The primary importance of the recent case Weavering Macro Fixed Income Fund Limited (In Liquidation) v Peterson and Ekstrom is to highlight what is expected of a non executive director. The case is a Cayman Islands one so the UK Companies Act 2006 does not apply, although Cayman Island law is very similar to the old non statutory UK law on the fiduciary duties of directors, now reflected in the 2006 Act.

The case related to a listed investment fund, where the management of the fund and the company's business was delegated to investment managers and the administration to professional administrators, subject to the supervision of the board of directors - a common fund structure. The board comprised the fund promoter and two non executive directors.

The decision recognises that delegation by directors of their role is allowed, but sets out a useful minimum level of involvement and supervision that should be expected of any director. Directors always retain their high level supervisory role. They cannot just rely on the professionals completely.

In the Weavering case the directors were relatives of the fund promoter and, although they were sophisticated financially (having worked in banks and hedge funds), agreed to act for free. The case confirms that acting for no remuneration has no effect on the duties owed and in fact in this case was taken to indicate that there was no intention to undertake any onerous activity as a director.

Particular things which are identified that the directors should do (which are of more general application than just to funds) were:

  • act in a proper and businesslike manner;
  • ensure board meeting are held at appropriate intervals, have an agenda and ensure proper minutes of actual discussions are prepared after meetings; in particular directors should not sign board minutes that are pro forma;
  • meet face to face with representatives of anyone to whom they have delegated the main functions – in this case investment advisors, administrators and auditors;
  • be able to read a balance sheet and have a basic understanding of the audit process. If directors accept responsibility for the fund's audited statements, for example by signing representation letters, they must exercise an independent judgment in satisfying themselves that the financial statements do present fairly the fund's financial condition. For example, a director can query whether any audit issues were raised during the audit process and how they were resolved and ask to be taken, page by page, through the financial statements; and
  • continually satisfy themselves that the various professional service providers are performing their functions in accordance with their contractual obligations.

The case also addresses whether the directors could rely on the indemnities for directors in the company's articles of association. This indemnity is usually available unless the loss incurred arose as a result of the director's 'wilful neglect or default'. The default would have to be knowing or intentional, or so reckless as to amount to intentional. In Weavering the court found the default of the directors wilful, as they knew that had duties as directors and did not attempt to fulfil them. A judgement of $111million was made against them as individuals for the losses suffered by the company as a result of their neglect of their duties. A salutary lesson for all "hands-off" directors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.