CIMA likely to introduce director disqualification regime, predicts Jones Day

InvestorsOperational RiskRegulation
04 Dec, 2012

The Cayman Islands Monetary Authority (CIMA) is likely to introduce a director disqualification regime to fight substandard corporate governance, an expert has predicted, although added such an initiative would lack teeth.

Director disqualifications have been advocated by several industry figures, including Don Seymour, founder of the Cayman-based professional services firm DMS.

“I would not be at all surprised if the Cayman Islands were to introduce a director disqualification regime but I believe its impact would be negligible.  The important issue is to ensure that, when appointed, directors have the capability and time to carry out their roles properly.  A disqualification regime, were it ever introduced, would not make much difference to that,” said Barnaby Stueck, partner at Jones Day, the law firm which represented Duff & Phelps, the liquidators of collapsed hedge fund Weavering Capital.

A more substantive initiative would be to broaden directors’ liability. Cayman law currently stipulates directors are exempted from liability except in cases of “wilful default” or fraud. This, said Stueck, gives numerous directors at failed funds a get-out clause from potential litigation suits. It also means the Weavering directors’ $111 million fine could potentially be appealed.

Stueck doubted Cayman regulators would make headway on directors’ liability. “I believe it is very unlikely that the Cayman Islands will make amendments to the law governing directors’ ability to exclude their liability" he commented.

Others believe changing corporate governance standards will occur organically. “As directors recognise the increasing time commitment due to their growing liability, and rules about serving as a director change, it will become increasingly difficult to justify sitting on huge numbers of boards. Additionally, I would expect directors to command higher fees in light of the increased responsibility, “said Robert Mirsky, head of the hedge funds group at KPMG.

The Weavering Capital case was a wake-up call for many offshore directors and the judgement set a landmark precedent on corporate governance standards.

CIMA has been under pressure from institutional investors to bolster corporate governance. The USS and Mesirow Financial, the Chicago-based fund of funds, have urged CIMA to create an online database of directors. This, however, has been rejected by some circles in Cayman as it breaches confidentiality clauses.

Cayman IslandsCIMAcorporate governanceDMSDuff & PhelpsJones DayKPMGWeavering Capital