Independent Directors Acting on Cayman Islands Funds

Under Cayman Islands law there is no specific term for a director, however in principle directors are those persons who have ultimate duty for the behavior of the company and have similar features to trustees or members of limited partnerships. Also Under Cayman Islands law, certain terms such as executive and non-executive are simply not recognized. Instead a separate set of legal terms, such as de facto, de jure, nominee and shadow, are used to define the status of company officials.

Independent directors must have no relationship to the company that they serve as director for. Additionally an independent director should not have a family member employed by the company.

Independent directors acting on Cayman Islands funds are close to the top of the business and have control over many people, including administrators and investment managers and also their supervisors and senior staff. With power comes responsibility and being close to the top of the internal hierarchy means certain responsibilities need to be adhered to, in order to stay within the law and maximize profits and minimize losses.

Under common law independent directors are not bound to give constant attention to the affairs of the company, and they don't need to show more than the necessary skill needed for the position whilst performing the job at hand. Independent directors acting on Cayman Island funds must have regards to the exigencies of relevant business and the Articles of Association.

Importantly directors may also be considered negligent if they do not first seek and consider the advice of an independent outsider before making the appropriate decision, in doing so they must take care in selecting the right advisor who is appropriately qualified.

The fiduciary duty owed to shareholders by directors is incredibly limited in its scope and the compensation for breach of this duty is limited to the personal loss suffered by the stockholder, which is in most cases minimal.

Cayman statutes will impose penalties on directors that don't adhere to the statutes under common law. There are no legally binding principles under the law of the Cayman Islands to impose penalties upon company officials that do not adhere to obligations of themselves as part of a Cayman Islands company.

A breach of duty under the Cayman Islands law and common laws, the proceedings may come before a Cayman Islands court or before a overseas court that is applying the Cayman Islands law. It is important to note that the laws of overseas jurisdictions considering the breach of obligations of a director may be considerably different do those of the Cayman Islands and therefore proceedings will be treated much differently.

Independent directors acting on Cayman Islands funds will have a certain fiduciary relationship with the company that has employed them. Within this certain relationship the fiduciary duties are only owed to, and can only be enforced by the company, in certain special circumstances the shareholders can enforce the responsibilities that are owed to the company.

When a company is ordered specifically by the court to do or not to do something then it is the director who is aware of the order made by the court must ensure they take reasonable steps to ensure that the court order is complied with. If the order that was imposed by the court is violated, then it will be the specific direct that will be held responsible and may well be charged with contempt of court. It is important to note that even though the director has had no first hand involvement in the breach or the order given, they will still be charged with contempt of court. The sentence for contempt of court can be a fine or imprisonment, or indeed both.

Independent directors acting on Cayman Island funds must ensure to not accept an assignment within a company unless they are certain they have sufficient awareness of that company and the business that it involves itself in.

A director is not required to be an expert in the type of business carried out by the company unless they have been specifically hired for that certain expertise or to exercise the particular skill they are equipped with. A director should familiarize themselves with the memorandum and the articles of association and if they will be involved with investment funds, the offering document.

A director should ensure that they enquire into the overall structure of the fund and who in particular are the consultants, administrators and registrar as well as the investment manager. A director should fully understand the provisions relating to the NAV and to redemptions in particular.



There are some optional considerations that are highly recommended to be carried out by directors in order to ensure they act in accordance with their duties to the fund, this is the best way to avoid liability.