Cayman Islands: The Structure Of M&A Deals In The Cayman Islands

INTRODUCTION

This guide deals in general terms with certain aspects of Cayman Islands law governing the takeover (or privatisation) of public companies.

The Cayman Islands also has a stock exchange (the "CSX") and a Code on Takeovers and Mergers and Rules Governing Substantial Acquisitions of Shares which applies to all companies listed on the CSX apart from open-ended mutual funds. When a company listed on the CSX is also subject to primary regulations governing takeovers and mergers by a recognised stock exchange (as defined in the CSX listing rules) or other applicable law, then those primary regulations will generally govern the conduct of the takeover. Early consultation with the Council of the CSX is strongly recommended when transactions are subject to the dual jurisdiction of the CSX and an overseas regulator. The Cayman Islands Takeovers Code does not contain any compulsory acquisition or squeeze-out provisions.

REGULATIONS GOVERNING TAKEOVERS

  • The Companies Law (2016 Revision) and other applicable legislation.
  • Cayman Islands Code on Takeovers and Mergers and Rules Governing Substantial Acquisitions of Shares.
  • Domestic Takeover Codes and Listing Rules when the shares of the target are listed or traded. These often impose additional thresholds which must be met before any compulsory acquisition can be effected.
  • The memorandum and articles of association of the target and any shareholder rights plan or other material contracts.
  • Domestic rules on disclosure and transparency, insider dealing, market manipulation and financial promotion.

GENERAL OFFERS

Procedure and Acceptances

A general offer for all the shares of the target or all the shares of a particular class must be made and accepted by the holders of at least 90% of such shares to enable the offeror to acquire the remaining shares compulsorily. Cayman law allows a maximum four-month offer period within which this level of acceptance must be reached.

Compulsory Acquisition Notice and Timetable

A compulsory acquisition notice seeking to acquire the remaining shares may not be served before the expiration of four months from the date the offer was made and must be served within a two-month window commencing on the expiration of this four month period. This means it will usually take a minimum of five months from the date of posting the offer document to complete the acquisition of 100% of the target (assuming no action is taken by any dissentient shareholders).

When a compulsory acquisition notice is given, the bidder is entitled and bound to acquire the shares of the remaining shareholders on the same terms as the general offer, unless an application is made by dissentient shareholders to the Grand Court and the Grand Court thinks fit to order otherwise.

Dissentient Shareholders

An application may be made by any dissentient shareholders within one month of the date on which the compulsory acquisition notice was given to prevent the compulsory acquisition, usually on technical grounds. Dissentient shareholders do not have express appraisal rights whereby they could apply to the Grand Court to have the fair value of their shares appraised or assessed by the Grand Court, although the Grand Court has a broad discretion to make whatever orders it considers appropriate.

Within one month of the compulsory acquisition notice the bidder must send a copy of the compulsory acquisition notice to the target and pay the consideration to the target. If an application has been made to the Grand Court then this must be done within one month of that application being determined. The target is then required to register the bidder as the holder of the shares and to hold the consideration on trust for the dissentient shareholders.

SCHEMES OF ARRANGEMENT

Procedure

A takeover by way of scheme of arrangement involves the target proposing a scheme to its shareholders to cancel their shares (a cancellation scheme) or to transfer their shares to the bidder (a transfer scheme) in return for cash or securities of the bidder. A cancellation scheme usually avoids stamp duty or documentary tax which would otherwise be payable on a transfer scheme (and on a general offer).

The board of the target will be in control of the scheme and be responsible for drafting the composite scheme document, making the applications to the Grand Court, mailing the composite scheme document to shareholders, holding the relevant meetings and making the necessary filings. The bidder will undertake to abide by the scheme and pay the scheme consideration.

Indicative Timetable

An indicative timetable setting out the major steps is set out below:

Day 1: File draft petition/summons for directions
Day 21: Directions hearing (depends on court availability)
Day 25: Despatch composite scheme document
Day 55: Court Meeting to approve the scheme and EGM to approve the reduction in capital (cancellation scheme)
Day 56: File chairman's report of the Court Meeting
Day 66: Petition hearing to sanction the scheme and capital reduction
Day 69: Effective Date - file court order with Registrar of Companies

Scheme Document

The composite scheme document will include the expected timetable, a letter from the board of the target, a letter from the independent directors or board committee, a letter from the independent financial advisers, an explanatory statement, financial and general information, the scheme of arrangement document itself and notice of the relevant meeting(s).

Approvals

A scheme of arrangement requires approval from the Grand Court as well as the approval of the directors (in practise).

All schemes must also be approved by a majority in number (head count) representing three-fourths in nominal value (share count) of the scheme shareholders voting at the requisite meeting which will have been convened pursuant to an order of the Grand Court.

The voting requirements of any applicable Takeovers Code must also be met.

In addition, the shareholders present and voting at the court meeting must represent a fair cross-section of the shareholders as a whole and every effort should be made to secure a good attendance by shareholders.

The statutory thresholds apply to each class of share. A class will be created if shareholders have rights against the target company which are so dissimilar as to make it impossible for them to consult together with a view to their common interest. The makeup of any classes will normally be settled at the directions hearing but this determination is not necessarily binding at the subsequent petition hearing.

The statutory majority of shareholders must also act bona fide with no coercion of minority shareholders and the scheme must be one that an intelligent and honest man acting in respect of his interests in the class might reasonably approve.

Unlike a general offer these thresholds cannot be reduced or waived; if they are not met, the scheme will fail.

Effective Date

The scheme will be effective when a copy of the court order is delivered to the Registrar of Companies for registration.

Amalgamations by Way of Scheme of Arrangement

Amalgamations may also be effected through a "special" scheme of arrangement. The scheme of arrangement must have been proposed for the purpose of or in connection with: (i) the "reconstruction" or "amalgamation" of the bidder and the target; and (ii) the transfer of the whole or any part of the undertaking of any company concerned in the scheme of arrangement.

MERGERS AND CONSOLIDATIONS

Merger

Merger means the merging of two or more constituent companies into a sole remaining constituent company (the "surviving company") and the vesting of the assets and liabilities of the constituent companies in the surviving company.

Consolidation

Consolidation means the combination of two or more constituent companies into a new consolidated company and the vesting of the assets and liabilities of the constituent companies in the consolidated company.

The cessation of a constituent company which participates in a consolidation or which is not the surviving company in a merger does not require a winding-up.

Procedure

The directors of each constituent company must approve a written plan of merger or consolidation (the "Plan"). The Plan must contain certain prescribed information including the basis of either converting the shares in each constituent company into shares of the consolidated company or surviving company and the rights attached to the shares or cancelling those shares in exchange for the applicable consideration, any proposed amendments to the memorandum and articles of the surviving company in a merger, or the proposed new memorandum and articles of the consolidated company in a consolidation, details of all secured creditors and the effective date of the merger/consolidation.

Approvals

The Plan must be approved by a special resolution of the shareholders of each constituent company. Any other authorisation required by a constituent company's articles of association must also be obtained.

Shareholders do not need to approve a merger between a Cayman parent company and a Cayman subsidiary. For this purpose, a subsidiary is a company of which at least 90% of the issued shares entitled to vote are owned by the parent company.

The consent of each holder of a fixed or floating security interest over a constituent company is required unless this requirement is waived by the Grand Court.

Other consents (and filings) may be required, for example, under the Banks and Trust Companies Law, Securities Investment Business Law, Mutual Funds Law or Insurance Law.

Filings

The Plan must be filed with the Registrar of Companies, together with supporting documents including:

  1. a declaration:

    1. of solvency (debts as they fall due);
    2. that the merger or consolidation is bona fide and not intended to defraud unsecured creditors of the constituent companies;
    3. of the assets and liabilities of each constituent company;
    4. that no proceedings are outstanding and that no order has been made or resolution passed to wind up a constituent company or to appoint a receiver, trustee or administrator in any jurisdiction;
    5. that no scheme, order, compromise or arrangement has been made in any jurisdiction whereby the rights of creditors have been suspended or restricted.
  2. an undertaking that a copy of the certificate of merger or consolidation will be given to members and creditors of a constituent company and published in the Cayman Islands Gazette.

Dissentient Shareholders and Appraisal Process

A dissentient shareholder of a Cayman constituent company is entitled to payment of the fair value of his shares as assessed by the Grand Court upon dissenting to a merger or consolidation unless: (i) an open market exists for the shares on a recognised stock exchange or interdealer quotation system at the end of the dissent period (see below); and (ii) the merger or consolidation consideration consists of shares or depository receipts of the surviving or consolidated company, or shares or depository receipts of any other company which are listed on a national securities exchange or designated as a national market system security on a recognised interdealer quotation system or held of record by more than 2,000 holders on the effective date of the merger or consolidation. The exercise of appraisal rights will preclude the exercise of any other rights save for the right to seek relief on the grounds that the merger or consolidation is void or unlawful.

THE FOLLOWING PROCEDURE WILL APPLY:

  1. The dissentient shareholder must give written notice of objection (notice of objection) to the constituent company before the vote to approve the merger or consolidation.
  2. Within 20 days of the vote approving the merger or consolidation, the constituent company must give written notice of the approval (approval notice) to all dissentient shareholders who served a notice of objection.
  3. Within 20 days (dissent period) of the approval notice a dissentient shareholder must give a written notice of dissent to the constituent company demanding payment of the fair value of his shares.
  4. Within seven days of the expiry of the dissent period or within seven days of the date on which the plan of merger or consolidation is filed with the Registrar of Companies (whichever is later), the constituent company, surviving company or consolidated company must make a written offer (fair value offer) to each dissentient shareholder to purchase their shares at a price determined by the company to be their fair value.
  5. If the company and the dissentient shareholders fail to agree the price within 30 days of the fair value offer (negotiation period), then within 20 days of the expiry of the negotiation period the company must apply to the Grand Court to determine the fair value of the shares held by all dissentient shareholders who have served a notice of dissent and who have not agreed the fair value with the company.

The exercise of appraisal rights has been an increasing trend following the Integra Group case in 2015 and a number of other cases are in process.

Effective Date

The effective date of a merger or consolidation is the date the Plan is registered by the Registrar of Companies, although the Plan will usually specify the effective date and may provide for an effective date not exceeding 90 days after the date of registration.

Effect Of A Merger Or Consolidation

All rights, benefits, immunities, privileges and property (including business and goodwill) of each of the constituent companies will vest in the surviving or consolidated company which will be liable for all debts, contracts, obligations, mortgages, charges, security interests and liabilities of each constituent company. Existing claims, proceedings, judgments, orders or rulings applicable to each constituent company will automatically apply to the surviving company or the consolidated company.

Certificate of Merger or Consolidation

A certificate of merger or consolidation is issued by the Registrar of Companies which is prima facie evidence of compliance with all statutory requirements in respect of the merger or consolidation

This article was originally published in American Lawyer's Global Mergers & Acquisitions Guide 2017, January 2017

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
 
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”

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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.