The Cayman Islands legislature introduced the statutory
merger and consolidation regime which is now found in Part XVI of
the Companies Law (2013 Revision) in May 2009. Since then, the
regime has been widely used to effect mergers and consolidations,
but until very recently the disputes which had arisen between
shareholders dissenting from the merger or consolidation and the
companies involved as to the fair value of the dissenters'
shares had all been settled out of Court.
The reluctance to proceed to trial was perhaps, in part, due to
uncertainty as to how the Cayman Court would approach the task of
determining the fair value of the dissenters' shares, if it was
called upon to do so. Much of this uncertainty has been removed by
the recent judgment of the Cayman Islands Grand Court in In the
matter of Integra Group (Jones J, 28 August 2015). The Court
in Integra accepted, quoting from an article entitled
Dissenting Shareholders' Appraisal Rights in Cayman Islands
Mergers and Consolidations which the authors published in
The M&A Lawyer (Oct. 2014, Vol. 18, Issue 9),
"Fair value is the value to the shareholder of his
proportionate share of the business as a going concern, save where
it is worth less on a net assets (i.e. liquidated) basis as at the
merger date: ex hypothesi the shareholder has bought into the
company as a going concern, not in anticipation of participating in
a liquidation, and it follows that, when he elects to dissent from
a merger or consolidation brought about at the behest of the
majority, he is thereafter deprived of his proportionate share of
an active enterprise and is entitled to be compensated for it. In
determining the measure of such compensation, the Court should be
guided by the following considerations:
1.1 Fair value does not include any premium for forcible
taking (i.e. expropriation of the shares).
1.2 It is neither appropriate nor permissible to apply a
minority discount when making the determination".
The Court further accepted that the concept of fair value
excludes any enhancement or diminution in the value of the shares
which is attributable to or results from the merger, holding in
particular that any cost saving which resulted from the delisting
of shares in the company, and any dilution of the dissenters'
shareholdings which occurred as a result of the merger, could not
be taken into account in arriving at fair value.
The acceptance of these key principles by the Cayman Court in
Integra is a welcome development for Cayman Islands law in
this area. The ruling serves to narrow the valuation issues which
can reasonably be in dispute between the parties and ensures that
the expert valuation evidence is prepared with a certain definition
of fair value in mind. The parties to future fair value disputes
will doubtless approach their negotiations and the proceedings
themselves with greater clarity and confidence in light of this
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.
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