CAYMAN ISLANDS Law and Practice Contributed by: Shari Seymour, Kerry Ann Phillips and Michael Lockwood, Maples Group
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 determining whether or not a proposed transaction is in the best inter - ests 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 independ - ent investment banking firm or another valua - tion or appraisal firm that regularly renders fair - ness opinions on the type of target business that is being acquired, in order to confirm that the acquisition is fair from a financial point of view. Robust external financial advice (poten - tially 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. 8.5 Conflicts of Interest See 8.1 Principal Directors’ Duties , 8.2 Spe- cial or Ad Hoc Committees and 8.3 Business Judgement Rule . While the duty of directors of a Cayman Islands company to avoid a conflict of interest is a strict one, almost invariably that duty will be exten- sively modified in the company’s constitutional documents. The validity of such a modification has generally been upheld in Cayman Islands case law. Moreover, absent unusual circum - stances, shareholders do not owe duties to each other nor to the company itself under Cayman Islands law. However, modification of the duty to avoid a conflict typically does not modify a director’s core fiduciary duty to act in the best interests
of the company. So, while the mere existence of a conflict may not of itself be actionable, it has proved to be a relevant factor in claims against directors, insofar as it may provide a director with a motive to breach this core duty. The importance of properly managing conflicts of interests has also been a feature in merger appraisal litigation in the Cayman Islands, under Section 238 of the Companies Act. For exam - ple, in Trina Solar Limited (23 September 2020, CIGC), the court discussed at length the sig - nificance of the role of the special committee in dealing with mergers where some members of the board are conflicted, emphasising the impor - tance of the special committee having robust (and properly documented) processes and pro - cedures in assessing the deal. On appeal (4 May 2023, CICA), the Court of Appeal was critical of the adequacy of the evidence presented by the company on how the special committee had managed the deal process, including in relation to the preparation of management projections, controlling engagement between company man - agement and the buyers, and failing to engage in a market check exercise. On appeal, the Court of Appeal noted that a special committee com - posed of independent, experienced directors is an important indicator of reliability for the deal process, and that the existence of a conflict of interest relating to the transaction will militate against reliance on merger price. In FGL Holdings (20 September 2022, CIGC), alleged conflicts and inter-relationships between members of the special committee and the buy - er and contractual counterparties were explored in great detail, and the Grand Court ultimately concluded, based on the facts and evidence, that the merger process was robust, fair and not affected by conflicts.
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