SPV Independent Director: When Cayman Vehicles Need One

An SPV independent director is a board member of a Cayman vehicle who is not on the GP's investment team. Cayman private-fund companies applying to CIMA need at least two directors; independence is a commercial practice, not a Companies Act mandate. Delaware deal SPVs almost never use the seat.

This is general information, not legal advice. Cayman counsel, not this page, confirms director counts, CIMA registrations, and who is "independent" under a given set of articles.

What an SPV independent director is for

On a Cayman exempted company used as a fund, feeder, or SPV, the board is the operator. Directors vote on offerings, NAV methodology, service-provider appointments, and — when the articles require it — winding up. SPV structure and governance covers who controls a typical deal vehicle. This page is the extra seat some Cayman boards add.

Independence, in the sense GPs actually buy, means:

• Not an employee, principal, or controller of the investment manager

• Not a beneficial owner of the GP in any material way

• Paid a director fee by the company, not a carry split that turns them into a sponsor

• Willing to vote against a related-party step (a merger into an affiliate, a questionable NAV, a related-party loan)

It does not mean "Cayman-resident" (CIMA does not require Cayman residence for directors in the FAQs cited below) and it does not mean "rubber stamp from the administrator." An administrator who calculates NAV is a service provider. A director owes duties to the company.

One contrast, then we leave it: structured-finance orphan SPVs often appoint an independent director so a lender can block a voluntary bankruptcy filing. That is a CLO/securitization product. It is not a Cayman venture feeder. Do not copy orphan-SPV veto language into a venture OA because a term sheet mentioned "independent director."

What CIMA actually publishes — and what it does not

CIMA's Investment Funds FAQs, fetched for this article, state the following without defining an "independent director":

• For a private fund, "the four eyes principle" applies: a minimum of two directors is required for applicants that are companies.

• The two-director test also applies to the general partner or corporate director of a private fund: CIMA will require a minimum of two natural persons to be named in respect of that GP or corporate director.

• For a mutual fund registration, CIMA will reject an application if a specified director is not registered or licensed, or is non-compliant, under the Directors Registration and Licensing Act (as revised) (DRLA).

• Mutual funds that are companies are a DRLA "covered entity" problem. Closed-end private funds, partnerships, and trustees are not interchangeable with that mutual-fund director-registration regime. Confirm the vehicle type before you assume DRLA applies to every Cayman SPV.

Those are operator-count and fitness rules. They are not an independence test. CIMA does not, in those FAQs, require that one of the two directors be independent of the GP. Many Cayman fund boards still appoint an independent because institutional LPs, offshore counsel, or a prime broker asked. That is a market answer, not a section number.

This article does not cite Cayman Companies Act section numbers. If you need the statutory minimum director count for an ordinary exempted company that is not a CIMA fund, get it from Cayman counsel and the current consolidation of the Act.

Formation steps for the jurisdiction sit on the Cayman Islands SPV and fund setup guide. Cost trade-offs versus onshore sit on US vs offshore fund setup.

When a Cayman GP actually appoints one

Use cases that show up in practice:

Cayman feeder in a master-feeder. The feeder is often a Cayman company with a board; the master is often a Cayman or Delaware partnership with a GP. Independent directors, when used, sit on the company. See master-feeder fund structure. The feeder board is where non-US LPs expect an operator who is not solely the US GP.

CIMA-registered private fund that is a company. Two directors minimum per the FAQ above. One can be a GP principal. The second is frequently an independent (or a second GP principal). Two GP principals satisfy the count; they may not satisfy an LP's governance memo.

Lender or prime-broker condition. Less common on venture SPVs, more common if the vehicle will borrow or hold assets at a prime broker that has a governance rider.

LP side letter. A large LP asks for an independent on the feeder board, sometimes with a list of reserved matters. Treat that as a side-letter ops burden: board packs, notice of meetings, the independent's calendar.

If none of those apply — a Delaware LLC SPV with a US syndicate — skip the seat. The SPV manager is the GP or managing member. Delaware deal vehicles are manager-managed; they do not have a statutory independent-director chair.

What the independent director actually does

A working board, not a name on a register:

• Reviews and, where the articles require, approves the offering document and material changes

• Appoints or removes the administrator, auditor, and investment manager as a company matter (the management agreement still controls economics)

• Adopts valuation and conflict policies the manager then executes

• Receives AML/CFT reporting the operator is expected to oversee

• Votes on winding up, continuation, or a merger

They do not pick deals. They do not replace the SPV manager. They do not file the US GP's Form ADV.

US advisers still file Form ADV on IARD (annual updating amendment within 90 days after fiscal year-end) whether the fund is Cayman or Delaware. (SEC, Form ADV: General Instructions.) SEC-registered advisers that, with related persons, had at least $150 million in private-fund AUM at fiscal year-end also face Form PF. (SEC, Form PF, Instruction 1.) The independent director is not the IARD user.

If the US adviser has custody of a pooled vehicle and relies on the audit provision of Advisers Act Rule 206(4)-2, audited GAAP financial statements go to beneficial owners within 120 days of year-end (staff FAQs extend that for certain funds of funds). (SEC, IM Guidance Update 2014-07.) That audit path is an adviser obligation. It is not discharged by appointing a Cayman independent director.

Delaware skips this seat — on purpose

A US deal-by-deal SPV is usually a Delaware LLC. Management sits in the managing member (the GP). Members are LPs. There is no board, and no independent director, unless the operating agreement invents one for a credit facility. Venture SPVs almost never do.

Do not add a Cayman independent director to a Delaware LLC "for optics." You have changed the jurisdiction problem into a dual-fiduciary problem. If you need Cayman, form Cayman. If you need Delaware, run Delaware.

How GPs should contract the seat

GPs who hire a professional independent-director firm are buying capacity and DRLA hygiene (when DRLA applies), not a second portfolio manager. Budget the fee as a fund expense if the LPA allows it. Do not bury it in "other professional fees" with no line.

Allocations administers SPVs and funds ($9,950 one-time Standard SPV, $19,500 Premium SPV, $19,500 per year per fund, 0% platform carry). Director services are a Cayman professional-director engagement, not those published fees.

When does a Cayman SPV need an independent director?

When CIMA's two-director rule, an LP, a lender, or the articles make a second operator who is not the GP a practical requirement. CIMA's published FAQs require two directors for private-fund companies and two named natural persons for a GP or corporate director. They do not, in those FAQs, require that one director be independent.

Do Delaware SPVs appoint independent directors?

Almost never, unless a credit agreement demands an independent manager. Ordinary Delaware deal LLCs are manager-managed by the GP.

Is an independent director a substitute for a fund administrator?

No. The director oversees. The administrator keeps the register, the bank, and the close. Different contracts, different duties.

Appoint the seat when Cayman operators, LPs, or lenders have a reason. Skip it on a Delaware syndicate SPV.