Changes to the Cayman Islands Companies Law
Jonathan Law and Tim Dawson
Harneys
Grand Cayman
Jonathan Law (Bio)
Tim Dawson (Bio)
The Companies (Amendment) Law 2011 (the Amendment Law) was brought into force in the Cayman Islands on April 27 2011. The Amendment Law effects important changes to the Companies Law (the Law) updating it to provide increased flexibility and clarity and to codify some existing practices under common law. The changes to the Law are designed to address client and market-driven issues that have arisen in practice, enhance the attractiveness of the Cayman Islands to the international financial community and at the same time strengthen the existing environment of legal certainty and commercial focus that the jurisdiction currently offers.
The principal areas of change under the amendment are set out below.
Segregated portfolio companies - attribution of assets/liabilities
The Amendment Law has introduced a mechanism allowing for the board of a Segregated Portfolio Company (SPC) to address the issue of erroneously attributing assets and liabilities to the wrong portfolio(s). The segregation process for attributing assets and liabilities of the portfolios of an SPC is the single most important part of operating these vehicles correctly and the remedial mechanism will give comfort to the directors, particularly in the more complex structures that they have a means by which they can efficiently rectify administrative errors. The former provisions of the Law, which attributed personal liability for such errors to the directors, have been removed.
Company mergers and consolidations
The shareholder approval requirements of a merger or consolidation of a Cayman company have been clarified and simplified and a special resolution (usually two-thirds of shareholders present and voting at a quorate meeting, see below) will now be sufficient subject to any special provisions in the relevant articles of association (which may for example specify additional class consents to merger). A further material change is that the surviving company can now be an overseas company. This brings Cayman into line with other jurisdictions which previously allowed cross-border mergers and consolidations of this kind, and should be a simple and effective mechanism of merging corporate enterprises.
Treasury shares
A new concept to the Cayman Islands, the introduction of the ability of companies to hold treasury shares increases flexibility with share capital, particularly for fund vehicles with regular subscriptions and redemptions.
The Securities Investment Business Law (SIBL) has been updated in tandem so that a disposition by a company of its treasury shares is not deemed securities investment business for the purposes of SIBL.
Execution of deed
Always an area of uncertainty, the Amendment Law addresses concerns which had arisen as a result of the common practice of exchanging signature pages only when closing complex transactions covering many different time zones. A decision of the English courts had thrown doubt over the legitimacy of this practice. The Amendment Law now specifically permits it for Cayman companies, streamlining the process of document execution and deal-closing in the Cayman Islands.
Share redemptions, purchases and surrenders
The Amendment law, for the first time, explicitly provides for fully paid shares to be capable of being surrendered to the issuing company for no consideration. This is anticipated to be of great help in group restructurings and clarifies an uncertain area of law. In addition, the Amendment Law sets out the effect of a redemption or purchase of shares on a company's balance sheet and confirms the authority of the board to determine the manner and terms of any redemption or purchase of shares when appropriately authorised.
Share register
A welcome change introduced by the Amendment Law allows for a company to maintain one or more 'branch' registers of shares. The branch registers can relate to one or more of the existing classes of shares in issue and will allow great flexibility to the company's service providers particularly in some jurisdictions where shareholders have expressed the need to have a duplicate register available locally.
Transfer of shares
In a codification of existing practice the Amendment Law now expressly permits paperless share transfers, an essential part of the trading of Cayman company shares in jurisdictions which require electronic settlement. Furthermore shares of Cayman companies which are listed may now be recorded in a separate register and the process of transferring and recording title to such listed shares can be as provided in the rules of the relevant exchange.
Special resolutions
The Law now expressly permits that a company may in its articles of association specify that the required majority of shareholders with voting entitlements for the passing of a special resolution is higher than two-thirds, and may also provide (subject always to a two-thirds minimum) that different matters requiring special resolutions may have a different required majority for their approval. Such flexibility is a useful mechanism for the reservation of specific matters to company stakeholders.
Company names
Dual names are now permitted and the second name can be in a script other than the Roman alphabet.
The technical amendments summarised above followed an extensive consultation process between the Cayman Islands government and the private sector thus demonstrating the government's commitment to maintaining Cayman as a cutting edge corporate domicile and a key player in the modern financial services industry.