As of 31 August 2022, members’ schemes of arrangements under section 86 of the Companies Act of the Cayman Islands have been altered. The ‘headcount test’ is no longer required, thereby providing more predictability to the process. This will likely bring considerable change to the corporate landscape of the Cayman Islands, as the members’ scheme of arrangement is commonly employed for the privatization of companies or as an alternative to the Cayman merger process.
The ‘headcount test’ was historically a part of the Companies Act procedures. Nevertheless, it was gazetted out of section 86 through an amendment on 21 October 2021 that came into effect more than ten months later. This amending legislative action indicates a recognition of a need for a more streamlined procedure without the additional hurdle of the ‘headcount test’.
The abolition of the ‘headcount test’ will presumably have a substantial impact on how members’ schemes of arrangement are handled in the Cayman Islands. It may cause companies to reconsider their corporate strategies, as the updated procedure is less restrictive and might offer a more attractive route for company restructuring, particularly for businesses seeking to privatize or merge.
Despite this change, it is crucial for corporations to fully understand the implications of the revised law and how it might affect their business strategies. Consulting with legal professionals that specialize in the Cayman Islands Company Act is advisable, in order to ensure compliance with the new regulations. For an in-depth understanding, this comprehensive review by Conyers is recommended.