Weavering case ‘abhorrent’ says local directors’ body
(CNS): Following its review of the recent ‘Weavering’ case where a judge condemned the role of the directors in a hedge fund case and awarded millions of dollars of damage against them, the Cayman Islands Directors Association (CIDA) said the case illustrates the need for professional independent directors. Pointing out that neither of the directors of the Cayman registered fund were based here nor were they members of CIDA the president said had they been the men would have been subject to the association’s code of conduct requiring them to “display duties of care and diligence” whilst acting “truthfully and honestly.”
The judgement in the Weavering case was delivered by Justice Jones QC in Cayman’s Grand Court last month and has attracted significant attention after the failings of the two directors of the Weavering Macro Fixed Income Fund Limited were faced with $111 million in damages against them for their performance.
CIDA said the case revealed numerous failings by the directors of the Cayman based fund that were not subject to the CIDA Code of Conduct which is based, on the Institute of Directors in the UK (IOD) Chartered Directors Code of Professional Conduct and sets out the basic standards expected of a director.
In the judgement Justice Jones said directors were not “entitled to assume the posture of automatons, as these Directors did, by signing whatever documents are put in front of them by the investment manager without making enquiry or applying their minds to the matter in issue,” he said.
Paul Harris, CIDA’s president said the actions of the Weavering Directors which included signing minutes of meetings that did not actually take place were “abhorrent to the independent director profession.” Promoting the local professionals Harris said that while there is no requirement to have a director located in the jurisdiction this case “certainly makes clear that hedge funds should at the very least appoint a high quality professional director found from the Cayman Islands.”
“Although the concept of being an independent director as a profession is somewhat unique to the Cayman Islands, this reflects the concentration of hedge funds located in the Cayman Islands,” Harris explained, adding that local professional directors have proved their value.
“In particular during the recent financial crisis it became apparent that independent directors offered from the Cayman Islands were indispensible when hedge funds were faced with making difficult decisions,” he said. “They monitored decisions made during that time in order to ensure that such decisions were made in accordance with the fund documents and that all shareholders were treated fairly.”
He said that the vast majority of all new hedge funds have at least one independent director on their boards and if hedge funds do not have such representation then they at least risk the perception by investors that a situation such as the Weavering case may arise with their fund.
CIDA Executive Committee Member, Victor Murray (LLB, PG Dip LP) said that the availability of an increasing number of independent directors from the Cayman Islands is “vital to the continued confidence that investors have shown in the Cayman based hedge fund product.” He added that not only have they helped make Cayman hedge funds efficient investment vehicles they have ensured that they are trusted by all counterparties.
Harris said directors offered from the Cayman Islands are of a very high quality and they understand the specific requirements of a Cayman Islands hedge fund director.
In the wake of the case CIDA will behosting a seminar which will be open to CIDA non-members in the next few weeks to review the Weavering decision in CIDA's role of educating and promoting Cayman Islands directors
See the code of conduct for CIDA here
Category: Finance
Interesting that none of the people making submissions supporting the CIDA have got the”cojones” to do so under their real name, an aspect of Chris Johnson’s contributions for which he is well respected – any particular reason why a member of the CIDA would seek anonymity ?
I need to take issue with the poster of "These opinions are not"
He claims that the "the market decides who is a director of their investment fund – if they don’t like their experience and qualifications then they don’t invest and or ask the manager to change them (this does happen)".
– No, it doesn't
The big directorship firms use this circular logic to say "if there was a problem with directors, the market would fix it". But it isn't true.
Investors don't place any weight on the directors at investment. They regard offshore directors as an irrelevance, because that's how they've proven themselves. Who cares about the empty Cayman suit when investing.
They don't ask for funds to change the directors before investing, because its as relevant as insisting that the funds change the person who cleans the toilets.
It actually gets worse than this, because directors being changed is often seen by investors as a signal that the rats are leaving a sinking ship.
A reform of the whole governance system is long overdue. CIMA needs to pull its finger out and get its review completed in a reasonable timeframe, and the Grand Court needs to do more than throw the book at a soft target once in every 20 years.
I agree with you in most aspects.and stress that this entire area needs a lot more regulation. Cayman directors of several funds lost the plot over the years culminating in substantial criticism in the US Courts. Little has taken place in the local civil court because the directors are indemnified against practically all matters except fraud and wilful default. If they are reckless or merely negligent they cannot be held liable. Yet third parties such as auditors may be sued. This is totally inequitable and such indenities in other financial centres were made illegal long ago. It is in the public interest that they are similarly banned in the Cayman Islands.
Moreover in the Cayman Islands there is no Directors' Disquailfication Law. Whilst this may no have had any real effect on the Weavering matter it would certainly keep local cowboys in check.
One other matter I have not touched on, and there are many, is that some directors are not only directors of hedge funds but directors of the management advisor of such funds as well. Anyone ever thought that there might be a conflict there?
I just hope that the CIDA have better oversight than UBS of their rogue trader employee what caused loses of $2 billion.
http://www.msnbc.msn.com/id/44530009/
The Weavering decision (it has been appealed) is based on a very extreme set of facts, and thus the Court had little difficulty in reaching its decision. It provides a very useful roadmap to those who are or would serve as directors, not just of hedge funds, but of any Cayman company.
Equally, the decision applies to all directors, regardless of whether they are supposedly independent, non-executive etc or not. As far as Cayman law is concerned, a director is a director, period.
The case also raises a number of interesting issues that are the subject of an article coming out in the next issue of the Cayman Financial Review.
Tim Ridley
This matter reminds me of a practice I came across in the bad old days of Cayman company administration services – where in providing directors as part of a service package to offshore companies, the (very senior and well known) lawyer used to put his secretary down as the director, and require her to sign various documents. The poor woman probably never new the risks she was exposed to – hopefully she has resigned all such positions by now. The attitude in the 70s and 80s was very cavalier – even referring to the service as "nominee directors" – a laughable concept as there is no such thing in law, just directors. Hopefully we are all better informed nowadays.
its ultimately about whether these directors receieve training and whether the self regulation offered by CIDA is strong enough.
CIDA, like the UK IOD, is open to directors of any Cayman company (not just the financial industry) – 165 members is pretty good and makes it probably one of the largest professional organizations in the Islands. There have been lots of events offering training for directors, recently I believe they held a well attended lunch at the Wharf going over the recent changes made to the Companies law in July 2011 by a prominent Caymanian lawyer. In 2010 they brought US lawyers down to speak about the impact of Dodd Frank. They also held a Directors Accreditation course here which provided directors training for the last two years.
"The IOD has given CIDA permission to base its code on the IOD Code of Professional Conduct for Chartered Directors and to refer to the link provided the CIDA code did not differ materially. The CIDA code is therefore almost identical to the prevailing code for directors in the UK."
http://www.caymanfinances.com/Industry-News/code-of-conduct-issued-for-company-directors.html
Directors Accreditation course 2011:
http://www.compasscayman.com/cfr/2011/07/19/Qualifications-for-Cayman-professional-directors/
Directors Accreditation course 2010:
http://www.compasscayman.com/cfr/2010/04/14/Qualifications-for-Cayman-directors-established/
Other events:
\\http://www.cida2008.com/CIDA_Press_Release.pdf
http://www.youtube.com/watch?v=6nNIKRSaLRY
http://www.caymanfinances.com/Cayman-Finance-News/remarks-to-the-cayman-islands-directors-association-lunch.html
http://www.ifcreview.com/viewnews.aspx?articleId=3267
http://www.compasscayman.com/cfr/2009/07/07/The-Cayman-Islands-Directors-Association-Guiding-the-way/
http://www.compasscayman.com/journal/2010/10/06/“Numbers-remain-impressive”/
http://www.cayman27.com.ky/2010/09/21/cida-regulatory-developments-luncheon
“…trust your money to hedge fund managers with a proven track record and long established reputations.”
Like Bernie Madoff? Great advice!
Whilst everyone agrees with the decision on the Weavering case I would offer a few remarks. Firstly there are an abundance of hedge funds that do not have directors who are resident in the Cayman Islands. Moreover there are hedge funds in the Cayman Islands whose directors are not members of the CIDA a friendy society that tends to look after it’s members interests. With less than 200 members and about 9000 hedge funds that tends to put things into perspective. I also wonder why CIDA does not try attract overseas directors rather than just local directors.
Secondly I have always wondered why the CIDA looks after directors of financial institutions in the Cayman Islands rather than attracting members from other industries such as tourism, contruction and retail. In my experience owners and managers in these industries need help in understanding the duties and responsibilities that go with being a director and to receive the benefit of seminars to help them. The CIDA unlike the Institute of Directors in the United Kingdom does not perform such service and in my opinion is self serving.
Thirdly there has been no mention of previous cases involving directors negligence in the Cayman Islands one of which is over twenty years old. Nor has there been mention of the several cases that have been heard in the US courts where directors, resident in the Cayman Islands have received adverse comments by the presiding judges.
The Weavering case which merely reinforced decisions of the UK courts has given CIDA, certain law firms and those providing directorships poetic licence to become instant experts and issuing an abundance of publications on the subject as if it was all new.Directors of hedge funds must surely have been aware of their fiduciary duties long before the Weavering case was ever heard.
Chris, CIDA, like the UK IOD, is open to directors of any Cayman company. Also 165 members is pretty good size and makes it probably one of the largest professional organizations in the Cayman Islands – those independent directors not members are in the minority. There have been lots of events offering training for directors, recently I believe they held a well attended lunch at the Wharf going over the recent changes made to the Companies law. They also had the Directors Accreditation course here which provided training for the last two years so I am not sure why you are making these remarks on this blog.
Attendance on an accreditation course does not make an individual a professional director. It may help an individual's competency but it does not substitute the level of experience that hedge funds and their investors should be looking from their independent directors.
As Chris Johnson so correctly stated CIDA does nothing for directors who are not part of the financial industry. To join this association u must have references from two members or be approved by CIMA. It is not open for all to join. Look at their website. It is self serving for those in the industry.165 members wow. 70,000 companies including 9000 hedge funds at 15,000 a pop. What qualifications do you need to be a director? NONE. No wonder members are protecting themselves.
These opinions are not support by facts 1. CIDA offers training to directors, and 2. is open to the non-financial industry directors. I suppose when there is a success story like Cayman Islands hedge funds which are world renowned for stability in no small part due to the high quality service providers in the Cayman Islands (including independent directors) some like to rubbish it to their own ends. Overwhelmingly everyone including investors are happy with the Cayman Islands independent directors and what they do for them. Remember Chris is an official liquidator who only sees a few funds a year that have issues with them out of the other successful and continuing 9,400 funds.
The market decides who is a director of their investment fund – if they don’t like their experience and qualifications then they don’t invest and or ask the manager to change them (this does happen).
Whilst I work largely as a liquidator whilst a partner at PWC I was on the firms world wide Investment Consultative Committee and whilst an audit partner I signed a good numbper of audit reports.Consequently I am quite conversant with hedge funds. I would also respectfully point out that I was involved in the drafting of the original Mutual Funds Law and was the author of the first publication on the subject.In the Cayman Islands In addition I made several presentations to my firms clients on the ramifications of the law.
Once again a respondent only talks about hedge funds which I agree is very good for the island and I feel I played my role in attracting them to to the island.However he is missing the points that I raise.
It would be interesting to know just how many persons in CIDA out of the 165 members are not employed in the financial industry.I suspect very few.
I profess not to understand where you are coming from with regard to CIDA. This body is fine if you are talking about hedge funds and possibly other financial vehicles. The body has 165 members which is far less than the Law Society and CISPA? The Institute of Directors in the UK and similar bodies throughout the world cater for directors of all types of company. I suggest that you read their websites to see what they do. Alternatively CIDA is made of accountants, bankers, lawyers, trust company chaps etc. If they do not know about fiduciary duties which they should have learnt whilst studying examinations I would say they should retire.
My main beef is that the association does nothing for directors of other businesses in the Cayman Islands. From my experience these people need be invited to join CIDA. Why restrict membership. After all CIDA members do not even need a qualification.
We do not need fancy lunches at the Wharf and the Ritz Carlton we need seminars to assist all business people which could be done in conjunction with the Chamber of Commrce and an abundance of publications as done by similar associations across the globe. Failing that perhaps some one will take up the mantle to start a proper Institute of Directors or a branch of the UK Institute which I believe has been done elsewhere.
It is hilarious that the CIDA is adopting something of a “Holier than Thou” attitude, when it is public knowledge that a number of their higher profile members have been named as a director of a Hedge Fund which has been put into liquidation, with consequent losses to investors, as a direct result of the failure of the Board to properly monitor the activities of the Investment Manager, and/or the Administrator. Equally incredible, is the number of occasions when the “Professional” Independent Director appointed to a new Hedge Fund is, in fact, a corporate entity owned by the Attorneys who advised the Principals, and prepared the fund’s offering documentation – does CIMA actually have any role in the review of this business?
It is common knowledge that one professional director has about 500 directorships and very vocal as he likes to let all know of his expertise. If I were him and having been named in the US courts I would be inclined to shut up.CIDA should do likewise as many of their members have been directors of banks or funds that went into court liquidation.
Words of advice to any hedge fund investor, don't rely solely on so-called independent Cayman directors to supervise the operations of a business operated potentially thousands of miles from here, trust your money to hedge fund managers with a proven track record and long established reputations.
Like Bernie?
“….trust your money to hedge fund managers with a proven track record and long established reputations.”
Like Bernie Madoff? Great advice!
CODE OF CONDUCT !!!,
thats the problem here !!!!
only apply to ????. curton pople