13th March 2025
In its recent judgment in the case of Changyou.com Ltd v Fourworld Global Opportunities Fund Ltd (Cayman Islands) [2025] UKPC 12, published on 11 March 2025, the Judicial Committee of the Privy Council has definitively decided that minority, dissenting shareholders in a “short-form” corporate merger between a parent company and a subsidiary company under Part XVI of the Cayman Islands’ Companies Act do have a right to apply for a ‘fair value’ appraisal by the Court of their minority shares (in the alternative to accepting the company’s cash offer at the price determined by the company).
In reaching its decision, the Judicial Committee acknowledged that the express wording of the Companies Act was poorly drafted in this particular respect, and that Parliament had mistakenly failed to give clear appraisal rights (or to define a clear appraisal procedure) in a ‘short-form’ merger. On ordinary principles of statutory interpretation (having regard to the usual separation of powers between the Legislature and the Judiciary), the Court would not have had the ability to re-draft the legislation.
However, having regard to section 5 of the Cayman Islands’ Constitution, and section 15 of the Cayman Islands’ Bill of Rights, the Judicial Committee considered that the Court had the power to modify and adapt the Companies Act to the extent necessary to bring the relevant provisions into conformity with the Constitution, on the theory (which had not been fully argued or considered by the Courts below) that the relevant provisions of the Companies Act were an ‘existing law’ at the time of the Constitution, notwithstanding legislative amendments that post-dated the Constitution.
Unless further amendments are now made to the Cayman Islands’ Companies Act, having regard to the Privy Council’s decision and any industry consultation, there may still be scope for argument in future cases (depending on the facts) as to the procedural mechanics for “short-form” merger appraisal actions, as well as consequential issues relating to share valuation methodologies, legal costs, disclosure to shareholders, and potential corporate liability (or Governmental liability) to minority shareholders that were unaware of, or failed to exercise, their potential appraisal rights in a “short-form” merger under Cayman Islands law (whether determined prospectively or retrospectively).
Alex Potts KC represented Changyou.com Ltd before the Grand Court and the Court of Appeal of the Cayman Islands. Alex also assisted with drafting the Appellant’s grounds of appeal and the Appellant’s written submissions before the Judicial Committee.
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