acting in the best interests of the collective body of shareholders. A director who fails in these duties is liable to the company for any consequential damages.

Therefore, directors should take decisions, such as whether to continue trading, or to seek a winding up of the company, or a sale of its business as a going concern, based on a careful consideration of the course of action that would be in the best interests of the company's creditors. It is the creditors of the Bermuda company who must be considered of paramount importance, including intra-group creditors, rather than the creditors of the corporate group as a whole.

Bermuda also has a fraudulent trading provision equivalent to Section 213 of the English Insolvency Act 1986 (English Insolvency Act), rendering any person who is knowingly party to the carrying on of the company's business with intent to defraud creditors, or for any fraudulent purpose, liable to contribute to the company's assets in the event of an insolvent liquidation.

Cayman Islands: The law in the Cayman Islands is essentially the same as in Bermuda, except that Cayman only recently enacted a fraudulent trading provision equivalent to Section 213 of the English Insolvency Act, and this has not yet come into force. It is pending the drafting of more detailed insolvency rules.

British Virgin Islands (BVI): The law in the BVI is also virtually the same as in Bermuda but for one important addition. Under Section 256 of the Insolvency Act, 2003 of the BVI, a person who is, or who has been, a director of a company can be ordered to make such contribution to the assets of a company in liquidation as the Court considers proper.

To make such an order, the Court must be satisfied that, while a director, he knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into liquidation, and thereafter failed to take every step reasonably open to him to minimise the loss to the company's creditors. This is very similar to wrongful trading under Section 214 of the English Insolvency Act and seemingly renders directors of BVI companies subject to a higher degree of personal responsibility in circumstances of possible insolvency than directors of Bermuda or Cayman companies.

Jersey: The law in Jersey is essentially the same as in the BVI, though the wording of the provision relating to wrongful trading differs slightly. Under Section 177 of the Companies (Jersey) Law, 1991 and Section 44 of the Bankruptcy (Desastre) (Jersey) Law 1990, the test is whether the director knew or was "reckless" regarding whether the company would avoid a winding up and whether, thereafter, he took "reasonable steps" with a view to minimising the potential loss to creditors.

Mauritius: Under Mauritius law, apart from the general duties of directors to act honestly, in good faith and in the best interests of the company and, in so doing, exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances, the Companies Act 1984 and 2001 of Mauritius imposes specific duties and responsibilities on directors of potentially insolvent companies both pre and post insolvency.

Under Section 162 of the Companies Act 2001, a director who is of the view that a company is unable to pay its debts as they fall due is under a statutory duty to forthwith call a meeting of the board to consider whether the board should appoint a liquidator or an administrator. Where any director fails to call such a meeting and, at the time of the failure, the company is unable to pay its debts as they fall due and the company is subsequently placed in liquidation, the Court may make an order that such director shall be liable for all or any part of any consequential loss suffered by the creditors of the company.

Where a meeting is called but the board does not resolve to appoint a liquidator or an administrator, and if, at the time of the meeting, there were no reasonable grounds for believing that the company was able to pay its debts as they fall due and the company is subsequently placed in liquidation, then the Court may make an order that those directors who voted against appointing a liquidator or an administrator be liable for all or any part of any consequential loss suffered by creditors of the company.

A further consideration for directors of Mauritius companies is Section 324 of the Companies Act 1924. This provides that where, during the course of the winding up of a company or in any proceedings against a company, it appears that an Officer (which definition includes a director) is knowingly a party to the contracting of a debt and who, at the time the debt is contracted, had no reasonable or probable ground of expectation of the company being able to pay the debt, after taking into consideration the other liabilities, if any, of the company at the time, that Officer shall be deemed to have committed an offence.

Conclusion: As in most developed countries, all of our offshore jurisdictions have laws requiring that company directors exercise a certain degree of care and have regard to the interests of the company's creditors, in circumstances where the company is insolvent or on the verge of insolvency. In BVI, Jersey and Mauritius, the laws go one step further by trying to ensure that directors do not act unreasonably or recklessly as regards any decision to continue trading or to incur further debts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions