Duties And Liabilities Of Directors Of Cayman Islands Companies

INTRODUCTION

This Memorandum provides a summary of duties and liabilities

of directors of companies incorporated under the laws of the

Cayman Islands. It is not intended to be an exhaustive

statement of the law in this area but merely to be of some

guidance to persons who act as directors of such companies.

Particular circumstances or transactions should be the subject

of specific legal advice given on the relevant facts at the

relevant time.

Companies formed in the Cayman Islands and the duties and

liabilities of their directors (both executive and

non-executive) are governed by the Companies Law (as amended)

of the Cayman Islands (the "Companies

Law") and the common law so far as it has not

been amended by statutory provisions. The Cayman Islands'

courts would regard as highly persuasive the decisions of the

English courts in relation to such matters.

STATUTORY DUTIES OF DIRECTORS

Maintain registers

The Companies Law requires each company incorporated under

it to maintain certain registers. The Directors are responsible

for ensuring that such registers are kept in the appropriate

location and maintained in good order. The registers are:

The Register of Members. This must be kept at the

registered office of the company in the Cayman Islands

(except in the case of an exempted company when it can be

kept at any other location, whether in the Cayman Islands or

elsewhere). The register contains the names and addresses of

and details of shares issued to the company's

members.

The Register of Directors and Officers. This must be kept

at the registered office of the company. The register

contains the names and addresses of each of the company's

directors and officers.

The Register of Mortgages and Charges. This must be kept

at the registered office of the company. The register

contains details of all mortgages and charges given by the

company over any of its assets.

Reporting obligations

The directors are also responsible for ensuring that the

company complies with all reporting requirements of the

Companies Law. These are:

An annual return must be filed with the Registrar of

Companies in January of each year accompanied by the payment

of the annual government fee to keep the company in good

standing. Failure to pay the fee and file the annual return

by 31 March in any year will result in late payment or filing

penalties as follows:

Payment or filing made

between

Penalty

1 April and 30 June

33.33% of the annual fee

1 July and 30 September

66.66% of the annual fee

1 October and 31 December

100% of the annual fee

Failure to pay the fee or file the annual return by 31

December in the year in which it is due, will result in the

company being liable to be struck off the Register. Should

this happen, all assets owned by the company will be

forfeited to the Financial Secretary of the Cayman Islands

for credit to the general revenue.

Any change in the directors or officers of the company

must be notified to the Registrar of Companies within 30

days.

Any change in the registered office of the company must

be notified to the Registrar of Companies within 30

days.

Any special resolution adopted by the company (eg a

resolution to change its name or its Memorandum or Articles

of Association) must be notified to the Registrar of

Companies within fifteen days.

Books of account

The directors are also responsible for ensuring that the

company complies with the requirements of the Companies Law to

maintain proper books of account, ie such books as are

necessary to give a true and fair view of the state of the

company's affairs and to explain its transactions.

Registered office

The directors are also responsible for ensuring that the

company complies with the requirements of the Companies Law to

maintain a registered office in the Cayman Islands, and to

ensure that its name is properly displayed at its registered

office, as well as on its stationery etc.

Annual general meeting

The shareholders of a company (but not an exempted company)

must hold at least one general meeting in every calendar year,

although this meeting does not need to be held in the Cayman

Islands. Failure to hold such meeting will result in the

company not being in a position to file its annual return and

being subject to the penalties referred to above.

OTHER DUTIES OF DIRECTORS

Fiduciary duties

Apart from the specific duties referred to above, the

Companies Law does not specify the fiduciary duties of

directors. However, in the case of Cayman Islands News

Bureau Limited v Cohen and Cohen Associates Limited

[1988-89] CILR 195 it was held, per Harre J that the fiduciary

obligations of a senior manager with major responsibilities was

the same as that of a director or trustee, and these duties

were listed as "the observance of general standards of

loyalty, good faith, and the avoidance of a conflict of duty

and self-interest". English case law is highly persuasive

and the Cayman Islands Courts largely adopt English common law

principles relating to directors' duties which can

generally be summarised as follows:

a duty to act in what the directors bona fide

consider to be the best interests of the company (and in this

regard it should be noted that the duty is owed to the

company and not to associate companies, subsidiaries or

holding companies; what is in the best interests of the group

(if any) of companies to which the company belongs is not

necessarily in the best interests of the company);

a duty to exercise their powers for the purposes for

which they are conferred;

a duty of trusteeship of the company's assets;

a duty to avoid conflicts of interest and of duty;

a duty to disclose personal interest in contracts

involving the company;

a duty not to make secret profits from the directors'

office; and

a duty to act with skill and care.

Standard of skill and care: subjective

test

The extent of, and the degree of skill necessary in the

exercise of, a director's duties were formerly thought of

in highly subjective terms, best illustrated in the English

case of Re City Equitable Fire Insurance Co (1925) Ch

407. In that case it was held that:

a director did not need to exhibit in the performance of

his duties a greater degree of skill than might reasonably

have been expected from a person of his knowledge and

experience;

a director was not bound to give continuous attention to

the affairs of his company. His duties were of an

intermittent nature to be performed at periodical board

meetings and at meetings of any committee of the board upon

which he happened to be placed. He was not however bound to

attend all such meetings, though he should have attended

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