Cayman Islands modernises merger and consolidation schemes of arrangement
23 August 2022
Changes to the legislation in the Cayman Islands governing the operation of companies [The Companies (Amendment) Act 2021 of the Cayman Islands], which will come into force on 31 August 2022, will change the requirements for approval of a members (a.k.a "Shareholders") Scheme of Arrangement by making the only voting criteria that of 75% in nominal value of the Shareholders, or class of Shareholders, who are present and voting either in person or by proxy at the Shareholders' meeting.
For a creditors Scheme of Arrangement the approval voting criteria remains that a majority in number, representing at least 75% in value, of the creditors or class of creditors who are present and voting either in person or by proxy at the relevant creditors' or Shareholders' meeting.
A Cayman Islands scheme of arrangement can be proposed between a company and its Shareholders or any class of them for the reconstruction of any company or companies or the amalgamation of any two or more companies. This mechanism can be used for mergers and consolidations including "take private" deals where it is sought to privatise a Cayman Islands target listed company.
This change to a mechanism that dates back to Victorian time recognizes the modern day reality that shares of public companies listed on exchanges are typically held by a nominee entity in a clearing system. If the nominee which counts legally as just one shareholder is instructed by UBOs of the shares to vote differently then, for the purposes of counting how many shareholders are for and how many against the Scheme, the net result is 0.
Dispensing with the need to count how many shareholders are for and how many against the Scheme will remove the need for legal and arithmetical gymnastics to enable mergers and consolidation by way of Scheme of Arrangement to proceed.