Mar 2025
The Case of Changyou.com Ltd v Fourworld Global Opportunities Fund Ltd and 7 others 2025 UKPC 12
In a judgment handed down on 11 March 2025, the Privy Council has upheld the amendments made to sections 238(2)-(5) of the Companies Act by the Cayman Islands Court of Appeal and found that a shareholder who disagrees with the merger consideration enjoys appraisal rights in a short-form merger.
The Privy Council found that the Companies Act, as enacted, did not confer appraisal rights in a short form merger, and that this could not be rectified as a matter of the ordinary construction of the Companies Act under the principles in Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586, but that sections 238(2)-(5) of the Companies Act could be re-written “to adapt the machinery” by applying section 5 of the Cayman Islands Constitution Order 2009 to make the Companies Act compatible with section 15 of the Cayman Islands Bill of Rights.
Interestingly the Privy Council found that the provisions in 238(2)-(5) of the Companies Act, which require a shareholder to lodge a notice of objection and a notice of dissent to exercise appraisal rights in a long-form merger, were not definitional sections but merely described how a shareholder could dissent “in practice”. The Privy Council found that the dissent required by section 238(1) of the Companies Act was therefore left undefined but that dissent simply meant to disagree with the value of the merger consideration.
Having so found it was perhaps unnecessary for the Privy Council to go on to uphold the amendments to the Companies Act made by the Cayman Islands Court of Appeal, and thereby create the odd position that a dissentient shareholder might simply express disagreement with the merger consideration or might comply with the amended Companies Act.
For ease of reference section 238(1)-(5) now reads as follows (with the additions approved by the Privy Council in bold):
- A member of a constituent company incorporated under this Act shall be entitled to payment of the fair value of that person’s shares upon dissenting from a merger or consolidation.
- A member who desires to exercise that person’s entitlement under subsection (1) shall give to the constituent company, before the vote on the merger or consolidation (if any such vote is to be held) or (if no such vote is to be held) immediately after the date on which the plan of merger is given to the member pursuant to section 233(7), written objection to the action.
- An objection under subsection (2) shall include a statement that the member proposes to demand payment for that person’s shares if the merger or consolidation is authorised by the vote or approved.
- Within twenty days immediately following the date on which the vote of members giving authorisation for the merger or consolidation is made, or (if no such vote is to be held) within twenty days immediately following the date on which the plan of merger or consolidation is filed with the Registrar pursuant to section 233(9), the constituent company shall give written notice of the authorisation or filing to each member who made a written objection.
- A member who elects to dissent shall, within twenty days immediately following the date on which the notice referred to in subsection (4) is given, give to the constituent company a written notice of that person’s decision to dissent, stating:
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- that person’s name and address;
- the number and classes of shares in respect of which that person dissents; and
- a demand for payment of the fair value of that person’s share.
Perhaps it is better to comply with the Companies Act as interpreted by the Privy Council rather than merely disagree with the merger consideration but corporate transactional lawyers and indeed commercial litigators would be well advised to have a copy of the Constitution Order and this judgment in their left hand and the Companies Act in their right hand.
Conyers acted for the Company in the Grand Court, the Court of Appeal and in the Privy Council.