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The launch of a Cayman Islands fund may be completed in a few steps; the longest phase being the time spent by a Cayman director to review and finalise contractual terms between the Cayman Islands fund and its service providers. One should not ignore the role that a Cayman director undertakes in the completion of this phase.

The reason that the Cayman director must be involved is that he is one stakeholder that can make an independent assessment whether contractual provisions are in the best interests of the Cayman Islands fund and whether they are commercially acceptable. In addition, the agreed upon provisions are what the Cayman director must consider in the future, in the event of a dispute or breach of contract. Contrary to the view held by others, a Cayman director should not leave this assessment solely to the Cayman fund’s legal counsel. This is because, unless otherwise instructed, legal counsel would typically place his primary focus on the legal issues arising from the agreements rather than the commercial provisions. If these commercial clauses are also left unaddressed by the Cayman director, then the investors may find in the future that the wording of the relevant contractual provisions is not in favour of the Cayman fund. In order to provide an illustration, examples of some common material terms are set out below.

Liability Caps

These days, almost all service providers include a liability cap in their service agreements. The purpose of the liability cap is to limit the service provider’s liability to the Cayman fund in the event of a contractual breach. The calculation of the maximum liability is normally based on a multiple of the service provider’s annual fees or it may be equivalent to the annual fee. Some fund directors may take the view that they must agree to a proposed liability cap in order to engage the premium services of the relevant service provider. Those Cayman directors who insist on amendments to the template agreements of service providers must ensure that the changes are in the best interests of the Cayman fund. One such revision by a Cayman director could be to state in the agreement that the liability cap cannot apply in cases of wilful default, fraud and/or some defined level of “gross negligence[1]” on the part of the service provider.


A Cayman fund may agree to indemnify its directors, officers and service providers. However, in the case of a service provider, a Cayman director must take care not to cause the Cayman fund to provide a blanket indemnification for all matters, however they may arise. An example of an amendment that could be proposed by a Cayman director is to state in the indemnity provision that the indemnity will not apply in instances of wilful default, fraud and, as mentioned previously, a defined level of “gross negligence”. This might be a sensible commercial approach.

Another approach suggested by stakeholders is to remove indemnity provisions altogether from the Cayman fund’s documentation. This is unlikely to be held as commercially feasible in the current industry environment.


Buried in the indemnity provision or standing alone as a separate clause is wording that a service provider may rely upon so that it is not liable in certain circumstances. The Cayman fund director must consider whether such exculpatory wording is in the best interests of the Cayman fund. It may be unreasonable or disadvantageous to the Cayman fund, for example, if the exculpatory provision covers an endless number of situations where a service provider is not liable under the service agreement.

Modification of Share Rights

A Cayman director should be familiar with rights attached to shares and how those rights may be varied. From experience, most fund documents require shareholder consent to modify such rights. Regarding some newly formed Cayman funds, however, fund documentation may be drafted to permit changes to share rights without shareholder consent in circumstances where the proposed modification is not deemed to have a material, adverse effect on the share rights. This seems tricky as there is often no definition of materiality in the fund documentation. Therefore, the interpretation of materiality may be at the leisure of the members of the relevant board of directors and entirely subjective. To be on the safe side, the best approach for a Cayman director may be to get shareholder consent for any proposed adverse change to rights attached to a fund’s shares.

Winding up

A Cayman fund’s winding up might seem like the least controversial topic. The provision that Cayman directors are accustomed to reviewing states that that the voluntary winding up of a corporate Cayman fund may commence upon the passing of a special resolution of the Cayman fund (i.e. passed by the voting shareholders of the Cayman fund). However, this is not the only authority that finds its way into fund documentation.

The alternative wording to look out for is the express grant to the directors in the Cayman fund’s articles of association the authority to present a winding up petition without the sanction of a resolution passed at a general meeting. This will, of course, lead to the dissolution of the Cayman fund.


By now, you may be thinking that these points are commonsense. However, they may be casually overlooked. This is especially true in situations where a Cayman director is faced with tight deadlines and he has so many other directorship appointments that he cannot pay sufficient attention to the details of the Cayman fund’s documentation.

Further, there is a temptation for a director to place 100% reliance on the investment manager’s legal counsel to finalise the fund documentation on a new Cayman fund launch. As indicated in the Cayman Weavering case, Cayman directors should be attentive to the fund’s documentation because the investment manager’s interests may not necessarily be the same as the Cayman fund’s interests. Therefore, the Cayman directors should resist anything which is not commercially reasonable or in the best interests of the Cayman fund. The importance of this point will become evident during the fund’s life when it faces a critical issue. For example, it may come to the attention of the fund’s board that the fund has less options available in its best interest than would have been the case had the director conspicuously reviewed the documentation.

As the above examples demonstrate, a competent review of fund documentation can only be result in a positive outcome for the relevant fund.

About the Author:

Alric Lindsay is a corporate lawyer and an independent fund director approved by the Cayman Islands Monetary Authority. Alric is also licensed as a professional director under The Directors’ Registration and Licensing Law. Alric also acts as voluntary liquidator to Cayman Islands entities. Alric can be contacted at