Mergers_ Consolidations and Schemes of Arrangement in the Cayman by qingyunliuliu

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Mergers, Consolidations and
Schemes of Arrangement in the
Cayman Islands
 
 
 
 




Foreword
 
This memorandum has been prepared for the assistance of those who are considering 
mergers,  consolidations  or  schemes  of  arrangement  for  or  between  Cayman  Islands 
companies or between Cayman Islands companies and foreign companies.  It outlines 
in broad terms the differences of each process and the general requirements for each 
under Cayman Islands law.   
 
It is not intended to be exhaustive but merely to provide brief details and information 
which  we  hope  will  be  of  use  to  our  clients.    We  recommend  that  our  clients  and 
prospective  clients  seek  legal  advice  in  Cayman  on  their  specific  proposals  before 
taking steps to implement them. 
 
Copies  of  the  Cayman  Islands  Companies  Law  (2010  Revision),  as  amended,  have 
been prepared and are available on request. 
 
This  memorandum  has  been  prepared  on  the  basis  of  the  law  and  practice  as  at  the 
date referred to below. 
 
Conyers Dill & Pearman 
 
1 October 2010 
 
 
 




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INTRODUCTION

Until recently, the only mechanism available under the Cayman Islands Companies Law for a merger 
or consolidation between companies was a court approved scheme of arrangement.  Sections 86‐88 of 
the Companies Law (2010 Revision) give the Cayman Islands courts significant flexibility to approve 
corporate restructuring by way of schemes of arrangement, reconstruction or amalgamation.    
 
These court approved schemes continue to be available for more complex mergers but the Companies 
(Amendment) Law, 2009 introduced a new, simpler and more cost‐effective mechanism for mergers 
and consolidations between Cayman Islands companies and between Cayman companies and foreign 
companies.    Part  XVI  of  the  Companies  Law  (2010  Revision)  now  permit  contractual  mergers  and 
consolidations without the requirement for court approval.  
 
The following comparison is designed to assist in determining which mechanism might best suit the 
needs of particular companies.   
 
    MERGERS, CONSOLIDATIONS AND SCHEMES OF ARRANGEMENT – A COMPARISON

                         Mergers/Consolidations                           Schemes of Arrangement
                 “Merger” means the merging of two or more         A “scheme of arrangement” is a court-
                 constituent companies and the vesting of          approved compromise or arrangement
                 their undertaking, property and liabilities in    “between a company and its creditors, or any
                 one of such companies as the surviving            class of them, or between the company and
                 company.                                          its members or any class of them.”

                 “Consolidation” means the combination of          In addition to the power to compromise with
                 two or more constituent companies into a          creditors and members, the arrangements
                 consolidated company and the vesting of the       and reconstructions provisions in the
Definitions      undertaking, property and liabilities of such     Cayman Islands Companies Law (2010
                 companies in the consolidated company.            Revision), include provisions relating to
                                                                   facilitating reconstruction and amalgamation
                                                                   of companies and, where a scheme or
                 The essential difference between mergers
                                                                   contract involves the transfer of shares or
                 and consolidations is that a consolidation
                                                                   any class of shares to another company,
                 produces a new company different from
                                                                   provides for the power to acquire shares of
                 either of its constituent companies, while in a
                                                                   dissentient shareholders.
                 merger, one of the constituent companies will
                 continue to exist as the other is merged into
                 it.
 




 
                     Mergers/Consolidations                            Schemes of Arrangement
              Simpler, more cost-effective mechanism         Courts have significant flexibility       to
               for simple restructuring                        address more complex restructuring
              Court approval not required except in          Certainty: once court has sanctioned
               cases of dissenting shareholders where          scheme, all members of relevant class
Advantages     price of shares cannot be agreed                concerned bound by scheme
              Shorter timelines                              Specific provisions for transferring
              Shareholder approval not required for           undertakings or property from one
               Cayman parent and subsidiary merger             company to another
0




              Directors of each constituent company          Proceedings commenced by way of
               must approve written plan of merger             Petition and Supporting Affidavit
               (“Plan”)                                       Interlocutory     summons      for    order
              Particulars of Plan must include:               convening      meeting     of    company’s
                o Name of each constituent company             creditors must be filed with petition
                o Name of surviving company                     o Court will fix date for substantive
                                                                     hearing of petition
                o Registered office of each company
                                                                o Notice of substantive hearing must
                o Designation and number of each
                                                                     be given to creditors as part of
                    class of shares of each constituent
                                                                     scheme documentation
                    company
                                                              Supporting affidavit must include:
                o Date on which merger intended to
                    take effect                                 o Particulars to enable court to
                                                                   determine whether appropriate to
                o Terms and conditions of proposed
                                                                   convene class meetings of creditors
                    merger, including manner and
                                                                   and, if so, composition of classes
                    business of converting shares
                                                                o Particulars to enable court to
                o Rights and restrictions attaching to
Procedure                                                          determine proposed time and place
                    shares in surviving company
                                                                   for required meetings and method of
                o In case of merger, any proposed                  giving notice
                    amendment to memorandum and
                                                                o Description of purpose and effect of
                    articles of association of surviving
                                                                   proposed scheme and why scheme
                    company or statement that no
                                                                   necessary
                    change required
                o In case of consolidation, proposed          Scheme documentation must include
                    new memorandum and articles of             particulars as follows:
                    association of consolidated company         o Sufficient to satisfy court that
                o Any amount or benefit paid or                     scheme documentation provides
                    payable to any director of constituent          creditor with sufficient information to
                    company, consolidated company or                make informed decision about merits
                    surviving        company         upon           of proposed scheme
                    consolidation or merger                     o Explanatory         memorandum         of
                o Names and address of directors of                 scheme documentation must draw
                    surviving or consolidated company               attention to fact that creditors have
                                                                    right to attend and be heard at
                                                                    hearing of petition




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                     Mergers/Consolidations                           Schemes of Arrangement
                                                   Shareholders
              Plan must be authorized by each               Scheme must be approved by relevant
               constituent company by shareholder             members of company at special meeting
               resolution by majority in number               convened by court
               representing    75%     in    value     of      o Approval must be by majority in
               shareholders voting together as one class          number representing 75% in value of
              Shareholder approval not required to               members of each class voting
               merger of Cayman parent with Cayman             o Each of ordinary and preference
               subsidiary but, absent waiver, every               share classes would constitute
               shareholder entitled to copy of Plan               separate class and approval level
                o For these purposes, parent company              required for each class
                   is company that owns at least 90%           o Founders or insiders who have
                   of issued shares of each class in              separate economic interest in vote
                   subsidiary that are entitled to vote           may be treated as separate and
                                                                  distinct class
                                                     Creditors
              Each holder of fixed or floating security     Scheme must be approved by majority in
               interest of constituent company must           number representing 75% in value of
               consent to Plan unless court waives            creditors present and voting either in
               consent (on application of constituent         person or by proxy
Approvals/     company that has issued the security)         Within seven (7) days of creditors’
Consents        o If secured creditor does not consent,       meeting,        applicant     must    file
                    constituent company may apply to          supplementary       affidavit  sworn   by
                    court to waive consent requirement        Chairman of meeting verifying that notice
                o Secured lenders may require specific        duly sent in accordance with court’s
                    arrangement as to priorities as           order, that meeting duly held, and giving
                    condition of consent                      particulars of result

                              Regulator                                        Court
              Where constituent company licensed or         Court must be satisfied of following before
               regulated by Cayman Islands Monetary           sanctioning scheme:
               Authority (“CIMA”) Plan of merger or            o Classes properly constituted
               consolidation must be consented to by
                                                               o Meetings convened and held in
               CIMA
                                                                  accordance with court directions
              Where constituent company licensed by
                                                               o Scheme properly explained to
               CIMA, continuing company (if not
                                                                  shareholders/creditors so they can
               licensed) or consolidated company will
                                                                  exercise informed vote
               require license
                                                               o Scheme is one which intelligent and
                                                                  honest man, who is member of
                                                                  relevant class and properly acting,
                                                                  might reasonably approve
                                                             Court has power to impose conditions




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                        Mergers/Consolidations                             Schemes of Arrangement
                 Dissenting shareholder of constituent           Dissenting shareholder entitled to appear
                  company entitled to payment of fair value        before court on approval application in
                  of shares upon dissent to merger                 relation to scheme and argue against it
                   o Where parties cannot agree on price,         If scheme sanctioned, it is binding on all
                       either party may file petition to           members, including those dissenting
Dissenting             determine fair value
Shareholders  Dissenting rights not available if shares
                   listed on recognized stock exchange
                 Rights of dissenting shareholders do not
                  delay or impede effective date but rather
                  run currently and may well extend past
                  effective date

                 Plan must be signed by director on behalf         Copy of court order approving scheme
                  of each constituent company and filed              must thereafter be annexed to every copy
                  with Registrar of Companies together with          of company’s memorandum and articles
                  certificate of good standing and director’s        of association
                  declaration that:
                   o Constituent        company       is, and
                        consolidated or surviving company
                        will be, immediately after merger or
                        consolidation, solvent
                   o Merger or consolidation bona fide
                   o No         other    similar    proceeding
                        outstanding and no order to wind up
                        constituent company
                   o No administrator, receiver, or trustee
Post-                   acting in respect of constituent
Approval                company
                   o No scheme, order, or compromise
                        made whereby rights of creditors or
                        constituent company suspended or
                        restricted
                   o Assets and liabilities of constituent
                        company at latest practicable date
                   o In case of non-surviving constituent
                        company, that constituent company
                        retired from fiduciary duties
                   o Copy of certificate of merger will be
                        given to members and creditors of
                        constituent company and published
                        in Gazette
                   o Applicable fees




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                        Mergers/Consolidations                           Schemes of Arrangement
                 Certificate of merger issued by Registrar     Scheme of arrangement effective once
                  of Companies constitutes prima facie           copy of court order lodged with Registrar
                  evidence of compliance with all statutory      of Companies
                  requirements                                  Once sanction of court given to scheme,
                 In consolidation, memorandum and               scheme binding on all creditors/class of
                  articles of association of consolidated        creditors and members/class of members
                  company filed with Plan immediately            who are parties, and on company
                  become memorandum and articles of             Scheme cannot be altered subsequent to
                  association of company                         sanction even if shareholders and
                 Rights and property of each constituent        creditors acquiesce
Effect of         company vest in surviving company
Court            Surviving company liable for all debts,
Sanction or       contracts, obligations and liabilities of
Registration      each constituent company
                 Existing claims, proceedings or rulings of
                  each constituent company automatically
                  continued against surviving company
                 Registrar strikes any constituent company
                  that is not continuing company and notice
                  of same required to be published in
                  Gazette
                 Plan may specify merger not effective
                  until specified date or occurrence of
                  specified event

                 Timing dependent on factors such as           Court will establish time-table from outset
                  notice period specific in articles of         Timing dependent on directions given by
                  association to call shareholders meeting       court as to notice and timing of
                 Overall time from commencement of              shareholders meeting and availability of
Timing            merger/consolidation    to   receipt   of      court time
                  certificate of merger minimum of one (1)      Overall time from commencement of
                  month and generally in range of two (2) –      proceedings to final approval minimum of
                  three (3) months                               three (3) months and generally in range of
                                                                 four (4) to six (6) months

 
 
 
 
For further information please contact: Richard Finlay, Kevin Butler or Nigel Meeson, Q.C. as below. 
 




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CONYERS DILL & PEARMAN
Cricket Square 
PO Box 2681 
Grand Cayman KY1‐1111 
Cayman Islands 
Tel: 345 945 3901 
Fax: 345 945 3902 
 
E‐mail: richard.finlay@conyersdill.com 
        kevin.butler@conyersdill.com 
        nigel.meeson@conyersdill.com




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This publication is not a substitute for legal advice nor is it a legal opinion. It deals in broad 
terms only and is intended to merely provide a brief overview and give general information. 
 
 
About Conyers Dill & Pearman
Conyers  Dill  &  Pearman  advises  on  the  laws  of  the  Cayman  Islands, British  Virgin 
Islands, Bermuda, Mauritius and Cyprus. Conyersʹ lawyers specialise in company and 
commercial law, commercial litigation and private client matters. 
 
The  combination  of  Conyersʹ  structure,  culture  and  expertise enables the  highest 
quality,  responsive,  timely  and  thorough  legal  advice. Conyers’  strategic  global 
presence in major international business centres allows a seamless 24 hour service. 
 
Conyers’  sophisticated  client  base  includes  FTSE  100  and  Fortune  500 
companies. Working  with  leading  local  and  international  firms,  Conyers  advises on 
highly complex multi‐jurisdictional projects. 
 
Affiliated  companies  (Codan)  provide  a  range  of  trust,  corporate  secretarial, 
accounting and management services. 
 
Founded in 1928, Conyers has 600 staff, including more than 150 lawyers.  
 
www.conyersdill.com
 

								
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