The principal legislation in the Cayman Islands relating to the operation and governance of Cayman Islands companies is the Companies Law (As Revised) (the "Companies Law"). Prior to May 2009, the only method to combine companies under the Companies Law was to use a scheme of arrangement, which included an application to Court for approval. In May 2009, the Companies Law was amended to include a procedure to merge or consolidate two or more companies without the necessity of obtaining the approval of the Court.

General Information

The Companies Law permits two or more companies, called "constituent companies", to merge or consolidate provided that the constituent companies are companies limited by shares and not limited by guarantee and the constituent companies are not segregated portfolio companies. The constituent companies may include one or more foreign companies, being companies incorporated under the laws of a jurisdiction other than the Cayman Islands, provided that at least one of the constituent companies is incorporated under the Companies Law and the merged company, called the "surviving company" or the "consolidated company", is a company incorporated in the Cayman Islands (please see "Foreign Companies" below). A consolidated company is a new company which emerges from the consolidation as opposed to a merger where the surviving company is one of the constituent companies (please see "Consolidations" below).

In order to effect a merger or a consolidation, each of the constituent companies must be in good standing and solvent. In addition, the existence of the constituent companies cannot be "tainted" by the commencement of any winding up procedure, the appointment of any trustee or administrator in any jurisdiction, or any arrangement such as a scheme where the rights of creditors of the constituent company are suspended or restricted. Finally, the constituent companies must comply with all requirements under any applicable regulatory laws.

A merger or consolidation may be made effective on the later of the date when the required documents are filed and a date that is after the filing date but no later than 90 days after the filing date. An effective date later than the filing date may be identified either by reference to a specific date or to the date when a specified event occurs.

It is not necessary to obtain the approval of the Court to either a merger or a consolidation. This is one of the principal advantages compared to a merger or consolidation by scheme of arrangement.

Mergers

A merger of two or more constituent companies is made effective on the date that the Certificate of Merger is issued by the Registrar of Companies. As soon as a merger becomes effective, the undertaking, property and liabilities of each of the constituent companies are immediately vested in the constituent company which is the surviving company and the constituent companies other than the surviving company cease to exist by operation of law and are struck off by the Registrar of Companies without the need to be wound up.

Consolidations

A consolidation of two or more constituent companies is made effective on the date that the Certificate of Consolidation is issued by the Registrar of Companies. As soon as a consolidation becomes effective, the memorandum and articles of association filed with the Registrar of Companies immediately become the memorandum and articles of association of a new company, known as the consolidated company, which is thereby incorporated. In addition, the undertaking, property and liabilities of each of the constituent companies are immediately vested in the new company which is the consolidated company and all of the constituent companies cease to exist by operation of law and are struck off by the Registrar of Companies without the need to be wound up.

Secured Creditors

Each holder of a fixed or floating security interest granted by a constituent company must consent to a proposed merger or consolidation. Such consents should be obtained in writing, but it is not necessary to file the consents with the Registrar of Companies.

Court

As noted above, it is not necessary to obtain the approval of the Court to either merge or consolidate two or more constituent companies. Involvement of the Court is limited to the situation where a secured creditor does not consent to a plan of merger or consolidation. In that case, the relevant constituent company may apply to the Court for a waiver of the requirement to obtain consent.

Cayman Islands Monetary Authority ("CIMA")

CIMA must approve a merger or consolidation in writing if one or more of the constituent companies are licensed or otherwise subject to regulation by CIMA.

The Merger or Consolidation Procedure

A merger or consolidation is commenced when the directors of the constituent companies approve a written plan of merger or consolidation (the "Plan"). The Plan must include the following information:-

(a) the name of each constituent company and the name of the surviving or consolidated company;

(b) the registered office of each constituent company as well as the surviving or consolidated company;

(c) the designation and number of each class of shares issued by each of the constituent companies;

(d) the proposed effective date if the effective date is to be later than the filing date;

(e) the terms and conditions of the proposed merger or consolidation, including the manner and basis of converting shares in each constituent company into shares in, or property of, the surviving or consolidated company;

(f) the rights and restrictions of the shares of the surviving or consolidated company;

(g) in the case of a merger, any proposed amendments to the memorandum and articles of association of the surviving company or, if no amendments are proposed, a statement that the memorandum and articles of association immediately prior to the merger shall be the memorandum and articles of association of the surviving company;

(h) in the case of a consolidation, the proposed memorandum and articles of association of the consolidated company;

(i) any amount or benefit paid or payable to any director of a constituent company, a surviving company or a consolidated company upon the merger or consolidation;

(j) the name and address of the secured creditors of each constituent company and the nature of the secured interest; and

(k) the names and address of the directors of the surviving or consolidated company.

Unless a parent company incorporated under the Companies Law is proposing to merge with one or more subsidiaries incorporated under the Companies Law, the Plan must also be authorised by the members (the "shareholders") of each constituent company. The following two resolutions are required to be passed:-

(a) a resolution of the shareholders, regardless of whether such shareholders hold shares having the right to vote, voting together as one class, being a majority in number representing at least 75% of the value of shareholders; and

(b) if the shares to be issued to each shareholder in the surviving or consolidated company are to have the same rights and economic value as the shares held in the constituent company, a special resolution of the shareholders, regardless of whether such shareholders hold shares having the right to vote, voting together as one class.

After the shareholders of the constituent companies have authorised the merger or consolidation and the consents of all secured creditors have been obtained, the Plan is signed by a director on behalf of each constituent company and is filed with the Registrar of Companies together with the following:-

(a) a certificate of good standing for each constituent company;

(b) a declaration in writing made by a director of each constituent company stating that:-

(i) the constituent company is, and the surviving or consolidated company will be, solvent,

(ii) the merger or consolidation is bona fide and is not intended to defraud unsecured creditors of the constituent company,

(iii) no winding up action has been commenced in respect of the constituent company,

(iv) no trustee or administrator with the power to act in respect of the constituent company, its affairs, or its property has been appointed in any jurisdiction,

(v) no arrangements have been entered into or made in any jurisdiction where the rights of the creditors of the constituent company are, and would continue to be, suspended or restricted,

(vi) the statement of assets and liabilities of the constituent company attached to the declaration is correct,

(vii) if the constituent company is not a surviving company, that the constituent company has retired from any fiduciary office held prior to the merger or consolidation,

(viii) the certificate of merger or consolidation will be given to the shareholders and creditors of the constituent company and published in the Gazette, and

(ix) where relevant, the constituent company has complied with all applicable regulatory requirements;

and

(c) the applicable fees.

Foreign Companies

One or more companies incorporated under the laws of a jurisdiction other than the Cayman Islands (the "Foreign Company") may merge or consolidate under the Companies Law, provided that at least one of the constituent companies is incorporated under the Companies Law and the surviving company or the consolidated company is a company incorporated in the Cayman Islands. The constituent company that is incorporated under the Companies Law must comply with the requirements set out above. In addition, the Registrar of Companies must receive a declaration in writing made by a director of the Foreign Company stating that, after having made due enquiry, he is of the opinion that:-

(a) the merger or consolidation is either permitted or not prohibited by the constitutional documents of the Foreign Company and by the laws of the jurisdiction in which the Foreign Company is incorporated (the "Foreign Jurisdiction"), and that the laws and any requirements of the Foreign Jurisdiction have been, or will be, complied with;

(b) no winding up or liquidation action has been commenced in respect of the Foreign Company;

(c) no trustee or administrator with the power to act in respect of the Foreign Company, its affairs, or its property has been appointed in any jurisdiction;

(d) no arrangements have been entered into or made in any jurisdiction whereby the rights of the creditors of the Foreign Company are, and would continue to be, suspended or restricted;

(e) the Foreign Company is solvent and that the merger or consolidation is bona fide and is not intended to defraud unsecured creditors of the Foreign Company;

(f) in respect of the transfer of any security interest granted by the Foreign Company to the surviving or consolidated company:-

(i) consent to or approval of the transfer has been obtained, released or waived,

(ii) the transfer is permitted by and has been approved in accordance with the constitutional documents of the Foreign Company, and

(iii) the laws of the Foreign Jurisdiction with respect to the transfer have been or will be complied with;

(g) the Foreign Company will cease to be incorporated, registered or exist under the laws of the Foreign Jurisdiction when the merger or consolidation becomes effective; and

(h) the statement of assets and liabilities of the Foreign Company attached to the declaration is correct.

Finally, the Registrar of Companies must be satisfied that there is no reason why it would be against the public interest to permit a merger or consolidation involving the Foreign Company.

Dissenting Shareholders

Subject to limitations if the shares of a constituent company are listed on a recognized stock exchange or interdealer quotation system, a shareholder of a constituent company who dissents from a merger or consolidation is entitled to be paid the fair value of his shares. In order to exercise the right of dissent, the shareholder must provide the constituent company with a written objection to the merger or consolidation before the shareholders vote on the merger or consolidation.

If the shareholders of the constituent company authorise the merger or consolidation, notice of the authorisation must be given to the dissenting shareholder(s) within 20 days after the vote was taken. Each dissenting shareholder then has 20 days to give the constituent company a written notice demanding payment of the fair value for all shares he holds in the constituent company. When the dissenting shareholder gives such notice, he ceases to have any rights as a shareholder of the constituent company except the right to payment of the fair value of the shares and to participate in any Court hearing pertaining to the determination of the fair value of the shares.

Subject to the dissenting shareholder's right to contest the valuation of the shares, the constituent company, or the surviving or consolidated company, shall, within the time period ending on the later of 27 days after the vote was taken or the date on which the Plan is filed, offer to purchase each dissenting shareholder's shares as a price that the company determines to be the fair value. Provided that a dissenting shareholder and the company agree upon the price to be paid for the shares within 30 days after the offer is made, the company shall immediately pay the amount in cash to that dissenting shareholder.

If the dissenting shareholder and the company do not agree on a price to be paid for the shares, either party may file a petition with the Court for a determination of the fair value of the shares of all dissenting shareholders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.