A well-known and now widely used part of local legislation, Section 238(8) of the Cayman Islands Companies Law (the “Companies Law”), entitles a shareholder who dissents from a merger or consolidation of a Cayman company under the statutory merger provisions contained in Part XVI of the Companies Law to be paid “the fair value of his shares”. Disputes about how to determine “fair value”, both in terms of procedure and calculation methodology, have been voluminous over the past eighteen months or so, and have resulted in a sharp increase in the number of fair value appraisal actions before the Grand Court of the Cayman Islands (the “Grand Court”).
Flowing from that litigation, and adding to the growing jurisprudence on this front, the Cayman Islands Court of Appeal (the “CICA”) has recently released a number of highly anticipated decisions concerning various interlocutory issues arising in the course of litigation of this nature. The most important of the judgments released so far and discussed in brief below, analyse the contentious issues of: (1) interim payments to and injunctions by dissenting shareholders (referred to generally below as “Dissenters”) pending the outcome of the appraisal litigation; (2) discovery of documents by Dissenters; and (3) the application of a “minority discount” to the value of the Dissenters’ share price.
Section 238 of the Companies Law
As is now widely accepted, in an appraisal action commenced by petition under Section 238 of the Companies Law, the sole purpose of the action is for the Court to determine the fair value of the shares of the shareholders who have dissented to the merger of two companies, together with a fair rate of interest to be paid by the company to the Dissenters. However, this type of action differs from litigation in the normal course in that there is no plaintiff and no defendant, and there is no burden of proof on one party or the other to prove the allegations they make. Instead each party bears the burden of proving the value for which it contends, and relies on the Court to finally determine the fair value. In theory, the process should be a straightforward and non-contentious valuation exercise with reference to the necessary financial and business information. However, as has been shown in the following judgments, various interlocutory issues inevitably arise as to the various rights and entitlements of the parties involved, and the proceedings can quickly veer into contentious territory.