The Cayman Law Reform Commission has issued a consultation paper3 on proposed legislative changes that could see a codification of directors’ duties, as is now the case in the UK. While recognizing the existing common law framework offers a certain degree of flexibility, the Commission suggests that codification of directors’ duties may make it easier for directors to locate the source, and understand the nature, of their legal obligations.
The Commission has identified four possible options for reforming Cayman law as it relates to directors’ duties. These include: (1) a comprehensive codification of all directors’ duties, (2) limited codification of directors’ duties, (3) codification of directors’ duties concurrent with common law, or (3) creating a codified statement on corporate governance by directors.
The need to examine the nature and scope of directors’ duties was highlighted by the Weavering Macro Fund judgment4, which reviewed how directors should approach the discharge of their fiduciary and other duties to investment funds of which they are directors. The decision also established standards of behavior to be expected of directors.
The consultation includes a wholesale review of directors’ common law fiduciary duties. Respondents have been asked to consider whether those duties should continue to be regarded as the principal duties of directors, and if not what duties should be included or excluded among the list of such responsibilities.
Some of the questions posed for consideration represent a radical shift in traditional company law norms. Whereas historically directors have been tasked with running a company primarily for the benefit of its shareholders as a collective, the Commission has sought comment on whether instead directors should be required to act in the interests of a wider group of stakeholders, including the company’s employees, the community and the environment.
The proposals are almost certain to raise the ire of traditionalists, who are likely to say that codification will do little more than hamstring both the court’s flexibility when addressing questions that do not neatly fall within the codified duties and the natural evolution of the law.
4 Weavering Macro Fixed Income Fund Limited v Stefan Peterson and Hans Ekstrom [2011 (2) CILR 203]