CAYMAN ISLANDS Law and Practice Contributed by: Shari Seymour, Kerry Ann Phillips and Michael Lockwood, Maples Group
• a duty not to put themselves in a position in which there is a conflict between their duty to the com - pany and their personal interests; and • a duty to exercise independent judgement. Directors also owe a duty of care to the company that is not fiduciary in nature. This duty has been defined as a requirement to act as a reasonably diligent per - son having the general knowledge, skill and experi - ence 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, as well as the general knowledge, skill and experience of that director. As set out above, directors have a duty not to put themselves in a position of conflict, and this includes a duty not to engage in self-dealing, nor to otherwise benefit as a result of their position. However, in some instances what would otherwise be a breach of this duty can be ratified and/or authorised in advance by the shareholders, provided there is full disclosure by the directors. This can be done by way of permission granted in the constitutional documents or alterna - tively by shareholder approval at general meetings. The duties of a director are generally owed to the company but can, very occasionally, be owed directly to creditors or shareholders if there are special factual circumstances. In the ordinary course and absent any solvency concerns, the “interests of the company” may be equated to the interests of the company’s shareholders as a whole (ie, the persons whose money is at stake). In an M&A context, directors also have a duty to ensure that shareholders are fully informed on any matter being put to a shareholder vote. In certain circumstances, that may include putting (or disclosing the existence of) competing offers to the sharehold - ers, so that they may decide for themselves which offer, if any, to accept. 8.2 Special or Ad Hoc Committees The constitutional documents of a Cayman Islands company may provide that a director may vote in respect of any transaction or contract in which such director is interested, provided the nature of such director’s interest is disclosed prior to any vote thereon. However, this does not modify the duty of
conflicted directors to act in the best interests of the company as a whole. If any directors are conflicted, it may be advisable (depending upon the nature of the conflict) for the board to establish a special committee consisting of non-conflicted directors to take forward all matters relating to the transaction. In a statutory merger con - text, this may also assist when it comes to defending the fairness of the merger price in the event of dissent proceedings. 8.3 Business Judgement Rule Generally, the courts of the Cayman Islands will not interfere with the bona fide business judgement of a company’s directors. This is a subjective test and a Cayman Islands court would only interfere if it determines that no reasonable director could have concluded that a particular course of action was in the best interests of the company as a whole, or the decision was otherwise made in breach of duty. Otherwise, the court is not generally concerned with the merits of business decisions from a commercial point of view. 8.4 Independent Outside Advice Boards of Cayman Islands companies may obtain and rely upon advice from experts (including, for example, legal counsel and tax and financial advisers) in deter - mining whether or not a proposed transaction is in the best interests of the company as a whole. However, they may not do so unthinkingly or uncritically. It is common, but not strictly required, for the board of directors (or a special committee thereof) to obtain an opinion from an independent investment banking firm or another valuation or appraisal firm that regularly renders fairness opinions on the type of target busi - ness that is being acquired, in order to confirm that the acquisition is fair from a financial point of view. Robust external financial advice (potentially going beyond a typical “fairness opinion”) can also play an important role in the context of merger dissent actions when defending the merger price as fair.
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