Nick Evans and Suzanne Correy provide an analysis of the laws and regulations on mergers and acquisitions in the Cayman Islands. Their contribution formed part of the International Comparative Legal Guide to: Mergers & Acquisitions 2020, which covered 56 jurisdictions.
1 Relevant Authorities and Legislation
1.1 What regulates M&A?
The primary sources of regulation of M&A in the Cayman Islands are the Companies Law (2020 Revision) (the "Companies Law") and common law.
Part XVI of the Companies Law facilitates mergers and consolidations between one or more companies, provided that at least one constituent company is incorporated under the Companies Law. The Limited Liability Companies Law, 2016 (the "LLC Law") also provides for a similar framework for Cayman Islands limited liability companies.
■ mergers, amalgamations and reconstructions by way of a scheme of arrangement approved by the requisite majorities of shareholders and creditors and by an order of the Cayman Islands court under section 86 or 87 of the Companies Law are still available for complex mergers (and are mirrored in the LLC Law); and
■ section 88 of the Companies Law provides a limited minority squeeze-out procedure (and, again, is mirrored in the LLC Law).
The Cayman Islands does not have a prescriptive set of legal principles specifically relevant to "going private" and other acquisition transactions (unlike other jurisdictions such as, for example, Delaware). Rather, broad common law and fiduciary principles will apply.
While there are no specific statutes or government regulation concerning the conduct of M&A transactions, where the target company's securities are listed on the Cayman Islands Stock Exchange ("CSX"), the CSX Code on Takeovers and Mergers and Rules Governing Substantial Acquisitions of Shares (the "Code"), which exists principally to ensure fair and equal treatment of all shareholders, may apply.
1.2 Are there different rules for different types of company?
Except to the extent described above with respect to companies listed on the CSX, there are no different rules for different types of company.
1.3 Are there special rules for foreign buyers?
There are no foreign investment restrictions or exchange control legislation in the Cayman Islands. However, any company with an established physical presence in the Cayman Islands must be structured so as to comply with local licensing laws, including with respect to ownership. Any company engaging in business locally requires to be licensed under the Trade and Business Licensing Law (2019 Revision) and the applicant must either be beneficially owned and controlled at least 60% by persons of Caymanian Status, or hold a licence under the Local Companies (Control) Law (2019 Revision). However, foreign investment, if considered beneficial to the Cayman Islands' economy, is generally encouraged.
1.4 Are there any special sector-related rules?
There are change-of-control rules applicable to entities regulated by the Cayman Islands Monetary Authority under the Banks and Trust Companies Law (2020 Revision), the Insurance Law, 2010 or (with respect to licensed mutual fund administrators) the Mutual Funds Law (2020 Revision). In addition, ownership and control restrictions apply to certain entities regulated by the Information and Communications Technology Law (2019 Revision).
1.5 What are the principal sources of liability?
Pursuant to common law rules, the directors of Cayman Islands companies owe fiduciary duties (generally described as being those of loyalty, honesty and good faith) to the company. While it is common for directors of Cayman Islands companies to be indemnified for certain breaches of this duty, as a matter of public policy, it is not possible for directors to be indemnified for conduct amounting to wilful default, wilful neglect, actual fraud or dishonesty.
To the extent that consent to a merger or acquisition is procured via an information memorandum or proxy statement, civil liability in tort may arise for negligent misstatement or fraudulent misrepresentation. In addition, the Contracts Law (1996 Revision) gives certain statutory rights to damages in respect of negligent misstatements. There are certain criminal sanctions under the Penal Code Law (2019 Revision) for deceptive actions, including for any officer of a company (or person purporting to act as such) with intent to deceive members or creditors of the company about its affairs, who publishes or concurs in publishing a written statement or account which to their knowledge is or may be misleading, false or deceptive in a material particular.
Any disposition of property made at an undervalue by or on behalf of a Cayman Islands company and if an intent to defraud its creditors, shall be voidable: (i) under the Companies Law at the instance of the company's official liquidator; or (ii) under the Fraudulent Dispositions Law (1996 Revision) at the instance of a creditor thereby prejudiced. If the consideration is to be shares in a Cayman Islands company, the Companies Law prohibits an exempted company that is not listed on the CSX from making any invitation to the public in the Cayman Islands to subscribe for any of its securities.
This chapter first appeared in the 2020 edition of the International Comparative Legal Guide Mergers & Acquisitions, published by Global Legal Group in March 2020.
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.