CAYMAN ISLANDS Law and Practice Contributed by: Shari Seymour, Kerry Ann Phillips and Michael Lockwood, Maples Group
mined and, in some cases, the costs of the pro - ceedings). Such merger appraisal litigation has been most common (although not exclusively) where listed companies have been the subject of a manage - ment buyout. These proceedings have largely been driven by merger arbitrage funds and other similar market participants, which have, in many cases, acquired shares specifically for the pur - pose of mounting this kind of dissent action. In recent years, activity in this field has result - ed in a number of cases that have gone to trial before the Cayman Islands Grand Court (and, in some cases, to appeals); in turn, this has seen a substantial body of authority and knowledge on the subject evolve within a short timeframe. The outcomes of these cases have varied significant - ly, largely depending on the facts of each case. The following recent cases are particularly note - worthy. • In Changyou (16 September 2022, CICA), the Court of Appeal found that dissent rights under Section 238 of the Companies Act also apply to “short-form” mergers under Section 233 between parent companies and subsidi - aries, which do not need to be approved by special resolution at an extraordinary general meeting, on the basis that, notwithstanding the wording of Section 238, the expropria - tion of shares without the ability to petition the court for a fair value determination was unconstitutional. An appeal against this decision was heard by the Privy Council in October 2024, with a final judgment expected in 2025. • In FGL Holdings (20 September 2022, CIGC), the Cayman Islands Grand Court held for the first time that the price offered to sharehold -
ers in the merger transaction was the best and only evidence of fair value, and refused to place any reliance on an income approach. While the Court was satisfied that the mar - ket in the company’s stock was efficient, it concluded that the effects of COVID-19 had caused a temporary dislocation, meaning that the market price of the shares at the time the merger completed was not a good indicator of fair value. The Grand Court awarded the company its costs of the proceeding against the dissenters. • In Trina Solar (4 May 2023, CICA), the Court of Appeal held that no reliance could be placed on the merger price in circumstances where there were failures and inadequacies in the deal process (including a failure to carry out a robust market check) and the company failed to produce any documentary or witness evidence to explain and justify them. The Court of Appeal also lowered the standard for departing from company management pro - jections in relation to a discounted cash flow analysis, noting that the Court could prefer a forecast put forward by an expert over those of company management even if the latter were not “obviously wrong, careless or tainted by an improper purpose” . Rather, once there is “some evidence” to question the appropri - ateness of the management projections, the Court’s task is to determine the “most realis- tic” forecast, and it must consider both par - ties’ evidence and reach its own decision on this. This decision is under appeal to the Privy Council, with a hearing expected in 2025. 3.2 Significant Changes to Takeover Law There have been no significant changes to take - over law in the past 12 months, and no takeo - ver legislation is under review that could result in significant changes in the next 12 months, although the application of dissent rights to par -
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