The Companies Law (Amendment) Law, 2011 (the "Amendment Law") was brought into force in the Cayman Islands on April 27th, 2011. The Amendment Law effects important changes to the Companies Law (the "Law") updating it to provide increased flexibility and clarity and also to codify some existing practices under common law. The changes to the Law are designed to enhance the attractiveness of the Cayman Islands to the international financial community and at the same time strengthen the existing environment of legal certainty and commercial focus that the Islands currently offer.
The principal areas of change under the amendment are set out below.
A new concept to the Cayman Islands, the introduction of the ability of companies to hold treasury shares increases flexibility with share capital, particularly for fund vehicles with regular subscriptions and redemptions.
SEGREGATED PORTFOLIO COMPANIES - ATTRIBUTION OF ASSETS / LIABILITIES
The Amendment Law has introduced a mechanism allowing for the board of an SPC to address the issue of erroneously attributing assets and liabilities to the wrong portfolio(s). The segregation process for attributing assets and liabilities of the portfolios of an SPC is the single most important part of operating these vehicles correctly and the remedial mechanism will give comfort to the directors, particularly in the more complex structures that they have a means by which they can efficiently rectify administrative errors. The former provisions of the Law attributing personal liability for such errors to the directors have been removed.
EXECUTION OF DEEDS ETC.
Ever an area of uncertainty, the Amendment Law addresses concerns which had arisen as a result of the common practice of exchanging signature pages only when closing complex transactions covering many different time zones. A decision of the English courts had thrown doubt over the legitimacy of this practice. The Amendment Law now specifically permits it for Cayman companies, streamlining the process of document execution and deal-closing in the Cayman Islands.
COMPANY MERGERS AND CONSOLIDATIONS
The shareholder approval requirements to a merger or consolidation of a Cayman company have been clarified and simplified and a special resolution (usually 2/3 of shareholders present and voting at a quorate meeting) will now be sufficient subject to any special provisions in the relevant articles of association (which may for example specify additional class consents to merger). A further material change is that the surviving company can now be an overseas company.
SHARE REDEMPTIONS, PURCHASES AND SURRENDERS
The Amendment law, for the first time, explicitly provides for fully paid shares to be capable of being surrendered to the issuing company for no consideration. This is anticipated to be of great help in group restructurings and clarifies an uncertain area of law. In addition, the Amendment Law sets out the effect of a redemption or purchase of shares on a company's balance sheet and confirms the authority of the board to determine the manner and terms of any redemption or purchase of shares when appropriately authorised.
A welcome change introduced by the Amendment Law allows for a company to maintain one or more "branch" registers of shares. The branch registers can relate to one or more of the existing classes of shares in issue and will allow great flexibility to the company's service providers particularly in some jurisdictions where shareholders have expressed the need to have a duplicate register available locally.
TRANSFER OF SHARES
In a codification of existing practice the Amendment Law now expressly permits paperless share transfers, an essential part of the trading of Cayman company shares in jurisdictions which require electronic settlement. Further, shares of Cayman companies which are listed may now be recorded in a separate register and the process of transferring and recording title to such listed shares can be as provided in the rules of the relevant exchange.
Dual names are now permitted and the second name can be in a script other than the Roman alphabet. This will allow non-literal translations to be used for company names in different scripts, allowing more flexibility in naming conventions. It is likely to mean that company numbers become more important when identifying companies.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.