Is a Hong Kong Director Personally Liable for a Bookkeeper's Poor Records?

The duty. Sections 373 and 377 require the company to keep and preserve adequate accounting records. The offences are committed by a director who fails to take all reasonable steps to secure compliance: HK$300,000, or HK$300,000 and 12 months' imprisonment if the failure is wilful.

The defence. On a charge for the ordinary (non-wilful) offence, it is a defence to establish that the director had reasonable grounds to believe, and did believe, that a competent and reliable person was charged with the duty of ensuring compliance and was in a position to discharge it (ss.373(7), 377(5)).

How to support that defence in practice

• Appoint someone with suitable experience, and keep evidence of their role and qualifications.
• Receive and read regular reports: monthly reconciliations, ageing lists, management accounts.
• Make periodic checks: ask to see the bank reconciliation and a sample of supporting documents.
• Act on warning signs, such as missed deadlines, unexplained differences or reluctance to share files.
• Keep written instructions on what records must exist, where they are held and for how long.

The defence is for those who did take care. It will not help if red flags were ignored. The wilful offence has no equivalent defence stated in these sections.

This is general information, not legal advice.