Conyers Offshore Case Digest (Issue No.11 April - December 2015)

CAYMAN ISLANDS
On 18 September 2012, JA and MH applied to the Grand Court for
judicial review of the decisions of the Authority. The relief sought was:
(i) a declaration that the decisions were ultra vires of the powers
granted to the Authority by the Law; (ii) an order of certiorari,
quashing of the decisions and (iii) an order that the Authority provide
JA and MH with copies of all documents which it held relating to the
requests.
Quin J made orders including, amongst others, an order of certiorari
quashing the decisions of the Authority and a declaration that the
decisions to comply with the requests from the ATO were unlawful
because the Authority had failed to apply to the Grand Court under
the relevant sections of the Tax Information Authority Law (the
“Law”).
The Authority appealed challenging the Judges finding that the
Respondents should have been served with notices of the requests
under Section 17(c) of the Law.
The Court of Appeal held that JA and MH were the subjects of the
requests and on that basis it was bound to find that decisions to
execute the requests without having served the Section 17(1) notices
on JA and MH were necessarily ultra vires and dismissed the Appeal.
It followed that the decisions to serve notices under Section 8(4)(b) of
the Law, requiring FCM Limited to provide information, were made
without taking into account material which the Law required that the
Authority should take into account; and that the Judge of first
instance was correct to conclude that those decisions should be set
aside.
GRAND COURT
DETERMINATION OF FAIR VALUE - SECTION 238(1) COMPANIES
LAW - VALUATION ACTION - APPRAISAL ACTION
In the Matter of the Companies Law (2013 Revision) and In the Matter
of Integra Group FSD 92 of 2014 (AJJ) (13-17 April and 26 May 2015)
This is the first time that the Court has considered the meaning of “fair
value” within Section 238(1) of the Companies Law (2013 Revision) (the
“Law”). A petition, being described as a “valuation action” or an
“appraisal action”, was presented by the Integra Group (the “Company”),
by which the Court was required to determine the fair value of its Class A
Common Shares in accordance with the provisions of Section 238(11) of
the Law.
Under Section 238, dissenting shareholders are not required to accept a
merger or consolidation agreement which has been approved by the
requisite majority. Instead, they are entitled to dissent and demand
payment for the fair value of their shares. Section 238(1) provides that:
“A member of a constituent company incorporated under this Law shall
be entitled to payment of fair value of his shares upon dissenting from a
merger or consolidation.”
The Company’s offer was not accepted by the dissenting Shareholders
and after the requisite period a petition was duly presented on 20
August 2014. The Court was therefore required, in accordance with
Section 238(11) of the Law, to determine fair value of the dissenting
Shareholders’ shares and to determine a fair rate of interest, if any, to be
paid by the Company upon the amount determined to be payable in
respect of the shares.
The Court held that the point, immediately before the merger decision
was made, was the appropriate valuation date (the “Valuation Date”).
The Court was therefore required to determine the fair value of the
Company’s business as a going concern at the point immediately before
the merger was approved, it further held that the fair value of the
dissenting Shareholders’ shares was held to be their proportionate share
of this amount without any minority discount or any premium for the
forcible taking of their shares.
Section 238 of the Law does not dictate any valuation methodology.
However, it is well established in both Canadian and Delaware
jurisprudence that fair value should be proved by techniques or methods
which are generally considered acceptable in the financial community
and are otherwise admissible in court. Two expert witnesses were used
in the case and it was generally accepted and agreed by the witnesses
that there are three main approaches to an appraisal exercise of the kind
that was required to be performed by the Court; the market approach,
the income approach and the cost (or asset based) approach.
The Court’s approach to the valuation of the Company was to combine
an income approach, using the discounted cash flow methodology (75%
weighting) with a market approach, using a guideline public company
methodology (25% weighting). It was concluded that the fair value of
the Company at the Valuation Date was US$105 million and the fair value
of the dissenting Shareholders’ shares at the Valuation Date was their
proportionate share of US$105 million (US$11.70 per share) without any
minority discount or premium for forcible taking.
By Section 238(11) the Court was also required to determine the fair
value “together with a fair rate of interest, if any, to be paid by the
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