Introduction

In November 2025, The Stock Exchange of Hong Kong Limited (“HKEx”) released the Listing Regulation and Enforcement Newsletter (Issue 13) (“Newsletter”), which identifies certain common misunderstandings of director duties, including (i) delegation of duties, (ii) reliance on professional advice, (iii) Commercial interests vis-à-vis Rule compliance, and (iv) Roles of independent non-executive directors (“INEDs”) on internal controls. It serves as a critical tool for understanding the current enforcement landscape and underscores the non-negotiable standards required of those holding board positions.

1.    Delegation of duties

With respect to the delegation of duties, a common misunderstanding addressed is that such delegation relieves directors of their ultimate responsibilities. It has been argued by some directors that once a specific task or responsibility is assigned to other personnel, and those individuals fail to raise any concerns, the directors could not have been reasonably expected to prevent or identify the listed issuer’s breach of the Listing Rules or losses to its assets.

It is clearly affirmed by the HKEx that while the delegation or division of duties is permissible, directors retain a core, non-delegable duty to exercise reasonable skill, care, and diligence in fulfilling their roles. Directors are therefore expected to:

1.      ensure that any delegation is reasonable, taking into account the delegated personnel’s knowledge and competence in the relevant area; and

2.      actively supervise the performance of the delegated functions after the assignment. This requires directors to continue acquiring and maintaining a sufficient understanding of the matter and to follow up appropriately on any irregularities that come to their attention.

2.    Reliance on professional advice

With respect to reliance on professional advice, a common misunderstanding addressed is that such reliance excuses directors from blame for any adverse outcomes resulting from decisions based on such advice.

The HKEx clarified that reliance on professional advice must be reasonable. Directors are required to exercise their own judgment in evaluating the reliability and sufficiency of the advice received. This involves considering factors such as the scope of the adviser’s engagement, their relevant expertise, competence, and available resources. Before proceeding based on such advice, directors must apply appropriate scepticism, employ common sense, and make necessary enquiries.

3.    Commercial interests vis-à-vis rule compliance

Regarding commercial interests vis-à-vis regulatory compliance, the HKEx addresses scenarios where directors attempt to justify departures from Listing Rule requirements by citing commercial imperatives.

The HKEx clarified that commercial considerations cannot supersede the fundamental obligation to adhere to the Listing Rules. These rules are essential for preserving an orderly, informed, and fair market and for protecting shareholders and the investing public. A flagrant or reckless failure to comply warrants the most stringent sanctions available.

4.    Roles of INEDs on internal controls

With respect to the roles of INEDs in internal controls, a common misunderstanding addressed is that INEDs can disclaim liability by arguing they were not involved in irregular acts or day-to-day operations, and were entitled to rely on management. However, it is clearly clarified by the HKEx that all directors, executive and non-executive alike, share the same duties of skill, care, diligence, and fiduciary responsibility, and must take an active interest in the issuer’s business and affairs.

Specifically, INEDs, who often serve on (and are required to chair) the audit committee, bear primary responsibility for overseeing the establishment and maintenance of effective internal control systems by management.

Takeaways

Against the backdrop of Hong Kong’s rigorous regulatory environment for listed companies, the Newsletter serves to clarify the precise boundaries of director responsibility. By dispelling common misunderstandings, it aims to foster a culture of proactive governance and informed decision-making at the board level, and helps the directors to better understand their duties. The emphasis on active supervision, critical assessment of external advice, and the primacy of compliance ultimately streamlines governance focus onto matters materially impacting corporate integrity and shareholder value. This balanced approach strengthens essential investor protections and market confidence, while providing directors with a clearer framework to fulfil their duties effectively without engaging in defensive or overly bureaucratic oversight.