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Alternative Market Briefing

Other Voices - Should indemnity provisions extend to auditors?

Thursday, September 02, 2010

This article was authored by Alric Lindsay, a Cayman-based independent director, who prior to his experience working as an investment funds attorney for two global law firms, was a senior compliance analyst with the Cayman Islands Monetary Authority:

Indemnity provisions are prevalent in the articles of association of Cayman domiciled investment funds. Such provisions may exonerate a director and/or officer from personal liability or restrict the persons who can be sued, however, the writer queries whether the terms should also apply to auditors.

The application to auditors, as discussed in various cases, may depend upon how the draftsman prepares the articles of association of a company and how the Cayman courts interpret the same. For example, there are some instances where the wording refers to every director and officer of the company as an "indemnified person". However, where it is not stated that the auditor is not an officer, it might be implied from the articles that the auditor is an officer.

Other draftsmen include express statements that "for the avoidance of doubt, "officer" does not include the auditors of the company". Presumably, the approach will vary depending on what is intended in each case.

To understand how some of the highest courts may read the clause, it is helpful to look at one of the well-known Privy Council decisions which addressed indemnity provisions. In Viscount......................

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