CAYMAN ISLANDS Law and Practice Contributed by: Shari Seymour, Kerry Ann Phillips and Michael Lockwood, Maples Group
exercised for a proper purpose (ie, the purpose for which that power is conferred), and that sharehold - ers have a personal right of action against the com - pany where shares have been allotted for an improper purpose and this has negatively affected them. It is well established that issuing shares for the purpose of thwarting a takeover or otherwise affecting the out - come of shareholder meetings is not exercising that board power for a proper purpose. That general rule may, however, be modified by the company’s articles of association (see 9.3 Common Defensive Meas- ures ). 9.3 Common Defensive Measures The memorandum and articles of association of a company that is publicly listed may contain certain anti-takeover or “poison pill provisions” that may make a hostile takeover more difficult to consummate, or that may give the target superior bargaining power. Examples of such defensive measures include: • the ability to issue blank cheque preference shares; • staggered boards; • the removal of directors only for cause or by a supermajority vote; and • restrictions on the ability of shareholders to requisi - When enacting defensive measures, directors of a tar - get company owe certain fiduciary duties and a duty of care, diligence and skill to the company; see 8.1 Principal Directors’ Duties . 9.5 Directors’ Ability to “Just Say No” tion general meetings. 9.4 Directors’ Duties While always fact-sensitive, directors of a Cayman Islands company typically cannot “just say no” to a proposed takeover or merger. In order to comply with their fiduciary and other duties, the directors of a Cay - man Islands target will need to give due consideration to any legitimate offer, even if unsolicited, to determine if the acceptance of such proposal would be in the best interests of the company as a whole. However, directors may be justified in rejecting even a legitimate offer and/or not putting that offer to the shareholders if, for example, they were aware that shareholders with a blocking stake will oppose the transaction, such that a vote would be futile, or if the offer in question was
below what the directors had been advised was the fair value of the company. Where a target company is listed on the CSX, the Code provides that, after a bona fide offer has been communicated to the board of an offeree company or after the board has reason to believe that such an offer might be imminent, the board may not take any action without the approval of the shareholders in a general meeting that could effectively result in any bona fide offer being frustrated or in the shareholders being denied an opportunity to decide on its merits. Litigation in the Cayman Islands is not common in connection with M&A transactions, although a sig - nificant number of dissenters’ petitions under the statutory merger regime have been (or are in the pro - cess of being) heard in the Cayman Islands courts. M&A transactions implemented through schemes of arrangement inherently involve the Cayman Islands court. However, these are rarely opposed. Given that a large proportion of Cayman Islands M&A activity involves cross-border deals and/or companies listed on onshore stock exchanges, it is not uncom - mon for M&A transactions involving Cayman Islands entities to be subject to onshore litigation. 10.2 Stage of Deal In the case of transactions implemented through stat - utory mergers, litigation typically occurs post-closing, as opposed to in a manner that frustrates or delays closing. This is because dissent rights, which guar - antee dissenters the payment of fair value, are con - ditional on the merger completing. For transactions implemented through a scheme of arrangement, the scheme may be challenged before the court, although the grounds for such a challenge are limited, and this is rare in practice. 10.3 “Broken-Deal” Disputes 10. Litigation 10.1 Frequency of Litigation Disputes did arise from broken M&A deals involving Cayman Islands companies in 2025, but these dis - putes are not being litigated in the Cayman Islands
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