On 25 April 2017, the Honourable Justice Segal published his judgment in In the matter of Shanda Games Limited (FSD 14 of 2016, 25 April 2017) (“Shanda”). The judgment, which is over 100 pages long, comprises a careful and extremely detailed examination of issues arising in the course of litigation in the Cayman Islands (“Cayman”) concerning the statutory shareholder appraisal rights regime set out in Section 238 of the Companies Law (2013 Revision) (the “Law”). It is a significant judgment for the jurisdiction, being only the second judgment regarding the operation of the appraisal regime. Together with the other recent judgments of the Grand Court of the Cayman Islands (the “Court”) in this area, discussed in our article here, it provides practitioners and litigants with further guidance in this area.
To recap, Section 238 provides for shareholders, who dissent to a merger or consolidation involving a Cayman company, and who are not able to agree to the fair value of their shares with the company, to have the fair value determined by the Court. As is reflected in the Shanda judgment, applications under Section 238 (which are commenced by petition filed either by the company or a dissenting shareholder) can raise a variety of complex issues requiring detailed expert evidence on, and extensive argument about, the valuation of the shares in question. While many of the conclusions reached in the judgment are fact specific, the approach taken by Segal J in reaching those conclusions provides useful guidance to parties contemplating, involved in or objecting to a merger involving a Cayman company.
Shanda was only the second contested fair value petition to reach trial. Until the release of the judgment in Shanda, the only case which had considered how the valuation process was required to be undertaken pursuant to Section 238 was that of the Honourable Justice Jones QC in In the Matter of Integra Group (unreported, 28 August 2015) (“Integra”). In that case, and in the absence of an express definition of “fair value” in the Law, Jones J relied on case law originating in Canada and Delaware to determine that the concept of fair value was the value to the shareholder of his proportionate share (without any minority discount or increase in value as a result of the power of compulsory acquisition) of the business as a going concern without taking into account any enhancement in value (or reduction in value) as a result of the merger.
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Dissenting Shareholders, Fair Value Petitions and Statutory Appraisals: New Guidance from the Cayman Islands