Independent Directors Acting on Cayman Islands Funds - By: linda bing

Under Cayman Islands law there is no specific term for a director, however in essence 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 position 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 executives 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 particular duties 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 continual attention to the affairs of the company, and they don't need to show more than the necessary skill needed for the position whilst doing 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 choosing the right advisor who is suitably qualified. Through the outcomes of past cases it suggests that directors owe certain care and fiduciary duties to shareholders. In certain cases through their actions, directors may put themselves in a situation where certain fiduciary responsibilities are owed to the shareholder and the company.

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 foreign jurisdictions considering the breach of duties 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 obligations are only owed to, and can only be enforced by the company, in certain special circumstances the shareholders can enforce the obligations that are owed to the company.

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

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

An independent director upon designation to the company should ensure they have sufficient knowledge of the regulatory requirements which affect the company, and examine books of record kept by the company, in particular the minute book of past directors' meetings.

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

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