Heads Will Roll: Cayman's Proposed Amendment To The Companies Act (2021 Revision) Would Abolish Headcount Test

• Published date: 30 November 2021
• Subject Matter: Corporate/Commercial Law, M&A/Private Equity, Corporate and Company Law
• Law Firm: Conyers
• Author: Mr David Lamb

M&A lawyers can let out two cheers for the Companies (Amendment) Bill 2021 ("Bill") which was recently gazetted in the Cayman Islands.

If enacted in its current form Bill will, amongst other things¹ , abolish the headcount test in members' schemes of arrangement, typically used to privatise companies and thereupon end the decades-long struggle of the courts to apply the test to schemes of arrangement by listed companies. Members' schemes of arrangement will then only require the approval of 75% in nominal value of the members, or class of members, present and voting either in person or by proxy at the requisite scheme meeting² .

The headcount test requires a majority in number of members, i.e. registered shareholders, holding 75% in nominal value of the scheme shares to approve the scheme. The test originally applied only to creditors schemes³ but was extended to members' schemes in England in 1908⁴ when stock exchanges did not operate through central depositaries. The shares of listed public companies today are often held and traded on a stock exchange through a single member as a central depositary, such as HKSCC Nominees Limited (HKEx) in Hong Kong or The Central Depositary (Pte) Limited (SGX) in Singapore and the application of the test gave rise to the numerosity problem. Bill will eliminate this problem and the central nominee will no longer have to be counted as the one and only bicephalic shareholder which votes both for and against the scheme. As I have written before, this particular Two-Headed Monster can happily return to the Muppet Show; cases such as In the Matter of Little Sheep 2012 (1) CILR 34 and In the Matter of Alibaba.Com Limited [2012] (1) CILR 272 can be confined to the bin; escapades such as share splitting⁵ will be confined to history; and composite scheme documents can be simplified. That moment cannot come too soon for M&A lawyers.

Bill will segregate the approvals required for creditor schemes, where the headcount test is retained, and shareholder schemes, where the headcount test is abolished. A new section 86(2A) of the Companies Act (2021 Revision) will apply to members' schemes and will...