Vol 20 (2023) - Issue 6

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The Abolition of the 'Headcount Test' for Cayman Islands Members' Schemes of Arrangement: Ensuring Practice Reflects Commercial Reality

Synopsis
The Cayman Islands continues to be at the forefront of developments in restructuring and insolvency law in the offshore world and one of the premier jurisdictions of choice to facilitate complex and high-value crossborder restructurings.
The Companies (Amendment) Act 2021 (the 'Companies Amendment Act') of the Cayman Islands (which came into force on 31 August 2022) not only introduced the new restructuring officer regime to Cayman Islands legislation1 but also made certain other amendments to the Cayman Islands Companies Act (as amended) (the 'Companies Act') including, amongst others, the abolition of the statutory 'headcount test' which a Cayman Islands members' scheme of arrangement was previously required to satisfy under section 86(2) of the Companies Act.
This important legislative amendment (the 'Cayman Scheme Amendment') eliminates the technical challenges that the 'headcount test' historically had brought to members' schemes of arrangement in the Cayman Islands (particularly in circumstances where shares of public companies are held by a nominee entity) which are often utilised to effect the privatisation of Cayman Islands incorporated companies that are listed on The Hong Kong Stock Exchange (the 'HKEX').
The Cayman Scheme Amendment has brought Cayman Islands law in line with certain other jurisdictions that have imported schemes of arrangement from English law and now reflects modern commercial reality.
This article explains the previous concerns surrounding the historical application of the statutory 'headcount test' which has led to this welcome reform in the Cayman Islands.