Moulin Global Eyecare: duty of non-executive directors in response to red flags

Moulin Global Eyecare Holdings Limited (in liquidation) v Olivia Lee Sin Mei [23.07.19]

A recent decision of the Hong Kong High Court, Moulin Global is a rare example of a director of a Bermuda company being held liable to the company for breach of duty and illustrates that courts will hold non-executive directors to account for failure to take action in response to red flags as to the company’s solvency.  


The plaintiff company (Moulin) was incorporated in Bermuda and listed in Hong Kong in 1993. Thereafter, Moulin’s business was run from Hong Kong by a family group of shareholders, with a 40% shareholding, and who exercised control of the board and executive management. The defendant, Olivia Lee Sin Mei (Defendant), had acted as a legal advisor to the group since 1996 and continued to do so after she was appointed a non-executive director of Moulin between 2000 and 2004.

During the course of her tenure as a director, the Defendant became aware of, but failed to investigate, various red flags concerning the solvency of Moulin. In particular, she approved Moulin’s accounts, dividends and management share repurchases without investigation, in circumstances where:

  • Moulin’s accountants had raised concerns about significant transactions not being verifiable,
  • The payment of debts which ought to have been easily payable were significantly delayed,
  • Moulin had made significant loans (including to a party connected to management) despite that not being the nature of its business
  • Three of the “Big 4” accountancy firms had resigned from producing Moulin’s accounts.

On 5 June 2006, Moulin was wound up by the Hong Kong Court on a creditor’s petition. In subsequent proceedings brought against the Defendant on behalf of Moulin by its liquidator, the Hong Kong High Court held that the failures of the Defendant to investigate were negligent and had allowed executive management to declare dividends and effect share repurchases when Moulin was insolvent, contrary to its Bye-Laws and the Bermuda Companies Act 1981 (the 1981 Act) causing the company to incur significant losses.

The Hong Kong Court further found that the Defendant was personally liable for those losses (approximately US$29 million).

The Court considered the provisions of Moulin’s Bye-Laws and the 1981 Act prohibiting dividends and share repurchases in circumstances where Moulin was insolvent, as well as Section 281 of the 1981 Act (and its equivalent in Hong Kong) which provides a defence for directors who act “honestly and reasonably… and ought fairly to be excused”, which relief the Court found no basis for granting.

Bermuda Bye-Law indemnities?

One interesting absence from the decision is any reference to common provisions in the Bye-Laws of Bermudian companies whereby indemnities are provided by the company to directors against liabilities incurred in connection with their office and the company waives claims against directors in the performance of their duties. Section 98 of the 1981 Act, as originally enacted, permitted Bermudian companies to indemnify directors against all such liabilities except in the case of their willful negligence, willful default, fraud or dishonesty.

However, the protection afforded to directors by the 1981 Act was broadened from 1996 to permit indemnities and waivers in respect of directors’ actions except in the case of fraud or dishonesty. As a result, many Bermuda companies amended their Bye-Laws to ensure that the widest permissible indemnification was afforded to directors.

By contrast, neither UK nor Hong Kong companies legislation permits companies to indemnify directors in respect of directors’ negligent actions which cause the company loss.


It may be that, extraordinarily for a Bermudian company, Moulin did not have an indemnification provision in its Bye-Laws, or that, because it was incorporated and listed in 1993 before the 1996 amendment to the 1981 Act, Moulin only had the pre-1996 provision for indemnification in its Bye-Laws, and that the Defendant’s actions would have been considered “willful negligence”. In either case, the absence of reference to the standard Bermuda indemnity provision is curious and, on the face of the judgment, which contained no explicit finding of fraud or dishonesty against the Defendant, had Moulin’s Bye-Laws reflected the modern standard in Bermuda, the Defendant (and any D&O insurers) would have been protected by her indemnity.

Whatever the position on waiver or indemnities, the Moulin decision underscores that courts will hold non-executive directors to account if they choose to ignore red flags concerning the conduct of the company’s management and the company’s solvency. 

Read more items in Offshore Professional Risks Brief – October 2019