5.2.2.1.2 Enhanced duties of directors, supervisors and senior o cers

Article 148 of the new company law has introduced general duties to be observed by directors, supervisors and senior officers.1 According to this article, they shall owe a duty of loyalty and duty of care to the company. This is the first time that general duties for directors have been laid down in Chinese company law. The same article also stipulates what the directors may not do: they are forbidden to take any bribe or other illegal gains by taking advantage of their authority, or to encroach on the assets of the company. This article, however, has the same problem with shareholder's duties as Article 20, as it does not give much guidance on what specific duties must be observed and there is no consensus on whether the court must take a broad or strict view of the scope of these duties. Nonetheless, given the provisions in the Chinese company law, it is quite clear that the legislator gives more weight to combating the breach of the duty of loyalty than the breach of duty of care: in Article 149, except for one catch-all item at the end, all the occasions listed as breach of directors' duties are about breach of the duty of loyalty.2 It is also an international trend to neglect minor negligence and misbehaviour due to lack of due care, but to stress the loyalty of directors. According to Professor Liu Junhai, the judicial practice in this area in China revolves around the director's duty of loyalty.3 The duty of care is more difficult for the court to judge, not only in China but anywhere else. This duty was not touched upon in the Company Law 1993. Questions arising from the current legislation are: what is the scope of this duty, for example, should the court judge the director's business decisions? And what standard should be used to review a breach of the duty: should an objective or a subjective standard be adopted? Given the fact that no business judgement rule exists in China, it is also suggested that with the introduction of the duty of care, such a protective rule should also be introduced because the market changes swiftly, and directors are often forced to make decisions without being able to gather all possible information or with a short time for consideration in a complex economie environment. Without the protection of the business judgement rule, appropriate people may be discouraged from becoming directors and this will affect corporate management as well as investors' interests in the long run4.