Fair value in short-form mergers: a pearl of clarification in the Cayman Islands s.238 saga
简易并购程序中的公允价值：一块对开曼群岛公司法第238条进行解释的一系列案件中的璞玉
In recent years, where there has been a merger involving a Cayman Islands incorporated company, it has been a popular trend for shareholders of those companies to apply to the Cayman Islands Grand Court (the "Court") to award them a judicially fair value for their shares instead of accepting the merger consideration which is being offered by the merging company. Under section 238 of the Cayman Islands Companies Act (the "Act"), shareholders have the statutory right to dissent from the merger of a Cayman Islands incorporated company and to ask the Court to determine the value of the shares rather than accept the value of the shares being offered as part of the merger.
近年来，当发生涉及开曼群岛注册公司的并购时，公司股东越来越倾向于向开曼群岛大法院（下称“法院”）提出申请，要求法院判决给予其股份司法上的公允价值，而不是接受公司提议的合并对价。
Changyou.com Limited FSD 120 of 2020
In the recent decision of Changyou.com Limited FSD 120 of 2020, the Court considered the provisions of ss. 233(7) and 238 of the Act and confirmed a specific but significant point, which is that shareholders are entitled to dissent from and be paid fair value for their shares in relation to a "short-form" merger.
A "short-form" merger is where a parent company holding at least 90% of the voting rights of its subsidiary merges with the subsidiary (s.233(7) of the Act). It is called a "short-form" merger because no vote of members by special resolution is required, as is the usual process under s.233(6) of the Act.
In this case, Changyou.com Limited ("Changyou") was a Cayman Islands incorporated company operating in the People's Republic of China in the technology sector, and was an indirect wholly-owned subsidiary of Sohu.com Limited ("Sohu"). A merger plan was announced and implemented by an agreement between Sohu.com (Game) Limited ("Sohu Game"), an indirectly wholly-owned subsidiary of Sohu; and Changyou Merger Co. Limited ("Changyou Merger Co."), a directly wholly-owned subsidiary of Sohu Game, and Changyou. Pursuant to the merger agreement, Changyou Merger Co. merged with and into Changyou with effect from 17 April 2020, with Changyou (hereinafter, the "Company") becoming the surviving company. As a result of the corporate shareholdings described above, Changyou Merger Co., already owned 95.2% of the voting power represented by all issued and outstanding shares of the Company. This meant that the merger was not subject to a vote of shareholders of the Company, but proceeded with a "short-form" merger under s.233(7) of the Act.
The Company's argument for opposing the minority shareholder's petition to the Court for a determination of fair value under s.238 of the Act was that given that it was undertaking a short-form merger, the shareholders did not vote, and therefore had no right to dissent. Since s.238 requires the shareholder to dissent to the merger, the minority shareholders could not ask the Court for a fair value determination of the value of the shares. The petitioners, who were the minority shareholders holding the remaining 4.8% of the voting shares of the Company, disagreed. They filed a petition for a determination of the fair value of their shares in accordance with s.238 of the Act, and the question of whether the minority shareholders in a short-form merger are entitled to have the Court determine the fair value of their shares was put to the Court.
The Court held that s.238 of the Act did confer the right to be paid fair value on any shareholder dissenting from a merger. It also indicated the procedure by which a member may apply to the Court for the appraisal of fair value when dealing with short-form mergers. The reason for the Court's decision was because the Court considered it to be an absurd conclusion if a shareholder was denied its dissenting rights simply because it was not allowed to vote as part of the procedural process.
The Court was of the opinion that the appraisal process in a short-form merger can operate without a vote under s.233(6) authorising a plan of merger. There are various ways of doing this – for example, allowing a notice of dissent to be given although there is no need for a vote. In that event, the dissent would not be from the merger itself but only insofar as it would result in the acquisition of the shares of the minority for the stipulated merger price. The notice of dissent could be given within 20 days of receiving the copy of the merger plan by the shareholders.
The Court noted that if the Company's argument were accepted, that would make the Cayman statutory regime an outlier. For example, under English law, although there is no direct equivalent of a short-form merger, English law would not allow squeeze-out provisions to be used to enable a 90% majority to deprive a minority of their shares at will and on whatever terms they see fit. Similarly, in each of Bermuda, the British Virgin Islands and Delaware, there are comparable merger regimes and in none of them is a dissenting minority able to be deprived of the right to be paid fair value for their shares. As such, the Court held that it would be very surprising if the legislators had intended, without expressly saying so, that the Cayman Islands be an international outlier in which a shareholder which obtains a 90% majority of shares in another company could do so without the minority having the right of appraisal of the fair value of its shares.
The Court further explained that whilst the compulsory acquisition of a minority's shares under a short-form merger is allowed because it is expedient for promoting the economic well-being of the community, this is only possible if certain conditions are met – such as provision in the law for the prompt payment of adequate compensation and ensuring that the minority shareholder has the right to access the Court to determine the amount of compensation for its shares.
Ultimately, the Court held that it was quite clear that the intended purpose of Act and the short-form merger provision in question was to confer the right to be paid fair value on all dissenting shareholders. To the extent that by inadvertence the draftsman or legislature produced a procedure or mechanism which overlooked one class of dissenters (namely those dissenting from a short-form merger), appropriate language to give effect to that intention may and should be read into those provisions to carry that purpose into effect.
Key takeaway points
The decision in this case provides a clear example of the Court's pragmatic and commercial approach. Particularly against the backdrop of the recent popularity of s.238 cases being heard and decided in the Cayman Islands, having this pearl of clarity with respect to short-form mergers is beneficial.
The Court's decision allows for fairness to minority shareholders, and also ensures consistency of approach between the short-form merger mechanism and other commonly used tools, such as a squeeze-out, as well as consistency with other jurisdictions such as England, the BVI and Bermuda.
In light of this, this decision is a welcome one for shareholders seeking clarity on what rights they can exercise, and for maintaining the practical and reasonable approach that the Court has sought to adopt.
在开曼群岛公司法（“公司法”）第238条下，当有股东不同意开曼群岛注册公司提出的合并，他们有法定权利向法院申请确认股份的价值，而不是接受公司提出的作为合并一部分的股票价值。
Changyou.com Limited （案件编号：FSD 120 of 2020）
在最近Changyou.com Limited （案件编号：FSD 120 of 2020）一案的判决中，法院考虑了公司法第233(7)及238条的规定，确认了一个具体且重要的问题，即股东也有权对简易程序合并提出异议，而且就其股份获得公平价值。
简易合并是指当一间母公司拥有子公司至少90%的表决权时与其合并（公司法第233(7)条）。之所以称之为简易合并，是因为不用像公司法第233(6)条所规定的正常程序那样，需要股东投票通过特别决议。
此案涉及在开曼群岛注册的中国科技行业公司Changyou.com Limited（“Changyou”），是Sohu.com Limited（“Sohu”）间接全资拥有的子公司。Sohu.com (Game) Limited （“Sohu Game”是一间Sohu间接全资拥有的子公司）与Changyou Merger Co. Limited（“Changyou Merger Co.”，是Sohu Game与Changyou直接全资拥有的子公司）公布了合并计划并达成了协议。根据该合并协议，Changyou Merger Co.自2020年4月17日起并入Changyou，而Changyou（下称“该公司”）则成为存续公司。因上述的公司股权结构，Changyou Merger Co.已拥有该公司所有已发行及现行股份的95.2%表决权。这意味着该合并无需经过该公司股东的表决，只需根据公司法第233(7)条进行简易合并。
该公司反对小股东根据公司法第238 条向法院提出异议请求要求确认其股份公允价值的理由是，鉴于该公司采取简易合并，股东没有投票，因此小股东无权提出异议。由于按照第238 条规定要求股东必须对合并提出异议，因此小股东不能向法院申请确认其股份价值。作为持有该公司余下4.8%表决权的小股东们不同意该观点。他们根据公司法第238条，向法院提交申请要求确认其股份公允价值，而小股东在简易程序合并中是否有权向法院申请确认其股票公允价值的问题，也随之被提上法院。
法院认为，公司法第238 条赋予任何反对合并的股东获得公允价值的权利。法院亦提到了股东在处理简易合并时向法院申请评估公允价值的应遵循的程序。法院判决的理由认为如果股东仅仅因为在程序中不能投票而被剥夺其反对的权力将NICE 是个荒谬的结论。
法院认为，第233(6)条下授权合并计划的规定，简易合并程序中虽无投票表决仍可得以实施。有各种方法可做到这一点——例如，虽然不需要投票，但允许发出反对通知。在这种情况下，若有异议应不会针对合并本身，而是会针对以规定的合并价格收购小股东股份。反对通知可在小股东收到合并计划后20天内发出。
法院指出，若公司的理由被接纳，这将会使开曼的法定制度成为例外。例如，根据英国法，虽然没有直接等同于简易合并的规定，英国法不容许使用挤出并购的规定持有公司表决权90%以上的股东仅以他们的意志出发以他们认为合适的条件去剥夺小股东的股份。同样，百慕大、英属维京群岛和特拉华州都有类似的合并制度，但没有一个地方允许持异议的小股东被剥夺为其股份获得公允价值的权利。因此，法院认为，若立法者没有明确表示让开曼群岛成为国际上的例外，即持有公司90%以上多数股份的股东可以，而小股东却无权要求评估其股份的公允价值，那结果将令人非常惊讶。
法院进一步解释，虽然允许在简易合并中强制收购小股东的股份有其经济效益，但只有在满足法律规定的特定条件的情况下，才有可能做到——例如在法律规定要及时支付足够的赔偿，并确保小股东有权向法院申诉，以确认其股份的赔偿金额。
最后，法院认为，公司法和有关简易合并条款机制的目的，明显是赋予所有异议股东获得公允价值的权利。如果起草者或立法者不慎制定了程序或机制，忽视了这一类反对者（即简易合并程序中的异议股东)，那么就可以和应该使用适当的语言解释这些条款以实现这个目的。
关键要点
此案的判决是开曼法院以务实和商业为主导的清楚案例。特别是在最近开曼群岛经常审理和裁决有关第238条案件的背景下，作出有关简易合并的澄清是有益的。
法院的判决允许了对小股东的公平对待，也确保了简易合并机制和其他常用工具（如强制挤出）之间的一致性，以及与英国、英属维尔京群岛和百慕大等其他管辖区的一致性。
有鉴于此，对于那些想明确哪些可以行使的股东，对于法院执行切实合理的操作，应是一个受欢迎的决定。
