Re SIIC Medical Science & Technology Ltd

• Jurisdiction: Cayman Islands
• Judge: (Levers, J.)
• Judgment Date: 22 August 2003
• Court: Grand Court (Cayman Islands)
• Date: 22 August 2003

Grand Court

(Levers, J.)

IN THE MATTER OF SIIC MEDICAL SCIENCE AND TECHNOLOGY (GROUP) LIMITED

C.D. McKie for the petitioner.

Cases cited:

(1) A. & C. Constructions, Re, [1970] SASR 565, referred to.

(2) Glendale Land Dev. Ltd., ReUNK(1982), 7 ACLR 171, dicta of McLelland J. applied.

(3) National Bank Ltd., In re, [1966] 1 W.L.R. 819; [1966] 1 All E.R. 1006; (1966), 110 Sol. Jo. 226, dicta of Plowman J. applied.

Legislation construed:

Companies Law (2003 Revision) (Laws of the Cayman Islands, 1963, cap. 22, revised 2003), s.86: The relevant terms of this section are set out at para. 10.

s.88(1): ‘Where a scheme or contract involving the transfer of shares … in a company … to another company … has … been approved by the holders of not less than ninety per cent in value of the shares affected, the transferee company may … give notice in the prescribed manner to any dissenting shareholder that it desires to acquire his shares, and where such notice is given the transferee company shall, unless on an application made by the dissenting shareholder within one month from the date on which the notice was given, the Court thinks fit to order otherwise, be entitled and bound to acquire those shares …’

Companies-arrangements and reconstructions-‘compromise or arrangement’-scheme whereby shareholders exchange shares for cash and company”s liability is extinguished is ‘compromise or arrangement’-‘arrangement’ construed broadly to include wide range of schemes showing give and take, with approval of company

Companies-arrangements and reconstructions-‘compromise or arrangement’-if consideration provided by third party, scheme is ‘compromise or arrangement’ pursuant to Companies Law, s.86 if third party”s undertaking in writing and contractually enforceable

A company applied to the Grand Court to summon a scheme meeting under the Companies Law, s.86.

A company proposed to become a wholly-owned subsidiary of another company, SIHL, under a scheme which involved the extinguishment of its liability to its shareholders by buying back their shares (excluding those shares held by SIHL and its subsidiaries). The parties to the proposed scheme were the company and its shareholders, but the purchase price of the shares was to be paid to the shareholders by SIHL, as stipulated in an undertaking to the court. The company submitted that although the consideration for the proposed scheme was to be provided by a third party, it nevertheless constituted a ‘compromise or arrangement’ under s.86 of the Companies Law (2003 Revision), thus giving the court jurisdiction over it. In addition, it was submitted that the fact that SIHL could have followed the procedure under s.88 of the Companies Law, making a tender offer followed by compulsory acquisition, did not affect the propriety of proceeding under s.86.

Held, sanctioning the scheme:

(1) The proposed exchange of rights-whereby the shareholders were to exchange their shares for cash and the company extinguish its liability to them-was prima facie a ‘compromise or arrangement’ within the meaning of s.86 of the Companies Law. The term ‘arrangement’ was to be construed broadly and in order for the scheme to be so classified it was necessary for it to involve an element of ‘give and take’ and to have the approval of the company, either by its board or by a resolution of its members (para. 12).

(2) Since the agreement for SIHL to provide the consideration for the scheme was in writing and enforceable by the parties to the scheme, the fact that a third party was providing the consideration did not prevent it from being prima facie a scheme of arrangement, and the court therefore had jurisdiction to convene a meeting. It was a prerequisite for the court”s approval of the scheme that SIHL was under an enforceable contractual obligation to fulfil its undertaking to pay the shareholders (paras. 16–18).

(3) Although SIHL could have proceeded by way of a tender offer followed by the compulsory acquisition of the company under the procedure in s.88 of the Companies Law, it was not an abuse of process to follow the procedure under s.86 instead. Although the procedures under s.86 and s.88 were both available to facilitate the takeover of the company, either alternative was an acceptable way to proceed (para. 21).

1 LEVERS, J.: This is an application by...