Directors of companies involved in large transaction will increasingly rely on legal advice, but the need for codification of directors’ duties is not universally accepted, according to Higgs & Johnson Partner Chris Narborough.
Legal advice may be required regarding a director’s role in a particular company, prior to board meetings and some directors might be inclined to take their lawyers along to board meetings, Mr. Narborough said, speaking at a the seminar “Directors’ duties … who will be at risk?”, hosted by Higgs & Johnson at the Marriott Grand Cayman Beach Resort on 4 November.
The presentation was one of several inspired by the recent Grand Court judgment in the Weavering Macro Fixed Income Fund case and addressed what is expected from a director under Cayman law. Mr. Narborough explored the common law duties of a director, which include the duty to act honestly and in good faith in dealings on behalf of the company. He emphasised directors owe their fiduciary duty to the company alone and not to the board, the creditors or the employees.
Separating the fiduciary duties into duties of care, duties of diligence and duties of skill, he noted, that while “in the past it seemed OK … it is likely a director no longer can get away with being a useless director just because he has got no skills”.
No codification needed
The Law Reform Commission, Mr. Narborough said, “is getting ready to look at the issue of codifying directors duties”, a trend that could be observed in onshore jurisdictions as the UK. However, he pointed out not everybody is in favour of regulating the duties of directors explicitly in the Companies Law or the Mutual Funds Law.
Reading a note by Charles Jennings, who gave his opinion in his personal capacity and not as president of the Law Society, he said “the notion of codification is by no means universally accepted and indeed it could carry its own significant dangers”.
Mr. Jennings does not see the need for a codification at this time and believes there is “a vast body of common law addressing directors’ duties and responsibilities, which provides as effective a codification as any, particularly when the strands are drawn together as clearly and succinctly in cases such as Weavering”.
Mr. Jennings’ preference is to avoid regulation as a knee-jerk reaction, Mr. Narborough said. He would rather leave the decisions as to directors’ duties in the hands of the judiciary.
The seminar also investigated the change in attitude of monetary authorities in various jurisdictions following the 2008 credit crunch. Speakers focused on how the altered approach would impact and affect the role of directors in the UK, US, Bahamas and Cayman specifically. A comparison was made between the role of directors in the Cayman Islands and their treatment by CIMA, to the duties and regulation in other jurisdictions.
International speakers included Philip Rubens, partner at Finers Stephen Innocent in London, Jack Auspitz, partner at Morrison Foerster in New York, Gonzallo Zeballos, partner at Baker Hostetler in New York and Portia Nicholson, associate in the Higgs & Johnson Bahamas office. Local speakers included Chris Narborough and Philip Boni, partners at Higgs & Johnson along with Don Seymour, managing director at dms Management Ltd and RJ Berry, head of compliance at the Cayman Islands Monetary Authority.
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