There is no specific model for corporate governance that must be applied to Jersey-based investment funds.

Codes of practice issued (or to be issued shortly) by the Jersey Financial Services Commission (JFSC) (the Jersey codes) require that both a Jersey-regulated corporate fund and a Jersey-based fund service provider (for example, manager, administrator, custodian) must have an appropriate system of corporate governance.

In particular, a fund must operate an effective corporate governance system that must include the following key elements:

1. An adequate span of control must exist that is appropriate to the nature of the business of the fund. The fund must be directed by at least two appropriately qualified and experienced people (the “four eyes” principle).
2. The relationship of directors and other key persons within the fund must be such as to ensure that they can all exercise independent judgment without duress or undue influence from one another in the best interests of the fund, and so as to secure compliance with the applicable legislation and regulatory guidance.
3. Responsibilities must be apportioned among the fund’s directors and other key persons in such a way that their individual responsibilities and accountabilities are clear, and that the business of the fund is adequately monitored and controlled at senior management and board level.

The Jersey codes also require that there must be an appropriate risk management and control framework established for the fund. Where there has been a failure in corporate governance, this may trigger the need to notify the regulator.

It is worth noting that the AIC Code is supported by the JFSC. The AIC Code is principles-, rather than rules-, based and introduces twenty-one principles. These include

1. independence of the chairman and board independence from the investment manager,
2. ensuring appropriate skills and training for directors,
3. review of service provider performance and contracts and appropriate communications with shareholders providing sufficient information for them to evaluate their investment.

It is considered best practice for AIC members to “comply or explain”, in other words, to state in their annual report whether they are adhering to the principles and following the recommendations in the AIC Code and, if not, to explain why and the steps that will be taken to remedy the same.

JERSEY DIRECTORS’ DUTIES

There is no single statute which conclusively lists and defines the duties of a director of a Jersey company.

1. Basic duties are contained in the Companies (Jersey) Law 1991, as amended (1991 Act), although it is less codified than the approach taken under the 2006 Act.
2. Further specific duties are placed on directors by bankruptcy and companies legislation, as well as anti-money laundering, and other regulatory, laws.
3. Directors are required, in exercising their powers and discharging their duties, to act honestly and in good faith with a view to the best interests of the company; and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances (Article 74, 1991 Act).
4. The test is considered an objective one and might be interpreted more stringently at present, requiring a director to inform themselves of the financial position of the company, attend all board meetings and participate in the conduct of the company.
5. Directors are also required under the 1991 Act to disclose their interests in transactions undertaken by the company. Where the director fails to disclose such interests, the transaction may be set aside by application to the court. The transaction may be approved by special resolution of the shareholders of the company, provided they are given sufficient information in relation to the transaction.

On the general question of directors’ duties, the Jersey courts will look to existing Jersey case law and in the absence of such, will look for guidance to English common law on the question of directors’ duties generally.

Key common law duties include:

• Directors should not make secret profits from their position as a director and interests in transactions should be disclosed.
• Information obtained in the course of his or her activities should be kept confidential.
• Directors should ensure that they act within the powers afforded to them by the constitutional documents of the company (note that although the concept of acting ultra vires the company was abolished by the 1991 Act, this might constitute a breach of the memorandum of association of the company).

The Weavering decision

1. A recent case before the Grand Court of the Cayman Islands caused a stir in the world of offshore fund corporate governance (Weavering Macro Fixed Income Fund Limited (in liquidation) v Stefan Peterson and Hans Ekstrom).
2. The judgment garnered a lot of attention for three reasons. Most importantly, it was the first time that the duties of a director had been scrutinised in the context of an offshore hedge fund, which was entirely conventionally structured. Second, the conduct of the independent directors was particularly egregious and, third, the directors were found liable for a staggeringly large amount of money ($111million plus costs).
3. The judgment contains an orthodox review of the law relating to directors’ duties and wilful neglect or default. It also contains a surprisingly detailed and prescriptive analysis of how the directors should have conducted themselves and this analysis has drawn some attention and comment. In considering the implications of the judgment, it should be borne in mind that the proposed course of conduct outlined for the directors is being put forward as appropriate in the particular circumstances of the Weavering fund. While the judgment is a useful guide to the directors of other offshore funds and aspects of it will, no doubt, have wider application, it should not be taken as a simple checklist on how directors should discharge their duties.
4. The overarching point to take away from the judgment is not a new or surprising one. In the final analysis, in order for a director of a fund to properly discharge his duties, he has to roll up his sleeves and engage with the fund, bringing his skills and experience to bear as appropriate and exercising his judgment cognisant of the specific facts and circumstances of the fund.

Common law duties

In common law, a director of a corporate fund owes both fiduciary duties and a duty of skill and care. The fiduciary duties can be summarised as follows:

1. Firstly, and most importantly, a duty to act honestly and in good faith in the best interests of the fund as a whole. This duty is likely to be construed more narrowly than the equivalent duty of a director under section 172 of the Companies Act 2006 (section 172) to promote the success of the company, and it is not clear how much weight a court would attach to the six factors to which a director is required to have regard under section 172.
2. A duty to exercise the powers that are vested in him for the purposes for which they were conferred and not for any collateral purpose.
3. A duty not to put himself in a position where he has a conflict of interests between the business of the fund and his own business interests.
4. A duty to account to the fund for any profits he makes without the fund’s consent from his position as a director.
5. A duty not improperly to fetter his future ability to exercise discretion in the use of his powers as a director.
6. A duty of confidentiality to the fund. Information received or obtained by a director, in that capacity, concerning the fund, its business relationships and opportunities, should not be disclosed to other people unless such information is already in the public domain or he is authorised to disclose it.

In addition to his fiduciary duties, a director owes a duty to the fund to act with care, diligence and skill.

1. The test for this is both objective and subjective. The director must exercise the degree of care and diligence which would be displayed by a reasonable man in the circumstances.

However, while he is not required to exhibit a greater degree of skill than may reasonably be expected from a person of his knowledge and experience, if he has relevant expertise, for example, experience in investment management, accounting, administration or law, he would be expected to demonstrate a higher standard of skill and diligence in those fields where he has experience than would be required from a person not in possession of such expertise.