CAYMAN ISLANDS Law and Practice Contributed by: Shari Seymour, Kerry Ann Phillips and Michael Lockwood, Maples Group
9. Defensive Measures 9.1 Hostile Tender Offers
purpose. That general rule may, however, be modified by the company’s articles of associa - tion (see 9.3 Common Defensive Measures ). 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 requisition general meetings. 9.4 Directors’ Duties When enacting defensive measures, directors of a target company owe certain fiduciary duties and a duty of care, diligence and skill to the com - pany; see 8.1 Principal Directors’ Duties . 9.5 Directors’ Ability to “Just Say No” While always fact sensitive, directors of a Cay - man 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 Cayman Islands tar - get 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
Hostile tender offers are generally not supported by the Cayman Islands M&A regime. A statutory merger or a scheme of arrangement could never be truly “hostile” , as they require the consent of the target. For public companies where the constitutional documents do not require director consent to transfers of shares, it is foreseeable that a tender offer could be successful without the support of the target. However, this is very rare in practice, including because where a proposed acquiror holds that level of shareholding, it would likely be able to control the board in any event (in which case, a parent-subsidiary merger process would also be available, and is likely to be more attrac - tive). 9.2 Directors’ Use of Defensive Measures Cayman Islands law does not prohibit the use of defensive measures by directors, subject to the directors complying with their fiduciary duties. However, particular care must be exercised when using the issuance of new shares to defend against a hostile potential takeover. The Privy Council held in Tianrui [2024] UKPC 36 that, since the power to allot and issue shares is a fiduciary power, it must only be exercised for a proper purpose (ie, the purpose for which that power is conferred), and that shareholders have a personal right of action against the company 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 outcome of shareholder meetings is not exercising that board power for a proper
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