Cayman Short Form Merger – Is It A Loophole?

Section 238 of the Companies Act (2025 Revision) (the "Act") provides a statutory right for shareholders who dissent from a merger to be paid a judicially determined fair value for their shares in lieu of the merger consideration being offered by the merging company.

In recent years, number of cases under section 238 of the Act have grown substantially as there are an increasing number of take-private transactions involving US listed Chinese companies.

The statutory merger process pursuant to part 16 of the Companies Act must be authorised by a special resolution of the Company's members, which requires the consent of a two-thirds majority of the shareholders (referred to as a "long-form merger"). A member who wishes to dissent from a long-form merger must file a notice of objection in writing prior to the vote in the extraordinary general meeting ("EGM"), and a formal notice of dissent after the company gives notice that the merger was authorised at the EGM.