May 10, 2021

Cayman Islands: Protection of dissenters’ rights

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Article by Rupert Bell and Joanne Collett From Walkers

Cayman Court makes an orders for Interim Payments

In the matter of Qihoo 360 Technology Co. Ltd., Quin J, 26 January 2017

In a recent case before the Grand Court of the Cayman Islands (the “Court”), in the first decision of its kind, Walkers has successfully argued that the Court does have the power to order an interim payment in favour of a dissenting shareholder in proceedings commenced under section 238 of the Companies Law (2016 Revision) (the “Law”). This is an important decision which confirms that dissenting shareholders may not need to wait for the determination of proceedings under section 238 of the Law before being paid an amount in relation to their shares, and can have the benefit of an interim payment before trial.

In this case, the dissenting shareholders, which are all funds managed by Hong Kong based fund manager Maso Capital, had their shares cancelled as part of a management buy-out that was completed by way of statutory merger under Part XVI of the Law. The dissenting shareholders dissented from the merger and, after the commencement of proceedings under section 238 of the Law (“Fair Value Proceeding”) pursuant to which the Court is required to provide an appraisal of the dissenting shareholders’ shares, made an application pursuant to Order 29, rule 12 of the Grand Court Rules (1995) (“GCR”) which provides that the Court has the power to make an interim payment (under Order 29, rule 10 of the GCR) if satisfied that “if the action proceeded to trial the plaintiff would obtain judgment against the defendant for a substantial sum of money apart from any damages or costs …”

At the hearing of the application, the company contended that a Fair Value Proceeding is part of its own self-contained statutory scheme to which Order 29, rule 12 of the GCR does not apply. Quin J rejected this argument, emphatically determining that interim payment applications pursuant to Order 29, rule 12 of the GCR are able to be made by dissenting shareholders in the context of a Fair Value Proceeding.

The dissenting shareholders argued that, on the balance of probabilities, they would recover at trial at a minimum, the merger consideration which they were offered (like all other shareholders) at the time of the merger, and submitted expert evidence that the likely fair value of the shares was in a range considerably higher than the merger consideration.

Ultimately the Court held that as the company had offered to pay the merger consideration, and had subsequently paid US$92 million in to Court, “the Dissenters will obtain ‘judgment against the [Petitioner] for a substantial sum of money’ pursuant to GCR O.29., r.12” [64] as required for an interim payment. The Court awarded the merger consideration, “which is the Petitioner’s own stated fair value of the shares pursuant to s.238(8) – being US$51.33 per share.” [77]

The Court also confirmed that “[s]ection 238 establishes a right on behalf of Dissenters to be paid the fair value of their shares. On any view the Dissenters in these proceedings will receive from the [Company] a substantial sum as fair value for their shares.” [65]

Accordingly, the Court ordered the company to make an interim payment to the dissenting shareholders of the merger consideration.

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