Six key requirements to sanction a Cayman Islands scheme of arrangement
In the recent decision of Jiangnan Group Limited, the Cayman Islands Grand Court analyses the requirements required for sanction of a scheme of arrangement with members and/or creditors and endorses the relevant principles previously set out in Bestway Global Inc.
On 8 March 2023, Jiangnan Group Limited (the Petitioner) sought the Court’s approval to a proposed scheme of arrangement with scheme shareholders to effect a process of privatisation, a commonly recognised procedure in the Cayman Islands Courts.
The proposal was for the acquisition of the scheme shareholders’ shares for a 0.40 per cent cancellation price. Having received letters of support from various senior personnel within the company, the Court was satisfied that the proposal was reasonable for submission to the scheme shareholders for their approval.
Ultimately, 95 per cent of those voting approved the scheme, following which the Court, at the sanction hearing considered the relevant requirements to be satisfied before granting sanction.
Following Bestway Global Inc., the Court applied the following six requirements to be satisfied before granting sanction of a Cayman Islands Scheme of Arrangement, namely:
- the proposed scheme fell within the parameters of the Companies Act;
- the Scheme Document provided all material information reasonably required to enable the scheme shareholders to come to an informed view on the merits of the scheme;
- the Court ordered meetings were properly held and the required statutory majorities were achieved;
- there was no reason to believe that the views of the majority voting in favour of the scheme did not fairly represent the views of the scheme shareholders as a whole or that they were not acting bona fide or subject to coercion;
- the scheme is fair in the sense that an intelligent and honest person acting in respect of their relevant interest might approve of it; and
- there was no good reason for the Court to not exercise its residual discretion in sanctioning the scheme.
Having regard to these well-established requirements, the Court granted sanction to the scheme and highlighted the importance of the Court giving due recognition to the commercial judgment of those directly involved in voting for the scheme, who may be the best judges of their commercial interests.