Recently there have actually been an enhancing variety of companies
listed in the U.S.A with their primary operations in China been taken
personal by their founders. Usually these noted companies are
included in the Cayman Islands.
Parties are taking benefit of modifications to the Cayman
Companies Law (as amended) (Companies Law) in 2009
which permitted for mergers or consolidations under specific
circumstances including Cayman companies without the need for court
approval, which can have significant expense and timing
A normal take private will utilise the Companies
Law to effect a statutory merger by the creators of the listed
business setting up a brand-new Cayman business (MergerCo).
which will merge with the listed company (Target),.
the Target being the making it through company.
CAYMAN MERGERS IN A NUTSHELL.
Under the Companies Law specific key files are needed and.
certain procedures require to be luggedperformed to attain a statutory.
merger. Both constituent companies require to prepare a plan of merger.
(Strategy), which is typically in shortbasically type and.
governed by Cayman law and is usually scheduled to a more comprehensive.
merger agreement. The Plan should be authorized by the investors and.
directors of both constituent business. Investor approval must.
be by way of special resolution (normally a two thirds bulk).
and any other special requirements in the constitutional files.
of the business. In addition all existing secured creditors of the.
constituent companies must also agreeaccept the Strategy, or the companies.
may look for a waiver for this requirement from the Cayman courts.
When all permissions have actually been obtained, the Plan will certainly be filed.
with the Registrar of Companies in the Cayman Islands.
(Registrar) along with specific other documents are.
needed by the Companies Law. In mostIn many cases these files will.
be examined and signed off by the Registrar in advance of formal.
The Registrar will issue a certificate of merger (Merger.
Certificate) and this will be date the merger is reliable.
(unless celebrations have actually concurred beforehand to set a subsequent.
reliable date, which is no laterbehind 90 days after the date the.
Plan is signed up with the Registrar) (Reliable.
Date). On the Reliable Date the MergerCo will be struck.
off the Cayman companies sign up, although it is not considered to be.
wound-up. All rights, commitments, assets and liabilities of each.
constituent business continue with the Target, as the enduring.
To effectively achieve a take personal, all the shares in the.
Target will needhave to be bought and the cost can often be.
substantial. For a listed business with a big share capital, this.
might need financing from lenders. In many aspects providing loan.
financing in relation to a take private is similarresembles other types.
of secured loaning transactions, however providing financing for a.
merger does raise a number of distinct considerations.In the very first.
instance the lenders ought to review the merger files before they.
are signed and submitted with the Computer registry so the lenders recognize.
with the terms of the merger. In addition, if lenders are taking.
security pre merger, they will needhave to grant the merger.
pursuant to the requirements of the Companies Law.
In a take personal funding there are typically a number of layers of.
companies on top of the MergerCo, who may serve as guarantors,.
security carriers and borrowers. Frequently these companies are also.
Cayman incorporated, and sometimes business included in the.
British Virgin Islands (BVI). Lenders will certainly enter.
into a loan agreement with MergerCo and its associated business.
Cayman Islands and BVI are advantageous in such structures as there.
are no exchange control, tax or monetary support issues.
The terms of the loan arrangement will have to deal straight with.
the merger and particularly how and when security will certainly be offered.
both pre and post merger.
Similar to any secured lending, parties will certainly requirehave to supply.
security for their loan obligations. It is typical for lenders to.
take security over the shares in MergerCo. Another kind of security.
will certainly be for the MergerCo to assign its rights in the merger.
contract. Lenders should see to it any registration requirements.
are attended to upon finalizing of any security files.
As the bulk value in the merger will lie with the Target,.
loan providers will wantwish to get security at Target level, including.
share security over the Target and other security in relation to.
any of its subsidiaries. However this can just happen post merger,.
however commonly these security documents are drafted and concurred in.
advance of the merger as part of the conditions precedent to the.
DRAWDOWN V TAKING OVER.
There will certainly be a time difference between when the lenders will.
allow the MergerCo group to drawdown on the loan facilities and.
when the selling investors of the Target will be paid and the.
Merger Certificate is issued. Throughout these periods lenders are.
naturally worried regarding whether they are protected. The borrower.
group will certainly require the cash to effect the merger. Each.
deal will certainly follow its own patterns, but possible solution is.
for celebrations to enter into escrow arrangements so the loan proceeds.
are held with an escrow representative to be launched directly to the.
selling shareholders upon the issuance of the Merger Certificate.
The lenders and customer groups will needhave to liaise carefully to.
talk about and agree logistics in advance.
Upon the Merger Certificate being released, the merger will be.
effective. From this date onwards the Target is the making it through.
business. As the making it through company it will handle the liabilities.
of the MergerCo in the loan agreement. Often lenders may.
require the Target (as making it through company) to accede the loan.
agreement. Business records, such as registers of members and.
directors will require to be upgraded without delay and loan providers will need.
licensed copies. Commonly these files can be prepared beforehand.
and supplied to loan providers to be held in escrow until the merger is.
efficient. If any security is taken in relation to the Target and.
its subsidiaries, such security ought to be signed up quickly.
As it is likely the Target is a listed company, there will certainly be.
regional listing requirements to abide by and loan providers will desirewish to.
ensure the Target addresses these quickly. After the merger, the.
Target (as surviving business) will no longer have public.
shareholders and will therefore requireshas to be delisted, once again there.
may be certain requirements in relation to this.
OFFSHORE ATTORNEY ROLE FOR LENDERS.
MergerCo and Target will certainly appoint offshore counsel and likewise.
loan providers will require their own offshore counsel. Offshore counsel.
for the lenders will help in examining all the merger documents.
and drafting any overseas law governed security files. They.
will certainly liaise carefully with overseas counsel of MergerCo and Target to.
guarantee drawdown and the merger proceeds smoothly. In addition.
overseas counsel will needhave to issue legal viewpoints on the funding.
and the merger.
Appleby has acted for loan providers in a number of take privates,.
including in relation to NASDAQ listed Shanda Interactive.
Entertainment Limited, NYSE listed Giant Interactive Group Inc and.
NASDAQ listed China Hydroelectric Corporation.
The material of this post is meant to provide a general.
overview of the subject matter. Specialist recommendations must be sought.
about your certain situations.