First we had the Weavering case, shedding light on the standard of care expected by the Grand Court of the Cayman Islands of independent directors in offshore hedge funds. Now we have a front page exposé in this week’s Financial Times on the Cayman Islands hedge fund industry in general.
Perhaps this is no surprise as, according to the FT, there are an estimated 8,000 hedge funds located there, or approximately three-quarters of the whole industry. The article says that “at least four individuals [in the Cayman Islands] hold more than 100 non-executive directorships each and 14 have more than 70.”
Multiple directorships are neither a new phenomenon nor one restricted to the Cayman Islands, but they raise this obvious question: How many directorships can or should individuals sensibly hold if they are to discharge their supervisory function adequately?
Of course not all directorships are the same and certain roles plainly require a lot more time and commitment than others. Even restricting the question purely to offshore funds, however, it’s not an easy one to answer and indeed has a bumpy history.
Echoes of Sark
In the 1990s, pretty well the majority of the 600 islanders resident on Sark in the Channel Islands were in one way or another involved in the business of supplying company directors to offshore funds. One in particular gained notoriety.
In January 1999, shortly before his disqualification by the Guernsey Court, Phillip Crowshaw was a director of well in excess of 3,000 companies, each of which paid him a modest fee for the use of his name.
It is not hard to see that at that end of the spectrum, individuals such as Mr Crowshaw would have been in grave peril of a finding of “wilful default” along the lines of the judgment of the court in the Weavering case.
But how many is too many and who should decide? In particular should it be the courts? After all they can be an expensive and blunt instrument and (more importantly) can only decide on the facts after the relevant events have occurred. Perhaps the answer lies instead with those responsible for the regulation of each offshore center?
After all, the demise of what became known as the Sark Lark came as a result of new legislation introduced by Guernsey’s Financial Services Commission under which it assumed much stronger powers in effect creating a licensing system for company directors. Until such systems are introduced in all recognized offshore centers, the risk of further findings of wilful default or their cross border equivalents will remain.