Cayman Islands - Duties and Liabilities of Directors 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 (2020 Revision) (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: 1. 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. 2. 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. 3. 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: 1. 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 Page 2 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. 2. Any change in the directors or officers of the company must be notified to the Registrar of Companies within 30 days. 3. Any change in the registered office of the company must be notified to the Registrar of Companies within 30 days. 4. 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, contracts and invoices as are necessary to give a true and fair view of the state of the company's affairs and to explain its transactions. The books of account are to be retained for a minimum of five years from the date on which they were prepared. A company that knowingly and wilfully contravenes this requirement is liable to be fined. 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 meetings Directors of a Cayman company (but not an exempted company) must call a general meeting of the Company's shareholders at least once a year, although this meeting does not need to be held in the Cayman Islands. Failure to hold the annual general 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. Registration the Directors Registration and Licensing Law, 2014 (as amended) (the "DRL Law") requires that each director of a mutual fund registered with the Cayman Islands Monetary Authority ("CIMA") is either registered or licensed in accordance with the DRL Law. There is an annual fee to be paid to CIMA. Additional considerations might also apply where a company is regulated with CIMA upon which we can advise on a case by case basis. Automatic Exchange of Information ("AEOI") AEOI is a collective term encompassing certain legislation that imposes obligations on financial institutions to register with tax authorities, conduct due diligence to identify reportable accounts and report certain information on these accounts to tax authorities. We can advise on and assist with all aspects of AEOI compliance on a case-by-case basis. For further information, see the Walkers' memorandum AEOI Obligations - Guide for Financial Institutions. Other duties of directors Fiduciary duties Apart from the specific duties referred to above, the Companies Law does not (unlike the current English statute) specify the general or fiduciary duties of directors. However, in the case of Cayman Islands News Bureau Limited v Cohen and Page 3 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 have adopted the English common law principles relating to directors' duties which can generally be summarised as follows: 1. 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); 2. a duty to exercise their powers for the purposes for which they are conferred; 3. a duty of trusteeship of the company's assets; 4. a duty to avoid conflicts of interest and of duty; 5. a duty to disclose personal interest in contracts involving the company; 6. a duty not to make secret profits from the directors' office; and 7. a duty to act with skill, care and diligence. Of these the duties of loyalty, honesty and fidelity are considered to be the core fiduciary duties. (followed in Renova Resources Private Equity Limited v Gilbertson [2009] CILR 268). Standard of skill and care: objective test In recent years the English and Commonwealth authorities have moved towards a primarily-objective test for the standard of skill, care and diligence. Recent cases in the Grand Court make it clear that the Cayman Islands Courts follow these authorities: 1. In Re D'Jan of London Limited [1994] 1BCLC 561, Hoffmann J (now Lord Hoffmann) held that the common law duty of care owed by a director was accurately stated in section 214 of the English Insolvency Act 1986. 2. Consequently the conduct required of a director in the Cayman Islands (whether executive or non-executive) is the conduct of: "A reasonably diligent person having both – (a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company, and (b) the general knowledge, skill and experience that that director has". 3. Therefore, there is a minimum objective standard based upon the functions given to the director in question but the standard can be raised where the director in question has more knowledge, skill and experience than would normally be expected. 4. Given the way that the modern test is framed it would be wise whenever a director is appointed to define his functions specifically. 5. In Re Barings Plc (No 5) [2000] BCLC 523 the English Court of Appeal approved the summary given by Jonathan Parker J at first instance in that case in the following terms: Page 4 (a) "Directors have, both collectively and individually, a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company's business to enable them properly to discharge their duties as directors. (b) Whilst directors are entitled (subject to the articles of association of the company) to delegate particular functions to those below them in the management chain, and to trust their competence and integrity to a reasonable extent, the exercise of the power of delegation does not absolve a director from the duty to supervise the discharge of the delegated functions.