By Kay Carter, Senior Associate, and Sophia
Harris, Managing Partner
In the Cayman Islands, STAR trusts may hold shares of a
company which carries on a business. Trustees of such STAR trusts
may arrange to become, or have an employee become, a director of
the company because the trustees have a duty to be more informed
about the company's business than a 'mere' shareholder
In the Cayman Islands, STAR trusts may hold shares of a company
which carries on a business. Trustees of such STAR trusts may
arrange to become, or have an employee become, a director of the
company because the trustees have a duty to be more informed about
the company's business than a 'mere'
shareholder1. Being a director has a potential downside,
however, as directors have a positive obligation to become and
remain informed about the business of the company in order to
ensure that the business is carried on in accordance with the laws
and regulations of the jurisdiction in which the business is
Although the fiduciary duties owed by a director of a company
are fundamentally similar to the fiduciary duties owed by trustees
to the trust, the duties are not owed to the same persons.
Directors owe a duty of care to the company as a whole, which
consists of the interests of all the shareholders. The best
interests of the company may not necessarily be the same as the
best interests of the trust even in the situation where the
trustees are the sole shareholder of the company, the shares of
which are held as trust assets. Directors are charged with managing
the business; trustees are charged with protecting trust property
and maximising the return for application to the objects of the
trust. Trustees who act as directors must create a satisfactory
balance between the competing duties.
The standard applicable to the duty of care owed by both
trustees and directors has objective and subjective elements. In
addition to the core obligations of honesty and good faith that
trustees owe to the trust, trustees must exhibit the degree of
skill, care, prudence and diligence that would be expected of
trustees managing the types of assets held by the trust. Similarly,
directors have a positive duty to act with the degree of skill,
care, prudence and diligence that would be expected of directors
managing the type of business carried on by the company.
Notwithstanding the similarities between the duties of care owed
by trustees and by directors and the standards applicable to such
duties, the fact that the duties are owed to different persons
means that trustees acting as directors are probably not fully
protected by an indemnity under the trust deed. This is so even
where the trustees are indemnified for everything except
fraud2, and even if the trust deed contains a clause
modifying or nullifying the trustee's duty to become and remain
informed about the business of the company the shares of which are
trust assets. It should also be noted that trustees can only rely
on an indemnity under the terms of a trust deed where the trustees
have expressly complied with any and all requirements under such
indemnity3. Therefore trustees should ensure that they
are also indemnified under the company's directors' and
officers' liability insurance policy in respect of their
actions as a director.
In addition to indemnification under the terms of the trust and
under the D&O liability insurance, trustees should develop
policies and procedures to minimise the risk of an inadvertent
breach of the duties of care owed to the trust and the company. For
example, the trustees could create a policy that transactions of a
certain nature or value must have the consent of two trustees who
must review all of the information known to the trustees in respect
of such transactions. Where the trust assets consist of shares of a
company that carries on a family business, the trustees should
consider whether or not it would assist them in performing their
duties as trustees or directors to have family members provide
1 Bartlett v Barclays Bank Trust Co Ltd. (Nos. 1 and
2),  Ch. 515,  W.L.R. 430,  1 All E.R. 139,
 2 All E.R. 92 (Ch.D.)
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