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In In the matter of Trina Solar Limited1 (“Trina Solar”) the Grand Court of the Cayman Islands refused an interlocutory application, made by a group of dissenting shareholders (the “Dissenters”) of a Cayman Islands company, for worldwide freezing orders over the assets of the company pending the outcome of statutory fair value appraisal proceedings. Having been declined this relief by the Grand Court, the Dissenters took their case on to the Court of Appeal of the Cayman Islands. In its judgment released in February 20182, the Court of Appeal dismissed the Dissenters’ appeal and provided substantial and helpful guidance not only about the stringent tests to be met in order to obtain interlocutory injunctive relief in this context, but also about the need for companies to take full financial and legal advice when determining the amount to be retained by way of provision against dissenting shareholder claims pending determination of a fair value petition.
Trina Solar Limited (the “Company”) had completed a statutory merger pursuant to Part XVI of the Companies Law (2016 Revision) (the “Law”) and, having received notice of the Dissenters’ election to dissent from the Merger, subsequently presented a petition under Section 238 of the Law seeking a determination by the Grand Court of the fair value of the Dissenters’ shares.
Following the presentation of the petition, but prior to any substantive hearing of it, the Company entered into a series of transactions pursuant to which it transferred assets in its subsidiaries to other companies in China, ostensibly to progress the Company’s “go private” post-merger restructuring. The Dissenters were very concerned about the Company’s course of action: their view was that the restructuring would have the effect of significantly reducing the assets of the Company so that it would ultimately be impossible for the Company to satisfy the Judgment of the Grand Court following the trial of the petition. Questions were also raised by the Dissenters about the propriety of certain of the asset transfers.
In an effort to protect their position, the Dissenters filed an application for an injunction to freeze the Company’s assets pending the hearing of the petition. In support of their application, the Dissenters provided an expert valuation opinion that showed the fair value of their shares to be significantly higher than the merger price paid by the Company. The financial limit of the freezing injunction sought was therefore an amount equal to the difference between: (1) the figure the Dissenters said was the upper limit of the range suggested by their expert as being the fair value of their shares; and (2) the interim payments already made by the Company to the Dissenters (the latter having been received by the Dissenters following related and protracted proceedings between the parties). This totalled approximately US$185 million.
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Dissenting Shareholders, Freezing Injunctions, and Provision for Payment: A new judgment of the Cayman Islands Court of Appeal
1 In the matter of Trina Solar Limited, Grand Court of the Cayman Islands (Financial Services Division) Cause No. FSD 92 of 2017 (NSJ) (unreported, 6 November 2017)
2 In the matter of Trina Solar Limited, Cayman Islands Court of Appeal Cause No. CICA 26 of 2017 (unreported, 9 February 2018).