Sections 86 and 87 of The Companies Law (2007 Revision) and Noble Corporation and Noble Cayman Acquisition Ltd

• Jurisdiction: Cayman Islands
• Court: Grand Court (Cayman Islands)
• Judgment Date: 18 June 2009
• Docket Number: Cause No. 63 of 2009
• Date: 18 June 2009

IN THE MATTER OF SECTIONS 86 AND 87 OF THE COMPANIES LAW (2007 REVISION)

AND IN THE MATTER OF NOBLE CORPORATION

AND IN THE MATTER OF NOBLE CAYMAN ACQUISITION LTD.

[2009] CIGC J0618-1

Cause No. 63 of 2009

IN THE GRAND COURT OF THE CAYMAN ISLANDS

RULING

1 The particular issue which arises for determination in this matter is whether the scheme of arrangement proposed in respect of the Second Petitioner company constitutes an ‘amalgamation’ or ‘reconstruction’ within the meaning of section 87(1) of the Companies Law (2007 Revision) (‘the Law’) such that the Court would have jurisdiction to sanction it in appropriate circumstances pursuant to section 86(2) with provisions pursuant to section 87(1) (a), (c) and (d) of the Law.

Background

2 The Petitioner companies, Noble Corporation (‘Noble Cayman’) and Noble Cayman Acquisition Ltd. (‘Merger Sub’) petitioned the Court together forsanction of two proposed schemes of arrangement which are interconnected and interdependent upon each other.

3 Both companies are part of the Noble Group, which is a leading offshore drilling contractor for the oil and gas industry. The object of the proposed schemes is to replace Noble Cayman with its wholly owned subsidiary, a company incorporated under the laws of Switzerland (‘Noble Switzerland’), as the ultimate holding company of the Noble Group, thus moving the holding company from Cayman to Switzerland, for reasons which are not relevant to the particular issue which is the subject of this Ruling. Currently Merger Sub is a wholly owned subsidiary of Noble Switzerland which is in turn a wholly owned subsidiary of Noble Cayman. In order to effect the change of location of the parent company from Cayman to Switzerland it is proposed to change the status of Noble Cayman from parent of Noble Switzerland to subsidiary of Noble Switzerland and for Noble Switzerland to become the ultimate holding company. This is proposed to be achieved by repurchasing all of Noble Cayman's shares and merging it with Noble Switzerland's existing subsidiary, Merger Sub. This ‘merger’ would be carried out in such a way as to allow Noble Cayman to continue to carry on business through its numerous operating subsidiaries. In the resulting structure, Noble Switzerland would own Noble Cayman, which would in turn continue to own its operating subsidiaries. In effect, the shareholders of Noble Cayman are being asked to exchange their shares in Noble Cayman for shares in Noble Switzerland. At present, as explained, Merger Sub is a wholly owned subsidiary of NobleSwitzerland. By the proposed ‘merger’ between Merger Sub and Noble Cayman, Noble Cayman would thereby become the wholly owned subsidiary of Noble Switzerland.

4 The sanction of the Court is sought simultaneously in relation to two schemes of arrangement. The first is a proposed scheme of arrangement between Noble Cayman, the holders of its ordinary shares (‘the Scheme Shareholders’) and Noble Switzerland (the ‘Noble Cayman scheme’). The second proposed scheme is between Merger Sub, its sole shareholder Noble Switzerland and Noble Cayman (the ‘Merger Sub scheme’). Both Noble Cayman and Merger Sub are Cayman Islands exempted companies limited by shares and have unrestricted objects. There are a significant number of Scheme Shareholders most having addresses in the U.S.A. Merger Sub has only one registered shareholder, namely Noble Switzerland.

5 The common purpose of the proposed schemes is to effect a re-organization and consolidation of Noble Cayman such that Noble Cayman combines its undertaking with that of Merger Sub and thereby becomes a wholly owned subsidiary of Noble Switzerland. Merger Sub would then be dissolved and Noble Switzerland would become the ultimate holding company in place of Noble Cayman.

6 Under the proposed schemes the Scheme Shareholders shares would be cancelled and in exchange the Scheme Shareholders would receive registered shares in Noble Switzerland on a one for one basis. In summary, in order to achieve this it is proposed that the following events would occur simultaneously on the date when the schemes become effective:

• (a) Under the Noble Cayman scheme, Noble Cayman would repurchase and cancel all of its relevant shares.

• (b) Under the Noble Cayman scheme, Noble Cayman would issue new ordinary shares to Noble Switzerland.

• (c) Under the Noble Cayman scheme, Noble Switzerland would issue and allot to each of the Scheme Shareholders one registered share for each ordinary share previously held in Noble Cayman, as well as issuing to Noble Cayman an amount of shares in Noble Switzerland to be held as treasury shares. The Scheme Shareholders would waive all claims and rights they may have in respect to the issuance of such treasury shares by Noble Switzerland.

• (d) Under the Merger Sub scheme Merger Sub would transfer all of its property, rights and obligations to Noble Cayman and Merger Sub would be dissolved, without winding-up.

Under the Noble Cayman scheme, the rights of all Noble Cayman registered shareholders (the Scheme Shareholders) are affected. Under the Merger Sub scheme, Noble Switzerland, as the sole shareholder, is the only shareholder affected.

7 The Petitioners duly applied pursuant to section 86(1) of the Law by summons, in the case of Noble Cayman to convene a meeting of its shareholders (the Scheme Shareholders) to consider and, if thought fit, to approve the Noble Cayman scheme. Since Merger Sub had only one shareholder, namely Noble Switzerland, which had already consented to the proposed schemes, it was sought to dispense with a Merger Sub shareholder meeting.

8 At the hearing of the Petitioners' summons counsel for the Petitioners quite properly raised the question of whether the Merger Sub scheme amounted to an ‘amalgamation’ or ‘reconstruction’ within the meaning of section 87(1) of the Law, since, if it was not, the Court would not have jurisdiction to make the provisions which are part of the scheme. As that scheme is an integral and essential part of the whole proposed structural change, there would be little point in the Court giving directions in relation to shareholder meetings if it would have no jurisdiction to sanction it with the provisions pursuant to section 87(1) of the Law. I should say that there were several other issues on the application as well but none of them were particularly troublesome and accordingly this Ruling onlyrelates to the interpretation of ‘amalgamation’ or ‘reconstruction’ in section 87(1) of the Law.

The issue

9 Section 87(1) of the Law provides as follows:

• ‘(1) Where an application is made to the Court under section 86 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are specified in that section, and it is shown to the Court that the compromise or arrangement has been proposed for the purpose of or in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies, and that under the scheme the whole or any part of the undertaking or the property of any company concerned in the scheme (in this section referred to as ‘a transferor company’) is to be transferred to another company (in this section referred to as ‘the transferee company’) the Court, may either by the order sanctioning the compromise or arrangement or by any subsequent order make provision for-

  • (a) the transfer to the transferee company of the whole or any part of the undertaking and of the property or liabilities of any transferor company;

  • (b) ……

  • (c) the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company;

  • (d) the dissolution, without winding up, of any transferor company;

  • (e) ……

• (2) ………

• (2) ………

• (4) In this section-

‘property’ includes property, rights and powers of every description;

‘liabilities’ includes duties; and

‘transferee company’ means any company or body corporate established in the Islands or in any other jurisdiction’.

10 Under the Merger Sub scheme it is proposed that Merger Sub will transfer to Noble Cayman all of it assets and liabilities. Adopting the terms used in section87(1) of the Law, Merger Sub is therefore the proposed ‘transferor’ and Noble Cayman is the proposed ‘transferee’. Both Merger Sub and Noble Cayman are Cayman Islands companies and Noble Cayman accordingly falls within the definition of ‘transferee company’ in section 87(4) of the Law.

11 The question therefore is whether, on a proper construction of section 87(1) of the Law, the transfer of all the assets and liabilities of Merger Sub to Noble Cayman pursuant to the Merger Sub scheme is proposed‘for the purpose of or in connection with a scheme for the reconstruction [my emphasis] of any company or companies or the amalgamation [my emphasis] of any two or more companies.…’

12 It was submitted for the Petitioners that in considering the meaning of the terms ‘amalgamation’ and ‘reconstruction’ the Court should adopt a broad construction, as it has done previously in interpreting other terms in that part of the Law, such as the expression ‘arrangement’ as used in section 86 and 87 of the Law. See for exampleIn Re SIIC Medical Science and Technology (Group) Limited [2003] CILR 355 where the judge said at 359: ‘the courts have construed ‘arrangement’ as a word of very wide import, covering almost every type of legal transaction so long as there is some element of give and take and it has the approval of the company concerned.…’

It was submitted that in the ordinary sense, and in the sense that a business man nowadays would understand it, an ‘amalgamation’ of two or more companies is a bringing together or a merger of their businesses or operations as currently represented by existing assets and liabilities. It was submitted that a ‘reconstruction’ would be...