Section 238: Emerging Patterns In Cayman Islands Merger Appraisal Litigation

Introduction

Pursuant to section 238 of the Cayman Companies Act ("Section 238"), upon a merger or consolidation, a dissenting shareholder is entitled to a determination by the Grand Court of the "fair value" of its shares, along with a fair rate of interest. A long-form merger or consolidation under Part XVI of the Companies Act is authorised by a two-thirds majority in voting power of the company's members¹ . Upon giving notice of dissent, all of the dissenting shareholder's rights are replaced by an entitlement "to be paid the fair value of that person's shares"².

Section 238 has given rise to a large number of petitions in recent years, most of them involving Cayman Islands companies listed on United States stock exchanges with substantial business operations in the People's Republic of China.