By Anonymous
Copyright caymannewsservice
‘An interested observer’ writes: A recent article on CNS argued that director indemnification should be banned in the Cayman Islands, claiming directors are “immune” from lawsuits and that other common law jurisdictions have abolished such protections. Weekend research reveals these claims contain significant technical errors. Cayman directors can be sued and held personally liable for fraud, dishonesty, and wilful default. England permits various forms of indemnification through statutory safe harbours. The interaction between indemnification and D&O insurance is more nuanced than suggested.
This response aims to clarify the law – and invite corrections if I myself have made mistakes.
Chris Johnson’s original article¹ argued that Cayman should ban director indemnities, asserting that directors are “immune” whilst auditors face negligence suits, and claiming England banned indemnities “many years ago” with colonies following suit. His addendum cited section 232(1) of the English Companies Act 2006 and asserted Guernsey was the last colony to ban indemnities “over 15 years ago”. He referenced the Prospect Properties case as demonstrating his expertise in obtaining judgments against directors.
Having found these claims intriguing, I spent the weekend researching the current position across multiple jurisdictions. What follows is my attempt to correct what I suspect may be several misunderstandings, though I welcome correction if I have erred. I write anonymously as my firm has not reviewed this piece: firms understandably avoid public policy debates given lengthy approval processes and limited upside.
The Cayman position
Contrary to Chris’s assertion, Cayman directors are not “immune”. The Companies Act (2025 Revision) contains no general indemnification provisions,² leaving the matter to common law and contractual arrangements. However, fundamental limitations exist:
Public policy prohibitions: Cayman courts consistently hold that indemnification cannot cover fraud, dishonesty, or breaches of core fiduciary duties. In ,³ the Grand Court confirmed that the “irreducible core” of fiduciary obligations cannot be contracted away, stating that no indemnity can shelter directors from “fraudulent breach of fiduciary duty”.
Wilful default standard: The seminal Weavering Macro Fixed Income Fund (in Liq) v Peterson⁴ case established that “wilful default” requires actual subjective awareness of duty and deliberate breach. The Court of Appeal found directors who failed to detect fraud were protected by indemnification as their conduct, whilst potentially grossly negligent, did not constitute wilful default.⁵
Market practice: Analysis of current Cayman fund articles reveals standard carve-outs for: (i) fraud and dishonesty; (ii) wilful default; and (iii) frequently, gross negligence.⁶ These limitations exist because Cayman follows English equitable principles: not because of statutory mandate.
Comparison with England
Chris’s reliance on section 232(1) of the Companies Act 2006 tells only part of the story. Whilst that section voids provisions exempting directors from liability,⁷ England explicitly permits:
Qualifying Third Party Indemnity Provisions (QTPIPs) under section 234, allowing indemnification for liabilities to third parties (excluding fines and unsuccessful defence costs);⁸
Indemnification for defence costs where directors are acquitted (section 234);⁹ and
D&O insurance under section 233.¹⁰
England reformed rather than banned indemnification. The distinction between Cayman and England is that Cayman relies on contractual freedom with common law limits, whilst England imposes statutory parameters.
Other jurisdictions
Chris claimed Guernsey was the “last” colony to reform “over 15 years ago”. This chronology is incorrect:
Guernsey: Reformed in 2008 (Companies (Guernsey) Law, section 157)¹¹(17 years ago)
Hong Kong: Reformed in 2014 (Companies Ordinance, Cap. 622, sections 468-469)¹²
Singapore: Reformed in 2015 (Companies Act amendments to section 172)¹³
Different jurisdictions permit certain indemnities whilst prohibiting others. For example:
The insurance interplay
Chris suggests D&O insurance makes indemnification unnecessary. This misunderstands how these protections interact:
Coverage Structure
Modern D&O policies typically contain three coverage parts:
Side A: Covers directors when the company cannot indemnify (insolvency or legal prohibition);
Side B: Reimburses the company for indemnification payments; and
Side C: Entity coverage for securities claims.
Practical Mechanics
Insurance and indemnification work in tandem, not as alternatives:
Primary protection: Company indemnifies and advances defence costs under articles;
Insurance backstop: D&O policy covers when indemnification unavailable; and
Exclusions align: Both exclude fraud: insurers require “final adjudication” before denying coverage²².
Premium Implications
Broader indemnification can actually reduce D&O premiums as Side B coverage (reimbursement) is cheaper than Side A (direct coverage). Insurers price based on total risk profile, including indemnification scope.
The Prospect Properties case
Chris references Prospect Properties to establish his credentials. Court records show limited litigation involving that entity. Chris’s reference to “our national hero” suggests historical significance, but without case citations or explanation, its relevance to current indemnification law remains unclear. More recent cases like Weavering and Primeo Fund v Bank of Bermuda²³ provide clearer authority on indemnification scope.
Practical implications
For Cayman practitioners, several points merit emphasis:
Drafting considerations: Articles should explicitly carve out fraud, wilful default, and (advisedly) gross negligence
Advancement provisions: Include undertakings to repay if indemnification ultimately unavailable
Insurance coordination: Ensure D&O policy terms align with indemnification provisions
Segregated portfolios: Remember statutory limitations on SPC indemnities (section 216) ²⁴
Cayman’s approach appears to represent a deliberate policy choice prioritising contractual freedom within common law boundaries. Directors are not “immune”: they face personal liability for fraud, dishonesty, and wilful misconduct. Other jurisdictions have reformed rather than banned indemnification, each striking different balances between director protection and accountability.
The debate about optimal policy settings is legitimate. However, it should proceed from an accurate understanding of current law.
I welcome corrections if I have misunderstood any aspect of this complex area.
The author is a Cayman Islands attorney writing in personal capacity. Views expressed do not represent those of any firm or organisation.
¹ Chris Johnson, ‘Indemnities for directors should be banned’ Cayman News Service (19 September 2025), https://caymannewsservice.com/2025/09/indemnities-for-directors-should-be-banned and Chris’s subsequent comment therein at https://caymannewsservice.com/2025/09/indemnities-for-directors-should-be-banned/#comment-697138, commencing “I have read many of the responses to my article from misguided wannabe lawyers and others who have made no effort to research the subject…”.
² Companies Act (2025 Revision), https://www.gov.ky/publication-detail/companies-act-(2025-revision),-(lg6,-s3) – the Act addresses indemnification only for segregated portfolio companies (s 216), and even then, only implicitly (this is just my reading of it: happy to be corrected).
³ Renova Resources Private Equity Ltd v Gilbertson [2009] CILR 268. Available at: https://justis.vlex.com/vid/805823781/expression/805823865.
⁴ Weavering Macro Fixed Income Fund (in Liq) v Peterson [2012] 2 CILR 203 (Grand Court).
⁵ Weavering Macro Fixed Income Fund (in Liq) v Peterson [2015] 1 CILR 45, reversing the first instance decision. See analysis at: https://www.mondaq.com/caymanislands/commoditiesderivativesstock-exchanges/375498/cayman-court-of-appeal-reverses-us111-million-judgment-against-weavering-directors.
⁶ Analysis of 20 publicly available Cayman fund articles (2020-2025). See Maples, ‘The Private Equity Law Review’ (11th edn, 2023) ch ‘Cayman Islands’, 15-16. Available at: https://maples.com/wp-content/uploads/2023/11/The-Private-Equity-Law-Review-ed-11-Cayman-Islands.pdf.
⁷ Companies Act 2006, s 232(1), https://www.legislation.gov.uk/ukpga/2006/46/part/10/chapter/7
⁸ ibid s 234. See detailed analysis at: https://thelawstudent.blog/indemnification-of-directors-by-the-company. Yes, it’s a student’s blog, but it’s easily accessible to CNS readers without Lexis or Westlaw.
⁹ ibid s 235.
¹⁰ ibid s 233.
¹¹ Companies (Guernsey) Law 2008, s 157. See Ogier, ‘Duties of Directors of Guernsey Companies’ (2023). Available at: https://www.ogier.com/news-and-insights/insights/duties-of-directors-of-guernsey-companies/.
¹² Companies Ordinance (Cap 622) (Hong Kong) ss 468-469, https://www.elegislation.gov.hk/hk/cap622. See analysis at: https://www.lexology.com/library/detail.aspx?g=bbff8be7-7e0b-4fdc-8e51-3319eb17fb06.
¹³ Companies Act (Cap 50) (Singapore) s 172 (as amended 2015), https://sso.agc.gov.sg/act/coa1967. See CNP Law, ‘Changes to the directors’ indemnity provision’ (2015). Available at: https://www.cnplaw.com/changes-to-the-directors-indemnity-provision-in-the-companies-act-and-the-implications-for-companies-in-singapore.
¹⁴ BVI Business Companies Act 2004, s 132. Available at: https://www.bvifsc.vg/sites/default/files/bvi_business_companies_act.pdf.
¹⁵ ibid s 132(2).
¹⁶ Companies Act 1981 (Bermuda) s 98, https://www.conyers.com/wp-content/uploads/2025/01/Companies_Act_1981_Compendium-BDA.pdf
¹⁷ ibid s 98A.
¹⁸ Companies (Jersey) Law 1991, art 77, https://www.jerseylaw.je/laws/current/l_30_1991#_Toc181800611
¹⁹ ibid art 77(1).
²⁰ Delaware General Corporation Law, tit 8, ss 102(b)(7), 145, https://delcode.delaware.gov/title8/c001/sc01/.
²¹ ibid s 102(b)(7)(i)-(iv).
²² Standard D&O policy language requires “final non-appealable adjudication” establishing fraud.
²³ Primeo Fund v Bank of Bermuda (Cayman) Ltd 2019 2 CILR 1 , [2019] CICA J0613-1. See also: https://www.cdr-news.com/categories/expert-views/10029-director-indemnities-tensions-and-practicalities, which is a helpful Harneys summary as at August 2019 by Katie Pearson (now at Claritas) and Lachlan Greig (now back in Australia).
²⁴ Companies Act (2025 Revision) (Cayman Islands) s 216 (on my reading, implicitly limiting SPC indemnities to relevant portfolio assets).
