Bestway Global Holdings Inc: A Summary Of The Principles Applied When Considering Sanction Applications For Schemes Of Arrangement And Capital Reductions

• Published date: 18 November 2021
• Subject Matter: Corporate/Commercial Law, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Insolvency/Bankruptcy, Shareholders
• Law Firm: Conyers
• Author: Ms Sarah McLennan

In Bestway Global Holdings Inc. (FSD 208 of 2021 - unreported), Doyle J gave a comprehensive and helpful review of the principles to be applied by the Court when considering whether to sanction a scheme of arrangement and confirm a capital reduction. Although schemes of arrangement are commonplace in the Cayman Islands, rarely are the principles and authorities considered at sanction hearings so thoroughly set out in published judgments. The decision therefore provides useful guidance to practitioners.

The objective of a scheme of arrangement is to allow the company to enter into an agreement with its shareholders and/or creditors (or any class of them) to either:

1. restructure its affairs while solvent (including the frequent use of schemes to privatise public companies); or
2. reach a compromise or arrangement with creditors or shareholders (or any class of them) after liquidation has commenced.

A scheme of arrangement in the Cayman Islands requires the sanction of the Grand Court in order for it to be binding on the company and its shareholders and/or creditors ("Scheme Participants"). In every case, the court will consider whether it is appropriate to convene class meetings of the Scheme Participants and, if so, what the composition of those classes should be. The applicant must satisfy the court that the scheme documentation will provide the Scheme Participants with all information reasonably necessary to make an informed decision about the merits of the proposed scheme of arrangement and will have the right to attend and be heard at the hearing of the petition.

Here, the court was asked to sanction a scheme of arrangement under section 86 of the Companies Act (2021 Revision) ("The Companies Act") and to confirm a reduction of share capital pursuant to section 15 of the Companies Act. In summary, the purpose of the scheme was to privatise the company, offering scheme shareholders a good opportunity to realise their investment without suffering any discount due to low trading liquidity. The costs associated with the Company's listing status were longer justified, so privatising the Company was in the interests of the various stakeholders of the Company.

The Court considered the purpose and effect of the scheme, the proposed scheme documents, the determination of classes and made an order for directions for the convening of the scheme meeting and for the hearing of the petition.

At the hearing of the petition, Doyle J noted the undertakings to the Court...