Can our HK private company directors approve related-party loans without shareholder consent?

Under Hong Kong Companies Ordinance (Cap. 622) and the Listing Rules (if the company is listed), any transaction in which a director’s immediate family stands to benefit – such as a loan to a spouse’s business – is treated as a “related‑party transaction.” Even when the board formally approves the deal, the company must still satisfy two statutory and regulatory requirements:

1. Disclosure and shareholder approval – The transaction must be disclosed to all shareholders in the next annual general meeting (or a specially convened extraordinary general meeting) and, where the loan exceeds HK$500 million or is material to the company’s assets, the shareholders must pass a resolution authorising it. The disclosure must set out the terms, the identity of the related party, the director’s interest, and the rationale for the loan. If the company is listed, the Securities and Futures Commission’s Code on Related Party Transactions also requires a written declaration of interest from the director, an independent financial adviser’s opinion (unless the transaction is de minimis), and filing of a “Related Party Transaction” notice with the Stock Exchange.

2. Board‑level safeguards – The board must record a detailed minutes entry showing that the conflicted director abstained from voting, that an independent director or a majority of disinterested directors evaluated the fairness of the terms, and that the decision was made in the best interests of the company. In the absence of a formal conflicts‑of‑interest policy, the company should adopt a written policy immediately and retain evidence of the independent review (e.g., a third‑party valuation).

Risks of proceeding without full compliance – If the loan is made without the required shareholder resolution or proper disclosure, the company could face breach of fiduciary duties, leading to personal liability for the director and possible civil actions by minority shareholders. For listed companies, the Securities and Futures Commission may impose fines, order the transaction to be unwound, or require remedial disclosures, which can damage the company’s reputation and trigger a drop in share price. Moreover, failure to document the director’s abstention and independent assessment can be construed as a conflict‑of‑interest violation, exposing the board to scrutiny in future audits or investigations. In short, relying solely on board approval without the statutory disclosures and shareholder consent creates significant legal and reputational exposure.

Sincerely,
Ascendance International Organization