The Lernaean Hydra raises its head(s) again: The Cayman Islands scheme of arrangement of Uni–Asia Holdings Limited The Grand Court recently sanctioned a members’ meeting of a company for the purpose of considering a “migration” scheme of arrangement.
The arrangement proposed by the Cayman company was that its members exchange their shares for shares in a Singaporean company. The intended objective – an internal restructure – was that the Singaporean company became the new holding company for the group and the Cayman company became its subsidiary. Shareholders may hold their shares through a central depository, with the result that a single registered shareholder (the depository) may hold shares on behalf of several owners beneficially. This poses a unique problem in a members’ scheme of arrangement because the scheme is passed on a “head count” (and “value”) test. In the Cayman Islands, the approved approach is to look through the register and treat the registered shareholder as having a head for each beneficial owner, rather than a single head, for the head count test.
The challenge then becomes how to incorporate a mechanism into the scheme documents that enfranchises those beneficial owners to vote on the scheme when that right otherwise rests with the registered shareholder. The Court had previously approved an arrangement where a nominee was obliged to specify how and for whom it was casting its votes for and against. In this instance, the Court approved a mechanism by which the nominee gave voting proxies to each beneficial owner (or someone else appointed by the owner) in respect of that owner’s shares. The Court rolled up its sleeves when it came to the drafting of the scheme documents on that issue (and others) requiring that:
- This mechanism be hard wired into the scheme documents – it was not sufficient to rely on a provision in the articles of association by which the registered shareholder was “deemed” to authorise a beneficial owner to act even without a formal proxy; and
- The order specify that the registered shareholder be able to split its vote.