Global competition for the financial services industry is as fierce as ever. One of advantages that Cayman has had historically is legislation and regulation that attracts high quality financial services clients who are designing and promoting the most innovative global products. As with everything else, that legislation needs to be kept up to date and as effective as possible, writes John Wolf, partner in the corporate and commercial department at Campbells.
After much work and collaboration between Government and the private sector, the Companies Law has just been amended. The amendment to the Companies Law is one of the first to go through the Financial Services Legislative Committee, a recently formed body with representatives from the private and public sector. The role of the Committee is to assist Government in “fast tracking” the drafting and implementation of important financial services legislation. So far it has been very effective and is a very good example of how the public and private sectors can work very well together through an established, agreed framework.
Some changes to the Companies Law are relatively routine,
some are somewhat esoteric and others are more fundamental.
Dual foreign company names
Clients incorporating companies for use in countries such as China, which use a different alphabet or script, may wish the name also to be written in Chinese characters on its corporate documentation (i.e. certificate of incorporation etc.). However, sometimes the desired Chinese name has a completely different meaning to the English name. For instance, the Chinese name of HSBC Holdings plc is Full Harvest Holdings Ltd., the Chinese name of Hutchison Whampoa Ltd. is Harmony Remember Whampoa Ltd. and the Chinese name of Hang Seng Bank Ltd. is Long-lived Bank Ltd. Until now, if the company was a Cayman Islands company, its Chinese name had to be an exact translation of its English name. So the Companies Law has been amended to expressly allow a company to have a duplicate name,
which may have a different meaning in foreign script. The provisions regarding dual foreign company names require regulations to be passed before they become operative. The regulations will, in particular, prescribe the format of the translation certificate for the dual foreign name. The regulations are in the process of being prepared and it is hoped that they will be in place by the end of this month.
It will be possible to alter the rights attaching to shares so that they become redeemable shares. Previously, shares could only be redeemed if they were issued as redeemable.
It has been clarified that directors may determine the terms of any redemption or purchase of shares if so authorised by the company’s articles of association. Formerly, the manner (essentially, the terms) of purchase needed to be approved by an ordinary resolution of the shareholders.
A new definition of “paid up” or “fully paid” has been inserted. Shares may be purchased or redeemed if fully paid up. “Paid up” or “fully paid” means, in the case of shares with a nominal or par value, paid up or fully paid as to nominal or par value – so to redeem or purchase shares the full issue price of such shares does not have to paid up as long as the par value is paid up.
yman companies may now acquire and hold their own shares i.e. treasury shares are permissible. Previously, when a Cayman Islands company acquired its own shares they were cancelled and became available for re-issue as part of the company’s authorised share capital. Shares that are held in treasury can, at any time, either be cancelled by the company or sold to another person. The company may not, however, exercise any voting or other rights in respect of treasury shares nor may any dividend be declared or paid or other distribution made in respect of treasury shares. However, bonus shares may be issued in respect of treasury shares although they will, in turn, be treated as treasury shares.
Increased flexibility has been introduced in relation to the definition of a special resolution. Previously, special resolutions needed to be passed by shareholders that vote or such greater numbers as are specified in the company’s articles of association (or all the members in the case of a written resolution). Now, a company’s articles may specify that the required majority may differ as between matters required to be approved by special resolution. This allows increased flexibility to specify the desired voting majority so that, for instance, a special resolution approving a change in name of the company might require a m
ajority but a merger or consolidation might require a unanimous resolution.
Execution of documents
Provisions in the Companies Law in relation to companies executing documents, in particular, under seal or as deeds, have been clarified to ensure that any person acting under the express or implied authority of the company may execute a document as a deed or under seal. Also, a company that is not incorporated in the Cayman Islands may execute a document governed by the laws of the Cayman Islands as a deed or under seal provided it is executed by someone acting under the express or implied authority of the company and is executed in conformity with the constituting laws of the company and its constituting documents (e.g. memorandum and articles of association or equivalent).
The amendment also resolves the issues raised under English law in the case of R. (on the application of Mercury Tax Group Ltd.) v Revenue & Customs and expressly permits a signature or execution page to be attached to a contract, deed or other instrument. This obviates the requirement that a signatory must print the entire (and final) document at the time of signing and enables the previous practice of obtaining signature pages in advance to continue provided, of course, that the signatory is provided with a final form of the document before his signature page is attached. Similar provisions and amendments have been made in relation to the execution of documents by individuals in the Properties (Miscellaneous) Law.
Also, a company may empower a person to execute deeds or instruments under seal on its behalf without having to enshrine such authority in a power of attorney. The same applies for a foreign company.
he procedure for registering a foreign company to do business in the Cayman Islands under Part IX of the Companies Law has been simplified.
t has been clarified that merely maintaining a share transfer or share registration office for a foreign company in the Cayman Islands does not constitute conducting business in the Cayman Islands requiring such company to register as a foreign company under Part IX of the Company Law. This ensures that the registrar and transfer agency services can be provided to a foreign company in the Cayman Islands without requiring the foreign company to be registered under Part IX of the Companies Law.
Provisions relating to the merger of companies have been amended to reduce the approval required by shareholders from a three-quarter majority of all shareholders to a special resolution passed by shareholders eligible to vote at a general meeting of the company. In the case of investment funds, participating non-voting shareholders may be able to redeem their shares depending on the terms of the shares if they do not wish to participate in a merged company. Alternatively, the articles could be amended to provide that a special resolution approving a merger or consolidation has to be passed by a majority. The amendments will also allow a Cayman Islands company to merge with an overseas company (that is a company not incorporated in the Cayman Islands) with the surviving consolidated company being the foreign company. In such case, the Cayman Islands Registrar of Companies will not issue a certificate of merger but will instead issue a certificate of strike off by way of merger or consolidation with an overseas company as the merger will be effected under the laws of the foreign country where the company is to
Segregated Portfolio Companies
Provisions relating to segregated portfolio companies have been amended as follows:-
Personal liability of directors in the case of misattribution of an asset or liability to a segregated portfolio has been removed and replaced with a procedure for resolution of such misattribution.
To allow assets and liabilities to be transferred between segregated portfolios or (which was not previously the case) between a segregated portfolio and the general assets at full value;
To require that the Registrar of Companies is given notice of all existing portfolios when filing the annual fees due and the portfolios that have been terminated since such notice was last given;
To enable terminated portfolios to be reinstated which may desirable, for instance, if assets attributable to a terminated portfolio are subsequently discovered or received;
To establish a procedure for terminating portfolios which no longer have any assets or liabilities.
Having completed this first wave of amendments to the Companies Law, the Financial Services Legislative Committee is considering and will continue to monitor further changes that are necessary in order to keep Cayman Islands legislation at the forefront of the offshore jurisdictions.