The Companies Law (2009 Revision) and XI Capital Ltd (The Petitioner)
| Jurisdiction | Cayman Islands |
| Judge | The Hon. Chief Justice |
| Judgment Date | 03 March 2010 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO. FSD0066 OF 2010 |
| Date | 03 March 2010 |
The Hon. Chief Justice
On 3rd March 2010,1 heard and granted the Petitioner's ex parte application for an order pursuant to Section 86 of the Companies Law (2009 Revision) that it be at liberty to convene meetings between itself and the three separate classes of its shareholders for the purpose of considering and, if thought fit, approving a proposed scheme of arrangement (‘the Scheme’).
I then promised to provide a brief ruling giving of reasons for that order, for the consideration of the directors and shareholders upon their contemplation of the Scheme. These are those reasons.
Section 86 of the Companies Law vests in the Court a discretion whether or not to order a meeting of a company's creditors and shareholders (or of any class of them) for the purpose of considering a compromise or arrangement as betweenthem and the company. Section 86 does so in these terms (relevant to the present circumstances involving not creditors but only shareholders):
‘86(1) Where a compromise or arrangement is proposed between a company and its …members or any class of them, the Court may, on the application of the company …or member of the company …order a meeting of the…members of the company or class of members, as the case may be, to be summoned in such manner as the Court directs.’
The section goes on in subsection 2 to explain that if at a Court-directed meeting a majority in number representing at least seventy-five per cent in value of the members or class of members present and voting either in person or by proxy agree to any compromise or arrangement; that compromise or arrangement if later sanctioned by the Court, shall become binding on all the members or class of members as the case might be, and also on the company itself.
The meetings proposed to be convened will be of the following three separate classes of shareholders:
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(a) the holders of the Class A ordinary shares issued by the Petitioner with a par value of US$0.01 per share (the ‘Ordinary Shares’);
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(b) the holders of the Series C preference ordinary shares issued by the Petitioner with a par value of US$0.01 per share (the ‘Series C Preference Shares’); and
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(c) the holders of the Series E preference ordinary shares issued by the Petitioner with a par value of US$0.01 per share (the ‘Series E Preference Shares’).
As stated in the affidavit of Kirstin Romann Gould, the General Counsel and Secretary to the Petitioner, the principal object of the Scheme is to change the location of the ultimate holding company of the XL Capital Group from the Cayman Islands to Ireland and for the Petitioner to become a subsidiary of XL Group pic (‘XL-Ireland’), a new public limited company that will be incorporated under the laws of Ireland.
This object will be achieved by the exchange by shareholders of their shares in the Petitioner for shares in XL-Ireland, commensurate with each class.
The board of directors of the Petitioner (‘the Board’) has approved of the Scheme, and considers that it is in the best interests of the XL Capital Group, the Petitioner and its shareholders, to change the place of incorporation of the ultimate holding company of the Group to Ireland.
The reason for this and that which has prompted the Court to provide this ruling is ultimately one of perception as set out at pages 39–40 of the Proxy Statement to Shareholders:
‘Like many companies, we continually explore ways to optimize our corporate structure, including with respect to the jurisdiction of incorporation of our parent holding company. After conducting a thorough review with the help of outside advisors, our Board has determined that a change in place of incorporation is in the best interests of XL and its shareholders.
We are subject to reputational, political, tax and other risks because of negative publicity regarding companies that are incorporated in jurisdictions, including the Cayman Islands, whose economies have low rates of, or no, direct taxation or which do not have a substantial network of double taxation (or similar) treaties with the United States, the European Union or other members of the OECD. Our Board believes that changing our place of incorporation will reduce these risks and offer the opportunity to reinforce our reputation, which is one of our key assets, and to better support our legal and business platforms.
Additionally, there have been, and could be in the future, legislative or regulatory proposals that could increase taxes for companies incorporated in jurisdictions such as the Cayman Islands. Although we do not believe that any proposals under current legislative or regulatoiy consideration would directly impact us if enacted, our Board believes that the incorporation of our parent holding company in the Cayman Islands increases the risk that legislative or regulatory proposals that might be enacted in the future could materially and adversely affect us.
After considering a number of locations, our Board ultimately selected Ireland as the best available alternative based on many factors, including:
(then follows a description of five areas of perceived advantages to be obtained by relocating to Ireland).’
Before granting an order for the convening of a Scheme meeting, the Court must be satisfied about a number of matters contemplated by the Law and Rules of Court and which are now fully explained in the case law. These are different from but related to, the considerations which must be satisfied if and when the matter returns to Court for its sanction, the Scheme meetings having been held; as to which see Section 86(2) andIn Re National Bank Ltd. [l966] WLR 819.
As I stated at the outset of the hearing, having read the papers in advance; I was immediately satisfied about a number of matters:
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(i) That the Articles of Association of the Petitioner permit of the kind of compromise and arrangement proposed for the Scheme; here the exchange of shares in the Petitioner for shares in XL-Ireland. The...
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