Of Interest9 Dec 2012 08:43
Responsibilities of Directors in the Spotlight
Kate Anderson, an Associate in Voisin’s Commercial team, considers the recent ruling of the Cayman Islands’ Court that highlights the importance of good corporate governance, and the onerous duties and responsibilities of directors.
As we recently highlighted in our recent article ‘Reviewing Corporate Governance’, best practices of corporate governance have developed and improved rapidly in the last few years, both as a result of global regulatory reform as well as demands by investors, creditors, and other interested parties.
In a landmark judgment in the Grand Court of the Cayman Islands that has reverberated around the offshore financial world, two independent directors of the failed Weavering Macro Fixed Income Fund Limited were found guilty of “wilful neglect” and “default of duties” and were ordered to pay damages of US$111 million plus costs to the Fund’s liquidators.
The Court found that the Fund’s promoter and principal investment manager, Magnus Peterson, essentially appointed his brother and step-father (Stefan Peterson and Hans Ekstrom) out of convenience to satisfy the minimum legal requirements of two independent directors. The Court concluded that there was never any intention that the Directors would perform a proper and business-like supervisory function, but rather they were happy to “sign whatever board minutes Mr. Magnus Peterson put in front of them and did so without caring whether or not the content was true”.
It was found that the Directors signed pre-prepared pro forma minutes and administrative documents to confirm that the Fund was being properly run by Magnus Peterson in accordance with the Fund’s investment criteria. Crucially, they did so without properly scrutinising the operations, management or administration of the Fund. As such, they were in gross dereliction of their duties as directors and were not protected by the indemnity provisions that directors of a bankrupt company would normally benefit from if they were found to be acting in good faith.
While accepting that independent directors could not be expected to have the technical expertise to be able to understand every aspect of sophisticated investment strategies such funds employ, neither should they rely on delegation of their duties of supervision to professional service providers without proper review and oversight. Mr Justice Andrew Jones stated that independent directors of a company should “apply their minds and exercise an independent judgment, in the ordinary course of business, in respect of all the matters falling within the scope of their supervisory responsibilities.” By their passive involvement and lack of effective monitoring, they were found to be acting like “automatons” and had wilfully failed to discharge their duties of skill, care and diligence to the Fund, resulting in sig
Sign In
Follow the stocks
