Until now, most common law jurisdictions, including Hong Kong, have followed the principle that only a company itself is allowed to sue its directors. The courts have been reluctant to overturn the majority-rule basis on which companies generally are governed; typically, the approval of 75 percent of shareholders is required to force the company to sue.

This forced minority shareholders dissatisfied with the conduct of management to try to show ``unfair prejudice'' against them, and it was rarely easy.

In 2003, for example, an application to the High Court by minority owners of listed Styland Holdings to force Styland to hand over its books was rejected despite allegations that the firm had entered into a series of questionable transactions. The plaintiffs alleged that the transactions were meant to benefit various directors personally and perpetrate a ``fraud on the minority.''

This July 15, Hong Kong, following the lead of Australia and Singapore, will give rights to minority shareholders of locally registered companies in cases where ``maladministration'' is suspected.

In theory, the powers granted under the Companies (Amendment) Ordinance 2004 can be an effective tool in the hands of minority owners.

A shareholder will be allowed to apply for an order to force the company to hand over its records for inspection. If evidence of maladministration is found, the shareholder can apply for an injunction to stop the behavior in question and start an action against the directors in his own name.

Not all lawyers are convinced, though, that the change in the law heralds a new dawn of minority shareholder rights.

``While in theory these new rights enhance the corporate governance regime in Hong Kong, it is not clear that they will have a significant practical impact,'' said lawyer Patrick Bourke.

Bourke, a partner at international firm Norton Rose, said his reservations concern the discretion the ordinance gives the courts. For example, a court may refuse an application to inspect company documents if it is not convinced it is necessary.

``What seems to be clear from Australian case law is that the court is unlikely to entertain an application motivated by idle curiosity,'' he said.

Whatever the effect of the changes, insurance cover for directors and officers is becoming ``a crucial tool of managing risks,'' said Simon McConnell of law firm Allens Arthur Robinson. Besides legal changes, he said, directors and officers must also reckon with the heightened international focus on corporate governance, increased shareholder activism and public awareness of rights, the development of a ``blame culture,'' and a tendency toward greater litigiousness.

``Asia generally is less advanced in the sense of litigiousness against directors than the US, the UK or Europe,'' McConnell said. ``However, there are a raft of amendments and developments in Asia under the general corporate governance banner which motivate and influence the expectations placed upon directors at a general level.

``The legal framework for claims against directors in Asia in one sense is no different from that in the US. That's not to be alarmist, but the claims that we see in the US, and the class actions, could actually be brought in Hong Kong or in China today.''

Marsh, the world's largest risk and insurance specialist, is hoping to persuade Hong Kong-registered companies of the need to insure their directors and officers.

``In Hong Kong we haven't seen a surge in inquiries relating to the July changes under the Companies (Amendment) Ordinance, but Hong Kong corporations may only be vaguely aware that it's happening,'' said Stella Tse, Marsh's head of finance and professional services for Greater China.

``In Hong Kong and Asia generally, corporations still feel a bit removed from D&O [director and officer] issues,'' she said. ``There is still an it's-not-going-to-happen-here attitude.

``This is changing, though, and it really needs to, as our legal framework makes very possible that what's happening to firms in the UK and Australia could happen here.''

daniel.hilken@singtaonewscorp.com