CAYMAN ISLANDS Law and Practice Contributed by: Shari Seymour, Kerry Ann Phillips and Michael Lockwood, Maples Group
Merger of Parent and Subsidiary No special resolution is required for a merger between a parent company and its subsidiary. In order for this to apply, the parent must hold issued shares that together represent at least 90% of the votes at a gen - eral meeting of the subsidiary. Dissenters’ Rights A dissenting shareholder in a merger is entitled to payment of the fair value of all their shares upon dis - senting, if they follow the statutory procedures. The Companies Act also provides that dissenters’ rights are not available in certain circumstances, including in respect of the shares of any class of a constitu - ent company for which an open market exists on a recognised stock exchange or recognised inter-dealer quotation system at the expiry of the period allowed for notice of an election to dissent. These dissent rights do not apply to M&A transactions pursuant to A scheme of arrangement is a flexible form of corpo - rate restructuring, similar to (and based on) statutes in England and elsewhere in the British Commonwealth. A scheme must be approved by the requisite major - ity of shareholders, and by a court order (although the court does not typically evaluate the commercial merits of the scheme). A scheme of arrangement also involves the production of a circular, which must be sufficiently detailed to allow shareholders to make an informed decision in relation to the merits of the proposed scheme. There are no dissenters’ rights under a scheme of arrangement, although objecting shareholders are entitled to notice of the proceedings and to be heard by the court. However, the necessary majority vote for a scheme is higher than for a statu - tory merger, at 75% of those shareholders who attend and vote at the relevant meeting(s), and, unlike with a statutory merger, insiders are typically effectively a scheme of arrangement. Scheme of Arrangement
• a merger or consolidation under Part XVI of the Companies Act; • mergers, amalgamations and reconstructions by way of scheme of arrangement under Section 86 or 87 of the Companies Act; and • a minority squeeze-out procedure under Section 88 of the Companies Act. The Limited Liability Companies Act (As Revised) (the “LLC Act”) also provides for a similar framework for Cayman Islands LLCs. At present, there is no statutory mechanism by which a Cayman Islands ELP (which is frequently used as part of offshore holding structures) can merge with and/or into another entity. Where an ELP holds the target assets to be acquired in a statutory merger, a “spin-out” or “spin-off” will often be implemented, whereby the general partner of the ELP will incorpo - rate a company or LLC and contribute the assets to the subsidiary for the purposes of the merger. The Cayman Islands does not have a set of prescrip - tive legal principles that are specifically relevant to acquisition transactions; instead, broad common law and fiduciary principles apply. Statutory Merger The statutory merger under Part XVI of the Companies Act is the most common mechanism for the comple - tion of an acquisition or business combination. Under the statutory merger regime, two or more companies (including at least one Cayman Islands company) may merge. Upon the completion of the merger, the rights, property, liabilities and other obligations of each of the companies immediately vest in the surviving company. In order to merge or consolidate, the directors of each constituent company must approve a written plan of merger or consolidation. Subject to the relevant con - stitutional documents of the company, the sharehold - ers of each constituent company must also approve the plan of merger by special resolution (typically, a two-thirds majority of those shareholders attending and voting at the relevant meeting).
unable to vote. Squeeze-Out
A statutory squeeze-out under Section 88 of the Com - panies Act is available where the applicable statutory thresholds are met. Where a bidder has acquired or obtained the approval of 90% of the shares in a Cay - man Islands company, it may compel the acquisition
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