Cayman Islands: Expansion Of The Cayman Islands Companies Law - Mergers And Consolidations

Last Updated: 30 April 2009
Article by Jennifer Thomson, James Gaudin, Antonia Hardy, Hugh O'Loughlin, Philip Paschalides, Robert Varley and John Rogers

Most Read Contributor in Cayman Islands, September 2018

Introduction

New provisions of the Cayman Islands Companies Law (2007 Revision) (the "Law") to regulate the merger and consolidation of companies have recently been approved by the legislature. It is anticipated that the Companies (Amendment) Law, 2009 (the "Amendment") will come into effect around the end of April 2009. The new provisions are a welcome enhancement to the Law.

Overview

The Amendment introduces a new Part XVA of the Law which allows for the merger and consolidation of companies.

A "merger" involves the merging of two or more constituent companies whereby one of such companies is the surviving company. A "consolidation" involves the combination of two or more constituent companies into a consolidated company. In each case, the property and liabilities of the constituent companies will be vested in the surviving or consolidated company.

The new merger and consolidation provisions will sit alongside the existing scheme of arrangement provisions in Sections 86 and 87 of the Law. The new provisions will offer a quicker, less onerous system of achieving a merger or consolidation than is possible by way of a scheme of arrangement. The scheme of arrangement mechanism which requires (amongst other things) court approval will remain relevant for more complicated combinations where the surviving company is to be a foreign corporation.

Who can merge/consolidate?

Any two or more Cayman Islands companies limited by shares (other than segregated portfolio companies) may merge or consolidate in accordance with the Amendment.

The Amendment also allows one or more Cayman Islands companies to merge or consolidate with one or more foreign companies (provided that the laws of the foreign jurisdiction permit such merger or consolidation), where the surviving or consolidated company will be a Cayman Islands company.

What is the procedure for a merger/consolidation?

Step 1: Approve the plan of merger or consolidation

The first step is for the directors of each constituent company to approve a written plan of merger or consolidation (a "Plan"). The Amendment specifies the required content of the Plan, which includes (i) the terms and conditions of the proposed merger or consolidation, including the rights and restrictions to be attached to the shares issued in the consolidated or surviving company, (ii) details of the memorandum and articles of association of the surviving or consolidated company, (iii) any amount or benefit paid or payable to the directors as a consequence of the merger or consolidation and (iv) the name and address of any secured creditor and the nature of the secured interest held.

Some or all of the shares in each company may be converted into different types of property (shares, debt obligations, other securities in the surviving company or consolidated company, money, other property or any combination thereof) as provided in the Plan.

Step 2: Obtain the required consents

The Plan must be authorized by each constituent company by a shareholder resolution by a majority in number representing 75% in value of the shareholders voting together as one class. If the shares to be issued to each shareholder in the consolidated or surviving company are to have the same rights and economic value as the shares held in the constituent company, the Plan must be authorized by each constituent company by a special resolution (usually, and in any event not less than, a two-thirds majority) of the shareholders voting together as one class. In each case, a shareholder has the right to vote regardless of whether the shares held by him otherwise confer voting rights.

Where a parent is merging with one or more of its Cayman Islands subsidiaries, shareholder consent is not required. A parent for these purposes is a company that owns at least 90% of the issued shares of each class in a subsidiary company that are entitled to vote.

The consent of each holder of a fixed or floating security interest in a constituent company must be obtained. If consent is not obtained with respect to a Cayman Islands company, the Court can waive the requirement for such consent upon such terms as the Court considers reasonable. Where the relevant company is a foreign company, consent or approval of the transfer of any security interest to the surviving or consolidated company must be obtained.

Any relevant consents from, or filings with, the Cayman Islands Monetary Authority must be obtained or made. This would apply to any funds registered under the Mutual Funds Law or any licensees under the Mutual Funds Law, the Banks and Trust Companies Law, the Insurance Law and/or the Securities Investment Business Law.

Step 3: Filing and Registration

Once the constituent companies have obtained the necessary authorizations and consents, the Plan must be signed by a director of each of the constituent companies and be filed with the Registrar of Companies (the "Registrar") together with various supporting documents in relation to each constituent company. These documents include a declaration by a director in relation to various matters concerning the applicable constituent company including a list of the constituent company's assets and liabilities (see further below) and an undertaking to provide a copy of the certificate of merger or consolidation to shareholders and creditors and publish a notice in the Gazette. Where any one or more of the constituent companies is a foreign company, certain additional declarations are required to be given by the director(s).

Upon receipt of the Plan, the supporting documents and the prescribed fee, the Registrar will register the Plan (including any amended and restated memorandum and articles of association) and issue a certificate of merger or consolidation.

The merger or consolidation may take effect on the date of registration of the Plan or, if a particular date is specified in the Plan, on the specified date (provided it is within 90 days of the filing).

The Registrar shall then strike off the register a constituent company that is not the surviving company in a merger, or any constituent company that participates in a consolidation.

What is the effect of a merger or consolidation?

Upon the merger or consolidation taking effect, all rights and property of each of the constituent companies immediately vest in the surviving or consolidated company and the surviving or consolidated company assumes all obligations of each of the constituent companies. The Amendment also provides for continuation of any existing claims, causes or proceedings.

What protections are there for creditors?

The director's declaration submitted to the Registrar must include (i) a declaration of solvency both of the constituent companies and of the consolidated or surviving company, with respect to the time immediately following the merger or consolidation and (ii) a declaration that the merger or consolidation is bona fide and not intended to defraud unsecured creditors.

The prior consent of secured creditors is required (subject to waiver by the Cayman Islands court with respect to Cayman Islands companies). Unless the relevant parties specifically agree otherwise, the surviving or consolidated company becomes liable under all mortgages, charges or security interests.

Are there any special provisions for dissenting shareholders?

The Amendment contains a mechanism whereby a shareholder of a constituent company which is a Cayman Islands company can seek payment of the fair value of his shares upon dissenting from a merger or consolidation. The shareholder must object in writing prior to the date upon which the shareholder vote to consider the merger or consolidation takes place. A procedure exists to seek a court ruling on fair value, failing agreement within a specified period. There are certain limitations on rights of dissenters – for example, the provisions generally will not apply to shares for which an open market exists on a recognized stock exchange or interdealer system.

Conclusion

The introduction of the new provisions comes at a time of unprecedented numbers of corporate reorganizations. The new regime offers a userfriendly mechanism for more straightforward mergers and consolidations, while at the same time offering a balance between commercial expediency and the interests of both creditors and shareholders. We anticipate significant interest from clients seeking to restructure their operations, whether as a consequence of the economic crisis or otherwise.

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”

Related Topics
 
Related Articles
 
Related Video
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