Cayman Islands: Schemes Of Arrangements: Legal Requirements

Last Updated: 23 April 2009
Most Read Contributor in Cayman Islands, September 2018


Under the provisions of Sections 86 and 87 of the Companies Law (2007 Revision) (the "Law"), a Court can sanction a compromise or arrangement between a company and its creditors, or any class of its creditors, or its members or any class of them, or any combination or permutation of the creditors and members. The proposals are set out in a formal Scheme document to be approved by a majority in number representing three-fourths in value (a dual majority) of each class meeting (as set out below). Once the requisite sanction of the classes of members and creditors has been obtained and the Court has approved the Scheme, it will bind all dissentients.

A Scheme of Arrangement will not be sanctioned by the Court if it is beyond the powers of the company as stated in the memorandum and articles of association.

Section 87 of the Law specifically provides for the Court to order the transfer of any undertaking or property from one company to another when sanctioning a reconstruction or amalgamation between two or more companies.

Further, Section 87 of the Law expressly provides for the transfer of the undertaking or property of the Cayman Islands Company to a body corporate established in the islands or in any other jurisdiction.


The Scheme proposals

Whilst in Cayman there are no express legal requirements in the Law, the accepted practice is to send out with the Scheme document an explanatory memorandum detailing the proposals of the Scheme to be considered by the company's members and creditors. The Scheme document should set out in detail the mechanics of the Scheme; the circular should describe the effect the Scheme will have on the existing rights of members and/or creditors in clear and unambiguous terms. If the circular is inadequate or misleading the proposed Scheme risks being rejected by the Court. The draft explanatory memorandum or proxy statement which provides the shareholders or creditors with all the information reasonably necessary to enable them to make an informed decision about the merits of the proposed Scheme must form part of the evidence presented to the Court in support of the proposed Scheme.

Classes of members and creditors

One of the procedural requirements is that meetings of the various classes of creditors and members be summoned by the Court and, in this regard, it is only necessary to call meetings of those classes whose existing rights will be directly affected by the Scheme. It is the applicant's responsibility to identify the different classes in accordance with what the Scheme is trying to achieve and put these to the Court at the first hearing for approval. 1A failure to identify all those affected could result in the Court refusing its sanction.

The test as to whether certain entities form a single class or different classes was set out by Bowen LJ in Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 where he said:

"It seems plain that we must give such a meaning to the term 'class' as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest."

The classes proposed by the applicant will be fixed by the Judge at the directions application. Accordingly, prior to the issuing of the summons they must be sufficiently identified by the applicant; the risk being that if in the end they reveal inadequacies, the Scheme will not be approved by the Court. It is crucial that every class of members and creditors be sufficiently identified.

Summons for directions

The company, as applicant, presents a Petition commencing the Court process and then makes an ex parte application to the Court for directions for the calling of the various meetings of the classes of members and creditors. In this application the Court orders the meetings to be held and gives directions about the length of notice, the method of giving it and the forms of proxy. The Court may also order that notice of the meetings be advertised if appropriate. From drafting the Scheme document to this stage takes approximately 4 to 6 weeks.

Meetings of various classes

In accordance with the Court's directions, the meetings of the various classes of members and creditors will be convened to consider the proposals set out in the Scheme document and circular. The meetings are usually called with the same notice period set for EGM's of the company in the articles. A majority in number representing three-fourths in value in favour of the proposals in each class meeting is required to approve the Scheme.

If a class is represented by a small number of individuals and if they all approve of the Scheme in writing their class meeting can be dispensed with.

The petition

After the voting at the various class meetings has been completed and assuming that at each class meeting a majority in number representing three-fourths in value were in favour of the proposals, the Petition comes on for hearing. Notwithstanding the fact that the requisite majority in each class meeting voted in favour of the Scheme of Arrangement, the Court still retains a discretion whether or not to approve it. Before a Court sanctions a Scheme it will normally need to be satisfied on four matters:

  1. that the classes have been properly constituted;

  2. that the meetings were convened and held in accordance with the directions given by the Court;

  3. that the Scheme has been properly explained to shareholders or creditors so that they have been able to exercise an informed vote in respect of the Scheme;

  4. that the scheme is one which an intelligent and honest man, who is a member of the relevant class and properly acting might reasonably approve.

The Courts also have the power to impose conditions on its sanction of a Scheme.

It is necessary for a director of the company to swear an affidavit in support of the Petition explaining the background to the proposals and reasons why the Scheme of Arrangement is necessary.

Effect of Court sanction

Once the sanction of the Court has been given to the Scheme it is binding on all the creditors or the classes of creditors or on the members or classes of members who are parties, and on the company. The Scheme cannot afterwards be altered even if shareholders and creditors acquiesce in the alterations. A Scheme of Arrangement will be effective once a copy of the Court order has been lodged with the Registrar of Companies. From that moment on the Scheme has quasi-statutory effect. A copy of the Court order approving the Scheme of Arrangement must thereafter be annexed to every copy of the company's Memorandum and Articles of Association.


1.Order 102, rule 21(3)(b)

Cayman Islands

Guy Locke, Partner


David Whittome, Partner


David Steenson, Partner

British Virgin Islands

Jack Husbands, Partner

Hong Kong

Hugh O'Loughlin, Partner


Rod Palmer, Partner

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

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

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
Related Articles
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
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 (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

To Use 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.


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.


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