Cayman Islands statutory mergers increased from 44 in 2010 to 113 in 2014, and show no signs of any slowdown. What is behind this growth? The simple answer is "opportunity". The myriad of benefits for using a Cayman Islands company remain true, but added to the arsenal is possibly the most efficient and effective corporate acquisition regime currently available to international parties.
So why exactly is it so attractive? Here are our thoughts:
The Cayman Islands statutory merger regime uses familiar terminology and has been embraced by US parties. Such is the level of acceptance that it is now common for private equity funds to use Cayman Islands holding companies in order to take advantage of the Cayman Islands merger regime at the time of the exit.
A director of a Cayman Islands company is subject to robust but generally straightforward fiduciary duties. Such duties are owed to the company itself and not its shareholders. A director must act in the best interests of the company thereby allowing a more flexible approach as compared with being obligated to maximize shareholder value. Termination fees, "no shop" and "matching rights" provisions for deal certainty are common and there is no reason why these are not valid under Cayman Islands law if they are in the best interests of the company.
A special shareholder resolution (being a resolution of at least two thirds of the voting shares of the target present in person or by proxy at the general meeting) is generally required for a Cayman Islands merger. This is lower than many other jurisdictions.
This is required in addition to shareholder consent, and so it is not possible to negotiate "force the vote" as in some other jurisdictions where the merger can be submitted for a shareholder vote without a favourable board recommendation.
Cayman Islands lawyers do not generally accept instructions on a contingency fee basis generally and rarely would Cayman Islands court award penal damages - two factors that tend to keep litigation risk lower than other jurisdictions. There are only two instances of mergers being challenged in the Cayman Islands courts by dissenting shareholders.
Shareholders wishing to dissent can do so and claim the fair value for their shares. Absent extreme cases, dissenting shareholders cannot delay or stop a duly approved merger.
Given the familiarity and flexibility of the Cayman Islands statutory merge regime, we expect it will continue to feature strongly in international merger and acquisition transactions.
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