When looking at setting up a hedge fund the fund managers may find themselves asking what the duties of a Cayman directors will actually be? We’ve written a few articles about why you should appoint Cayman directors to your board.
In this article we will cover the duties of this director once appointed.
Where are these duties specified?
The first question to ask is how directors duties are defined and which laws govern these duties?
The answer to this is that there is no statutory codification in the Cayman Islands of the general directors’ duties, obligations and liabilities. The duties of a director of a Fund arise as a consequence of the fiduciary relationship between the director and the Fund and are based on English and Commonwealth common law, as applied in the courts of the Cayman Islands.
The principal obligations applicable to the Fund and to the Cayman directors arise under the Companies Law, the Mutual Funds Law and the Proceeds of Crime Law. It should however be noted that CIMA have also released a statement of guidance for the corporate governance of regulated mutual funds which gives clarity on these duties.
In the normal course of business the director’s duties are owned to the fund and the shareholders of the fund. However, should the fund become insolvent the director will also have to take note of their duties to the fund’s creditors.
So what are a Cayman director’s duties?
At a high level the duties of a Cayman director can be broken down into two categories. Firstly fiduciary duties and secondly duties of skill and care.
Fiduciary duties include:
- To act in the best interest of the fund;
- To exercise their powers per the articles of the fund for the purpose given;
- To avoid any conflict of interest between the directors person interest and that of the fund;
- To not make any additional undisclosed profits due to acting as a director of the fund and
- To exercise their power as director independently, as they see fit, without being controlled or influenced by others,
Duties of skill and care include:
- To acquire the required knowledge of the industry the fund operates in and keep this knowledge up to date;
- To supervise the appointment and conduct of of service providers and
- Any additional duties as set out in the directors agreement
What are the duties of directors per the law?
Per Cayman laws duties of a Cayman director are the following:
- To maintain the register of members, register of Directors and Officers and Register of Mortgages and Charges. These documents must be kept in the registered offices of the company;
- To maintain proper books of account for the fund or over see the appointment and performance of this function by a service provider;
- To ensure compliance with the Money Laundering Regulations (AML Regulations);
- To ensure offering documents are up to date and enable prospective investors to make an informed decision. All updates to offering documents must also be filed with the Cayman Islands Monetary Authority (CIMA) within 21 days of the change;
- To ensure that the Fund is audited on an annual basis;
- To ensure an annual general meeting is called at least once a year
- To comply with reporting obligations including:
- Filing of annual return;
- Filing of Offering Document and annual audited financial statements with CIMA;
- Filing changes to directs, officers or registered office
- To ensure they comply with the requirements of the Director Registration and Licensing Law and
- Ensure compliance with Automatic Exchange of Information and AML obligations under the US Foreign Account Tax Compliance Act (FATCA) and the OECD’s Common Reporting Standard (CRS).
What do the CIMA Statements of guidance specify?
As per the CIMA Statements of guidance the Governing Body (directors of the fund) performs an oversight function and should monitor and regularly take steps to satisfy itself of the following:
- The Mutual Fund is conducting its affairs in accordance with all applicable laws, regulations, rules, statements of principles, statements of guidance and anti-money laundering or combating terrorist financing requirements, including those of the Cayman Islands and the Authority.
- Service providers are monitoring compliance with applicable laws, regulations, rules and statements of principle, statements of guidance and anti-money laundering or combating terrorist financing requirements. The Governing Body should request appropriate information from service providers and/or professional advisors to satisfy itself with the above points.
- Provide appropriate direction to service providers to rectify any non-compliance identified.
- Require regular reporting from the investment manager and other service providers to enable it to make informed decisions.
Conflicts of interest
- The directors and operators of the fund must identify, disclose, monitor and manage all potential conflicts of interest and document them.
- The Governing body should meet at least twice a year in person or via telephone or video conference call depending on the size, nature and complexity of the fund. For more complex or larger entities more frequent meetings may be required.
- Where necessary service providers should be present at these meetings to discuss issues.
We hope this articled helped you to understand the role and duties of an independent director on a Cayman fund.
If you have any further questions or would like to discuss the above, please feel free to reach out to us.