This article considers both mergers and consolidations in the CaymanIslands, as outlined by the Companies Act and the Limited Liability CompaniesAct. These laws facilitate the merging or consolidation of companies, enabling one entity to assume the assets, rights, obligations, and liabilities of one or more other companies, or the creation of a new entity through consolidation, all without the need for court approval.
Entities Eligible for Mergers
Entities that can engage in mergers include Cayman Islands companies limited by shares (excluding segregated portfolio companies), Cayman Islands Limited Liability Companies (LLCs), overseas companies, and foreign entities of various legal forms for mergers involving an LLC.
Key Conditions for Mergers
Critical conditions for a successful merger include:
- Each company involved must be in good standing and solvent, determined by a cashflow test.
- A detailed merger plan must be prepared and approved by the directors or managers of each company.
- Consent from members of each company is typically required.
- Mergers involving regulated entities such as banks or insurance companies need prior approval from the Cayman Islands Monetary Authority.
- Compliance with applicable foreign laws and constitutional documents for mergers with overseas companies or foreign entities.
- Secured creditors' consent is necessary unless waived by a CaymanIslands court.
- Payment of a fee to the Cayman Islands Registrar as prescribed by the respective acts.
Overseas Mergers
In mergers involving a Cayman Islands company and an overseas company or a foreign entity, the Registrar must confirm the validity of the merger and the good standing and solvency of the overseas or foreign entity. This is typically done through declarations from directors or managers of the entities involved.
Merger between Companies and LLCs
The LLC Act allows for mergers or consolidations between an LLC and a Cayman Islands company, subject to compliance with the respective acts and provided the company is not a segregated portfolio company.
Consents Required in Mergers
Generally, mergers require special resolutions from the shareholders of each company involved (excluding LLCs), as well as approvals from LLC members.
Parent/Subsidiary Mergers
Shareholder consent is not required for mergers between a parent company and its Cayman Islands subsidiary if certain conditions are met.
Rights and Limitations of Dissenting Members
Members dissenting to a merger have rights to be paid the fair value of their shares or LLC interests, subject to specific processes and limitations. However, dissenting rights are not available under certain conditions, such as receiving equity interests in the successor company.
Practical Considerations
When preparing a merger plan, directors should consider their common law obligations to all shareholder classes. It's advisable to obtain shareholder and LLC member class consents for the merger plan. Additionally, compliance with the International Tax Co-operation (Economic Substance) Act should be ensured where applicable.
This article highlights the complex nature of mergers and consolidations in the Cayman Islands, emphasizing the importance of legal compliance and thorough preparation in the process.
This article is only intended to give a general overview and summary of the subject matter. It is not, nor is it intended to be comprehensive, andit does not constitute, and should not be taken to be, legal advice. If you would like legal advice or further information on any issue of any kind raised by this guide, please get in touch with one of your usual contacts.
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