Re XL Capital

• Jurisdiction: Cayman Islands
• Judge: (Smellie, C.J.)
• Judgment Date: 05 March 2010
• Court: Grand Court (Cayman Islands)
• Date: 05 March 2010

Grand Court, Financial Services Division

(Smellie, C.J.)

IN THE MATTER OF XL CAPITAL LIMITED

C.D. McKie, Ms. C. Moran and R.J. Webb for the petitioner.

Cases cited:

(1) Euro Bank Corp., In re, 2003 CILR 205, referred to.

(2) General Oriental Invs. Ltd., In re, 1997 CILR N[6], referred to.

(3) N.F.U. Dev. Trust Ltd., In re, [1972] 1 W.L.R. 1548; [1973] 1 All E.R. 135, referred to.

(4) National Bank, In re, [1966] 1 W.L.R. 819; [1966] 1 All E.R. 1006; (1966), 110 Sol. Jo. 226, referred to.

(5) Orient Petroleum Intl. Inc., In re, 2009 CILR 689, referred to.

(6) RAC Motoring Services Ltd., In re, [2000] 1 BCLC 307, dicta of Neuberger J. applied.

(7) SIIC Medical Science & Technology Ltd., In re, 2003 CILR 355, referred to.

Legislation construed:

Companies Law (2009 Revision), s.86(1): The relevant terms of this sub-section are set out at para. 2.

s.86(2): The relevant terms of this sub-section are set out at para. 3.

Grand Court Rules, 1995, O.102, r.21: The relevant terms of this rule are set out at para. 10 and at para. 15.

Practice Direction cited:

Practice Direction No. 1/2002, Schemes of Arrangement and Compromise.

Companies-arrangements and reconstructions-confirmation by court-court may order shareholders” meeting, under Companies Law (2009 Revision), s.86(1), if satisfied directors fully disclosed reasons for arrangement in supporting materials (as required under Grand Court Rules, O.102, r.20)-to allow shareholders to make own enquiries and reach properly informed decision-no requirement to detail reasons exhaustively-shareholders to be aware company”s reasons not endorsed by court and to be able to reach own conclusions

The petitioner company sought an order, under s.86 of the Companies Law (2009 Revision), to convene shareholders” meetings for the purpose of approving a scheme of arrangement.

The scheme of arrangement proposed to relocate the ultimate holding company of a group of companies from the Cayman Islands to Ireland by the incorporation of a new company in Ireland of which the petitioner would become a wholly-owned subsidiary. The board of directors of the petitioner had approved the scheme and, in a supporting proxy statement provided to shareholders, explained that the proposed scheme was intended to improve the company”s reputation by avoiding the negative publicity attached to companies incorporated in offshore jurisdictions and to reduce its potential future tax liability. The petitioner applied to convene meetings of its shareholders to consider the proposed scheme.

The court considered whether, on the basis of the supporting material including proxy statement and shareholders” circular, it would permit the petitioner to convene the proposed meetings of its shareholders.

Held, ordering the shareholders” meeting to be convened:

The court would permit the petitioner to convene meetings of its shareholders for the purpose of approving the proposed scheme of arrangement. Having established that (i) the articles of association permitted the proposed scheme; (ii) the scheme constituted an ‘arrangement’ under s.86(1) of the Companies Law (2009 Revision); (iii) the scheme would not defeat the statutory priority of creditors; and (iv) the relevant classes of shareholders had been ascertained, the court would need to be satisfied that-in accordance with the Grand Court Rules, O.102, r.20 and s.3.4 of Practice Direction No. 1/2002, Schemes of Arrangement and

Compromise under the Companies Law, s.86-the directors had made a full and fair disclosure of all matters within their knowledge in the proxy statement and circular to the shareholders so as to enable them to make any further inquiries they wished and a properly informed decision on the merits of the scheme. The directors would not be required to detail exhaustively the reasons relied upon for proposing the scheme but the objective of the scheme would have to be transparently sensible and supported in the summons by credible evidence-though it would not be for the court to supplant the commercial judgment of the directors. Further, the court emphasized that the perceived benefits of the scheme, while accepted as reasonable by the court, were the perceptions of the directors and not necessarily court-endorsed and, consequently, the statements would need to contain sufficient information about the basis of the perceptions to enable the shareholders to reach their own conclusions (in this case, further information on government tax policy might be required). Given that the court was satisfied that sufficient supporting information had been presented, it would order the meetings to be convened (paras. 8–9...