Cayman Islands: Guide To Cayman Islands Mergers And Consolidations

Last Updated: 1 December 2016
Article by Harneys  

The Cayman Islands' statutory merger regime is set out in the Companies Law (the Companies Law) and the Limited Liability Companies Law (the LLC Law) which provide a process for 'merger' or 'consolidation' of companies. A 'merger' is where the assets, rights, obligations and liabilities of two or more companies are assumed by one of those entities and 'consolidation' is where the assets, rights, obligations and liabilities of two or more companies are assumed by a new Cayman Islands company, in each case without requiring court approval.

In this guide 'Merger' includes merger and consolidation, a 'Constituent Company' is a company (including a limited liability company established under the LLC Law (an LLC)) participating in a Merger and a 'Successor Company' is the new or existing company (including an LLC) acquiring the businesses of the Constituent Companies.

Who can be party to a Merger?

  1. Any Cayman Islands company limited by shares and incorporated under the Companies Law, other than a segregated portfolio company.
  2. Any Cayman Islands LLC.
  3. Any 'overseas company' (being a company, body corporate or corporate entity existing under the laws of a jurisdiction other than the Cayman Islands) for a Merger with an exempted company.
  4. Any 'foreign entity' (being a company or a body corporate or corporation of any kind with legal personality, including certain trusts and any unincorporated business (including a partnership) existing under the laws of a jurisdiction other than the Cayman Islands) for a Merger with an LLC.

Material conditions to Merger

Good Standing and Solvency - each Constituent Company must be in good standing and solvent – Cayman Islands law applies a cashflow test of ability to pay debts as they fall due to determine solvency.

Written Plan - the directors (or manager of an LLC) of each Constituent Company must prepare and approve a written Merger plan (Merger Plan).

Member Consent - a member consent is generally required from the members of each Constituent Company (see below for details).

Regulatory Conditions - any proposed Merger which involves a regulated entity such as a fund, bank or insurance company must obtain prior consent from the Cayman Islands Monetary Authority for the Merger.

Foreign Law Conditions - for any Merger of an exempted company with an overseas company, or Merger of an LLC with a foreign entity, the overseas company/foreign entity must be permitted to merge by applicable foreign laws and its constitutional documents.

Secured Creditors - the consent of secured creditors of the Constituent Companies is required unless a Cayman Islands court waives such requirements.

Fee - payable to the Cayman Islands registrar of companies (the Registrar) as prescribed by the Companies Law or LLC Law from time to time1.

Overseas Merger

For a Merger of a Cayman Islands exempted company with an overseas company, or a Cayman Islands LLC with a foreign entity that has separate legal personality, the Registrar must be satisfied of the validity of the Merger and the good standing and solvency of the overseas/foreign Constituent Company. This can be satisfied by filing with the Registrar a director's declaration (or manager's declaration for an LLC) that having made due enquiry the required particulars have been met. In turn, this can be satisfied by obtaining an equivalent declaration from a director/manager of the overseas/foreign Constituent Company.

The Successor Company may be either a Cayman Islands or an overseas/foreign Constituent Company. If the Successor Company is Cayman, the Registrar will issue a certificate of merger or consolidation in respect of the Successor Company and if the Successor Company is an overseas or foreign entity, the Registrar will issue a certificate of striking off of all Cayman Islands Constituent Companies.

Our lawyers also have experience of Mergers between Cayman Islands exempted companies and Delaware limited partnerships which have been approved by the Registrar on the basis that a Delaware limited partnership has separate legal personality. Although some practitioners disagree with this approach, merging a Cayman Islands exempted company with a foreign limited partnership which has separate legal personality does appear to be possible. The LLC Law also allows a Cayman Islands LLC to merge with a foreign partnership which has separate legal personality.

Merger between exempted companies and LLCs

The LLC Law confirms that an LLC may merge or consolidate with a Cayman Islands exempted company as long as the LLC complies with the merger provisions of the LLC Law, the exempted company complies with the merger provisions of the Companies Law and the exempted company is not a segregated portfolio company.

Shareholder/member consent

The following consents are generally required, except in the case of a Merger between a parent and its subsidiary:

  1. a special resolution of the shareholders of each Constituent Company (other than LLCs). A special resolution is passed by either (a) a unanimous written resolution signed by all shareholders who are entitled to vote (provided permitted by the articles of association); or (b) by two thirds of voting shareholders voting at a duly convened and quorate shareholder meeting, unless a higher threshold is set out in the articles of association either generally for all special resolutions or specifically in respect of statutory mergers;
  2. for a Constituent Company which is an LLC, the approval of a two thirds majority (or such higher or lower threshold as may be set out in the LLC agreement) of the members of the LLC; and
  3. such other authorisation, if any, as may be specified in each Constituent Company's constitution.

Parent/subsidiary Merger

The Companies Law provides that shareholder consent is not required for any Merger of a parent with its Cayman Islands subsidiary company, if a copy of the Merger Plan is given to every shareholder of the subsidiary, unless the shareholder agrees otherwise. The LLC Law includes an equivalent provision for Mergers of a parent LLC with its Cayman Islands subsidiary LLC. 'Subsidiary' is defined as a company (or LLC) 90% or more of whose issued voting shares (or voting equity interests for LLCs) are held by the parent. The reference to voting shares only in the definition is not ideal as the voting and economic ownership of Cayman Islands companies is often split for tax, regulatory or ease of administration reasons. Cayman Islands hedge funds, for example, often have one class of voting management shares with no material economic rights and one or more classes of non-voting participating shares held by investors.

Dissenting members

Rights of dissenting members

The Companies Law provides that, subject to limited exceptions discussed below, a member of a Cayman Islands Constituent Company is entitled to be paid the fair value of its shares/LLC interests (equity interests) on dissenting to a Merger. The LLC Law contains equivalent provisions for dissenting LLC members and provides that a dissenting member is entitled to such payment as is provided in the LLC agreement and, if no such payment is included, then they are entitled to be paid the fair value of their LLC interest. A member who intends to exercise its entitlement to dissent must provide a written objection to the Constituent Company before the members vote on the transaction.

If member approval is obtained, the Constituent Company must provide all dissenting members with a notice of authorisation within 20 days of the approval. Within 20 days following the date of the authorisation notice, a dissenting member must provide the Constituent Company with a formal written statement of its decision to dissent, including its name and address, the number and classes of equity interests owned, and a demand for payment of the fair value of their equity interests.

A Constituent Company that has received any notice of dissent must make a written offer to each dissenting member to purchase its equity interests at a price that the company determines to be the fair value. If agreed by the member, monies must be paid to the dissenting member within 30 days of the offer being made. If no price is agreed, the Constituent Company must (and any dissenting member may) file a petition with the Cayman Islands court for a determination of the fair value of the equity interests of all dissenting members and any dissenting member is permitted to be involved in the proceedings.

Recent case law on Mergers of exempted companies has held that 'fair value' means the shareholder's proportionate share of the business as a going concern without any minority discount or premium for forcible taking of their shares. Fair value can be proved by any methods which are generally acceptable in the financial community and which are otherwise admissible in court. Assessing fair value is a fact-based exercise and the date for determining fair value is the date of the shareholder meeting seeking shareholder consent to the Merger, as this is the date on which the offer could be accepted. The court may also make a costs order in favour of dissenting shareholders who have proved that the Constituent Company's fair value was higher than that offered in the Merger process. The LLC Law sets out that 'fair value' for LLC interests is based on a good faith determination of the dissenting member's right to share in distributions from the constituent LLC.

Limitation on dissenter rights

Dissenter rights are not available if a member receives any or all of the following, in exchange for its equity interests:

  1. equity interests of the Successor Company, or depository receipts in respect of such equity interests; and/or
  2. equity interests any other entity, or depository receipts in respect of them, that are either listed or held of record by more than two thousand holders at the effective date of the Merger; and/or
  3. cash in lieu of fractional equity interests or fractional depository receipts received under 1 or 2 above.

Only the registered shareholder of an exempted company, ie the person who holds legal title to the shares, (including a single custodian or nominee holding for a number of beneficial owners) can exercise the right to dissent and that shareholder can only do so in respect of all and not some only of the shares legally held irrespective of underlying beneficial ownership. Only a registered LLC member can exercise the right to dissent to a Merger of an LLC, although they may do so in respect of all or any portion of the LLC interests that they hold in the constituent LLC.

Effect of Merger

Upon a Merger becoming effective:

  1. the amended or new constitution of the Successor Company become effective;
  2. by operation of law, all property of the Constituent Companies vests in the Successor Company and the Successor Company assumes all liabilities of the Constituent Companies. Any claims against a Constituent Company are considered as continued against the Successor Company and any judgments against it bind the Successor Company, and
  3. the Registrar will strike off all Cayman Islands Constituent Companies other than the Successor Company.

Timing

Timing will depend on a number of factors including any relevant foreign law requirements, any required regulatory consents and/or the requirements of any relevant listing authority listing the equity interests of a Constituent Company, the specific provisions of the constitutional documents of Constituent Companies and any requirements to obtain secured creditor consents. All things being equal, the time it takes to effect a Merger is typically less than that for a court sanctioned scheme of arrangement under the Companies Law.

Practical considerations

Even though shareholder class consents are not expressly required by the Companies Law, in preparing any Merger Plan the directors of each Constituent Company should take into account their overriding common law in relation to the respective interests of all classes of shareholders. It is therefore recommended that shareholder class consents are always obtained approving the terms of any Merger Plan before adoption. It is also recommended that LLC member class consents are obtained approving the terms of any Merger Plan involving an LLC. When acting for minority shareholders or LLC members, it is also recommended that an express right to approve or veto any proposed Merger Plan before the plan is executed or filed on behalf of the company by the directors is included in shareholder class rights in the articles of association of a Constituent Company (or in LLC member interest provisions in the LLC agreement where a Constituent Company is an LLC).

For more information please visit www.harneys.com/corporate.

Footnote

1 The current filing fee for a Merger Plan is US$731 and in addition, where the Successor Company is an overseas entity/foreign entity, all Constituent Companies which are being struck off in the Cayman Islands need to pay a fee of three times the annual company maintenance fee that would have been payable in the January prior to the filing of the Merger Plan. 

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Maples and Calder
Solomon Harris
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Maples and Calder
Solomon Harris
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions