EXPANSION OF THE CAYMAN ISLANDS COMPANIES LAW – MERGERS AND

CONSOLIDATIONS

Introduction
New provisions of the Cayman Islands Companies Law (2007 Revision)
to regulate the merger and consolidation of companies have recently been approved by the legislature. It is anticipated that the Companies (Amendment) Law, 2009 will come into effect around the end of April 2009. The new provisions are a welcome
enhancement to the Law.

Overview
The Amendment introduces a new Part XVA of the Law which allows for
the merger and consolidation of companies.
A "merger" involves the merging of two or more constituent companies
whereby one of such companies is the surviving company. A
"consolidation" involves the combination of two or more constituent
companies into a consolidated company. In each case, the property and
liabilities of the constituent companies will be vested in the surviving or
consolidated company.
The new merger and consolidation provisions will sit alongside the
existing scheme of arrangement provisions in Sections 86 and 87 of the
Law. The new provisions will offer a quicker, less onerous system of
achieving a merger or consolidation than is possible by way of a scheme
of arrangement. The scheme of arrangement mechanism which requires
(amongst other things) court approval will remain relevant for more
complicated combinations where the surviving company is to be a foreign
corporation.

Who can merge/consolidate?
Any two or more Cayman Islands companies limited by shares (other
than segregated portfolio companies) may merge or consolidate in
accordance with the Amendment.
The Amendment also allows one or more Cayman Islands companies to
merge or consolidate with one or more foreign companies (provided that
the laws of the foreign jurisdiction permit such merger or consolidation),
where the surviving or consolidated company will be a Cayman Islands
company.

What is the procedure for a merger/consolidation?
Step 1: Approve the plan of merger or consolidation
The first step is for the directors of each constituent company to approve
a written plan of merger or consolidation (a "Plan"). The Amendment
specifies the required content of the Plan, which includes (i) the terms
and conditions of the proposed merger or consolidation, including the
rights and restrictions to be attached to the shares issued in the
consolidated or surviving company, (ii) details of the memorandum and
articles of association of the surviving or consolidated company, (iii) any
amount or benefit paid or payable to the directors as a consequence of
the merger or consolidation and (iv) the name and address of any
secured creditor and the nature of the secured interest held.
Some or all of the shares in each company may be converted into
different types of property (shares, debt obligations, other securities in
the surviving company or consolidated company, money, other property
or any combination thereof) as provided in the Plan.

Step 2: Obtain the required consents
The Plan must be authorized by each constituent company by a
shareholder resolution by a majority in number representing 75% in
value of the shareholders voting together as one class. If the shares to
be issued to each shareholder in the consolidated or surviving company
are to have the same rights and economic value as the shares held in the
constituent company, the Plan must be authorized by each constituent
company by a special resolution (usually, and in any event not less than,
a two-thirds majority) of the shareholders voting together as one class.
In each case, a shareholder has the right to vote regardless of whether
the shares held by him otherwise confer voting rights.
Where a parent is merging with one or more of its Cayman Islands
subsidiaries, shareholder consent is not required. A parent for these
purposes is a company that owns at least 90% of the issued shares of
each class in a subsidiary company that are entitled to vote.
The consent of each holder of a fixed or floating security interest in a
constituent company must be obtained. If consent is not obtained with
respect to a Cayman Islands company, the Court can waive the
requirement for such consent upon such terms as the Court considers
reasonable. Where the relevant company is a foreign company, consent
or approval of the transfer of any security interest to the surviving or
consolidated company must be obtained.

Any relevant consents from, or filings with, the Cayman Islands Monetary
Authority must be obtained or made. This would apply to any funds
registered under the Mutual Funds Law or any licensees under the Mutual
Funds Law, the Banks and Trust Companies Law, the Insurance Law
and/or the Securities Investment Business Law.

Step 3: Filing and Registration
Once the constituent companies have obtained the necessary
authorizations and consents, the Plan must be signed by a director of
each of the constituent companies and be filed with the Registrar of
Companies (the "Registrar") together with various supporting
documents in relation to each constituent company. These documents
include a declaration by a director in relation to various matters
concerning the applicable constituent company including a list of the
constituent company's assets and liabilities (see further below) and an
undertaking to provide a copy of the certificate of merger or
consolidation to shareholders and creditors and publish a notice in the
Gazette. Where any one or more of the constituent companies is a
foreign company, certain additional declarations are required to be given
by the director(s).

Upon receipt of the Plan, the supporting documents and the prescribed
fee, the Registrar will register the Plan (including any amended and
restated memorandum and articles of association) and issue a certificate
of merger or consolidation.
The merger or consolidation may take effect on the date of registration
of the Plan or, if a particular date is specified in the Plan, on the specified
date (provided it is within 90 days of the filing).
The Registrar shall then strike off the register a constituent company
that is not the surviving company in a merger, or any constituent
company that participates in a consolidation.

What is the effect of a merger or consolidation?
Upon the merger or consolidation taking effect, all rights and property of
each of the constituent companies immediately vest in the surviving or
consolidated company and the surviving or consolidated company
assumes all obligations of each of the constituent companies. The
Amendment also provides for continuation of any existing claims, causes
or proceedings.

What protections are there for creditors?
The director's declaration submitted to the Registrar must include (i) a
declaration of solvency both of the constituent companies and of the
consolidated or surviving company, with respect to the time immediately
following the merger or consolidation and (ii) a declaration that the
merger or consolidation is bona fide and not intended to defraud
unsecured creditors.
The prior consent of secured creditors is required (subject to waiver by
the Cayman Islands court with respect to Cayman Islands companies).
Unless the relevant parties specifically agree otherwise, the surviving or
consolidated company becomes liable under all mortgages, charges or
security interests.

Are there any special provisions for dissenting
shareholders?
The Amendment contains a mechanism whereby a shareholder of a
constituent company which is a Cayman Islands company can seek
payment of the fair value of his shares upon dissenting from a merger or
consolidation. The shareholder must object in writing prior to the date
upon which the shareholder vote to consider the merger or consolidation
takes place. A procedure exists to seek a court ruling on fair value,
failing agreement within a specified period. There are certain limitations
on rights of dissenters – for example, the provisions generally will not
apply to shares for which an open market exists on a recognized stock
exchange or interdealer system.

Conclusion
The introduction of the new provisions comes at a time of unprecedented
numbers of corporate reorganizations. The new regime offers a userfriendly
mechanism for more straightforward mergers and consolidations,
while at the same time offering a balance between commercial
expediency and the interests of both creditors and shareholders. We
anticipate significant interest from clients seeking to restructure their
operations, whether as a consequence of the economic crisis or
otherwise.

For more information, please contact:
Jennifer Thomson, Partner, Hedge Funds
Walkers, Cayman
Tel: +1 345 914 4280
Email: jennifer.thomson@walkersglobal.com
Philip Paschalides, Partner, Finance
Walkers, Cayman
Tel: +1 345 814 4675
Email: philip.paschalides@walkersglobal.com
Antonia Hardy, Partner, Finance
Walkers, London
Tel: +44 (0) 207 220 4977
Email: antonia.hardy@walkersglobal.com
Robert Varley, Partner, Finance
Walkers, Dubai
Tel: +971 4 363 7902
Email: robert.varley@walkersglobal.com
John Rogers, Partner, Finance
Walkers, Singapore
Tel: +65 6622 5929
Email: john.rogers@walkersglobal.com
Hugh O'Loughlin, Partner, Finance
Walkers, Hong Kong
Tel: +852 2596 3368
Email: hugh.o'loughlin@walkersglobal.com