The Grand Court of the Cayman Islands has, for the first time in the context of a failed investment fund, has found two directors guilty of wilful neglect or default in the discharge of their duties.
The proceedings, brought by the Joint Official Liquidators of the failed investment fund, Weavering Macro Fixed Income Fund (the Fund), sought damages against each director flowing from their decision not to take any, or any meaningful, role in the business of the fund, and their decision to simply sign documents which were put before them, without applying their minds to their content.
Like many Cayman Islands investment funds, the directors were afforded the benefit of an indemnity under the terms of the fund’s constitutional documents, that indemnity covering all losses, save for those occasioned by the directors’ own wilful neglect or default. The court found that the directors’ conduct fell well below that which was required of them, and unequivocally concluded that they were guilty of wilful neglect or default.
The decision, by which judgment was given against each of the directors in the sum of USD111m, confirms that although Cayman Islands investment funds may be structured differently to traditional corporate entities, in particular by the appointment of, and delegation of powers to, services providers (such as an investment manager), the fundamental duties owed by a director of a Cayman Islands investment fund are the same as those duties owed by a director of any other corporate entity.
"The case shows that directors of Cayman Islands investment funds cannot sit idly by, leaving the management and control of the fund to its service providers. A director’s duty to supervise the affairs of the company, and to exercise reasonable care, skill and diligence are non-delegable” says Shaun Folpp (pictured), Managing Associate at Ogier Cayman who, together with Will Jones, Associate, acted for the successful Plaintiff, led by David Lord QC.
“Directors of Cayman Islands investment funds can no longer live under the misconception that they are immune from liability for a company’s losses if they do not themselves take an active role in the company’s business," adds Folpp.