Cayman Islands: Schemes Of Arrangement And Takeover Offers: A Comparison

Last Updated: 18 February 2009


The purpose of this note is to compare, in broad terms, the two methods by which a third party might effect the acquisition of a Cayman Islands incorporated company (the "Target"). The two methods are:

  1. a Cayman Islands scheme of arrangement pursuant to Section 86 of the Companies Law (as amended) of the Cayman Islands (the "Law"); or

  2. a takeover offer utilising the provisions contained in Section 88 of the Law to obtain 100 percent of the Target.

Both of these methods could be used for a cash offer and, if relevant, a securities exchange offer (or a combination of both).

Scheme of arrangement

A scheme of arrangement is a court-supervised procedure which would result in the acquisition of either all or none of the outstanding shares of the class to which it relates. A scheme would require:

  1. the approval of a majority in number representing three fourths in value of the members of each class who attend and vote in person or by proxy at meetings of the holders of each class; and

  2. the sanction of the Grand Court of the Cayman Islands.

The scheme would not become effective until it had been registered with the Cayman Islands Registrar of Companies.

Takeover offer

A takeover offer is an offer for the entire issued share capital of the Target which could become effective without the offeror acquiring 100 percent of such issued share capital. However, the Law would permit the offeror to acquire 100 percent of the Target if the offer is approved by holders of not less than 90 per cent in value of the shares affected.

If the Target is listed, the takeover offer may be subject to the tender offer rules of the relevant exchange and the rules and regulations thereunder.


In the table attached to this note we have set out a technical comparison of the two routes, with a view to highlighting the differences between them. The principal matters for the offeror to bear in mind in deciding whether a scheme of arrangement or takeover is more appropriate are set out below.


A takeover offer would generally be expected to provide the offeror with control of the Target (ie a minimum holding of 50.1 percent) more quickly than a scheme owing to the necessity to follow court timetables with the latter. However, acquiring outstanding minorities would extend the timetable of the tender offer.


The offeror does not need to achieve any particular level of acceptances before closing the offer (compared to the approvals required for a scheme). Although it would be usual for any offeror to stipulate a certain level of acceptances that will be required this does not need to be the 90 percent threshold required to "squeeze out" minorities under the relevant legislation. The Target will want the offeror to agree that it will close the offer with a lower threshold having been reached thereby increasing the risk of resulting minorities.

The terms of the offer can be more readily revised if, for example, a competing offer arises or new information comes to light. In a scheme context, an entirely new scheme could well be required in either of these circumstances. However, depending on the market factors and the terms of any irrevocable undertakings, the risk of a competing offer may not be high.


In a scheme the offeror obtains 100 percent of the issued share capital on the scheme becoming effective. Whilst in practice it is rare for offerors, particularly on a cash offer, to fail to achieve the 90 percent threshold needed to acquire the minority shareholdings, under the relevant "squeeze out" provisions there is a greater theoretical possibility of minorities existing at the end of the offer. Such minorities would restrict the offeror's ability to deal freely with the Target post acquisition. As stated above, the Target would expect this to be the offeror's risk, that is, that the offer is not conditional upon a high (90 percent) threshold of acceptances being received.


In an offer, shares which are the subject of an irrevocable undertaking to accept the offer will normally count towards the 90 percent threshold needed to squeeze out minorities. In a scheme, irrevocables are more frequently used and will also be counted towards the statutory majority. We have received senior counsel's opinion that irrevocables would not of themselves give rise to a class issue. However, in both a takeover and a scheme the terms of the irrevocable would require particular attention and may require a "fiduciary out", in the event of a competitive counter offer arising.


In conclusion, provided that the Target can persuade an offeror to take the risk of not achieving the 90 percent threshold to squeeze out minorities, the flexibility afforded by a takeover offer may be more attractive to the Target and possibly the offeror. However, under a scheme offer there is greater certainty as the minority shareholders will be locked in at a lower level of acceptances than is required under the takeover offer squeeze out provisions. Irrevocables can also be obtained without giving rise to "class" issues and ultimately it may be easier to structure within any tender offer rules. There may also be tax advantages if the scheme also provides for any merger of the business of the Target into a transferee company by operation of law.

The note is not intended to provide a comprehensive guide to Cayman Islands (or other foreign law) to the extent that they are relevant to the matters discussed, but merely to provide a broad overview of such matters.







Offer can become unconditional with acceptances from 50.1 percent of ordinary shareholders.

A squeeze out of the minority requires the approval of holders of 90 percent of the shares to which the offer relates excluding shares held or contracted to be acquired prior to the date of the offer (ie posting of the offer document).

Requires the approval of a majority in number representing three-fourths in value of those members of a class who attend and vote either in person or by proxy at a meeting of the holders of the shares to be acquired to enable the whole of the class to be acquired compulsorily.

Requires the sanction of the Grand Court of the Cayman Islands.

Becomes effective upon registration with the Cayman Islands Registrar of Companies.



There is no maximum period for completion of the offer although the 90 percent level required to effect a "squeeze out" must be reached within four months of the posting of the offer document.

Minority shareholders can be squeezed out a month after the expiration of four months from the meeting of the offeror on achieving the 90 percent level. The month period is a statutory requirement but subject to objectors (see 10 below). It is automatic that the squeeze out take place at the end of that period.

Precise timetable will need to be agreed with the Grand Court of the Cayman Islands.

In practice, likely to take approximately two to three months from date of posting of scheme document to sanction by the Grand Court. Account would need to be taken of any applicable Court vacations.



Amendments to consideration offered are easily accommodated; revised offer document posted and acceptances of the original offer are deemed to be acceptances of the revised offer.

Any significant changes to the material terms of the scheme prior to shareholder approval are likely to require an amended scheme which may need further court direction in respect of the modification.



Any materially new information will need to be made available to Target shareholders in order to avoid liability.

May result in adjournment of the shareholder meeting or the Court not sanctioning the scheme without a further shareholder vote if after the shareholder meeting.



Separate proposals would need to be made to holders of options.

Early exercise rights may be triggered under any Target option schemes.

Separate proposals would need to be made to holders of options.

Early exercise rights may be triggered under any Target option schemes.



Possibility of being left with minority of holders of ordinary shares if offer closed with less than 90 percent. Consequences of this are:

Depending on the number of minority shareholders Target may need to retain listing on Nasdaq and would therefore continue to be subject to SEC reporting requirements.

Corporate governance may require that nonexecutive directors are retained on the board of Target.

Would restrict freedom to reorganise the Target group post acquisition.

No minorities provided that scheme is proposed and passed in respect of all classes of Target shares (and conditional on each other).



Cayman Islands position No corporate or personal tax consequences.

No corporate or personal tax consequences.



Irrevocable undertakings may be taken and shares covered by them should count towards the 90 percent compulsory acquisition level (provided that irrevocables are given for no consideration and under seal or for no consideration other than a promise by the offeror to make the offer).

There is no objection to a statement with regard to voting intentions at the meeting. The giving of irrevocable undertakings would not, of itself, give rise to those shareholders being treated as a separate class.



Offeror may be able to purchase shares outside the offer but these will not count towards the 90 percent compulsory cooperation level.

It may be possible for the offeror to purchase shares during course of scheme. However, the offeror would not be able to vote the shares acquired.



Objectors to squeeze out procedure can apply to the court for various orders to the effect that the offeror shall not be entitled to acquire their shares or to specify different terms for their acquisition.

Where documentation has been properly prepared and the 90 percent threshold has been met an objector would need to show very strong grounds why compulsory acquisition was unfair.

Objectors can be heard at the court hearing to sanction the scheme. The court has to decide whether the scheme is such that "an intelligent and honest man, a member of the class concerned, acting in respect of his interest might reasonably approve".

Provided that the Scheme document is fair and provides such information as is reasonably required for shareholders to decide how to vote the Court should sanction the scheme.



Offer to Purchase sent to shareholders.

If Target is listed, tender offer documents to be filed with relevant exchange.

Scheme document and Explanatory Statement.

Cayman Islands
Guy Locke, Partner

British Virgin Islands
Sandie Corbett, Partner

Hong Kong
Hugh O'Loughlin, Partner

John Rogers, Partner

David Whittome, Partner

David Steenson, 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 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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (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

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’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.


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.


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 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.


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.


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.


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.


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

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

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

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