CIL Group Ltd

investors.The Companies (Amendment) Law, 2011 (the“Amendment Law”) is the first piece in a comprehensivereview process that will keep Cayman at theforefront of the leading international financial centres.The principal changes to the Companies Law (2010Revision) (the “Existing Law”) are described below, andinclude:(a) providing greater flexibility for companies wishingto acquire their own shares;(b) modernising the provisions governing execution ofdocuments by Cayman and non-Caymancompanies;(c) making the merger and consolidation provisionsmore adaptable;(d) allowing companies to have dual names innon-Roman scripts (eg. Chinese); and(e) validating the use of electronic and branch shareregisters.Acquisition by a Company of its own SharesRedemptions and RepurchasesThe Amendment Law removes the requirement that ashare which is redeemable must be issued as a“redeemable share”, and permits the rights of issued,non-redeemable shares to be varied so that thoseshares become redeemable. The Amendment Law alsoclarifies that a share will be “fully paid” (a condition for itto be redeemed or repurchased) upon payment of itsnominal or par value only.

Another practical improvement is that determination of

the manner of, and the terms of, a redemption or repurchase

may be delegated to the directors of the company.

Previously the "manner" of redemption of shares was

required to be authorised by the company’s articles of

association or, for a repurchase, approved by shareholder

resolution.

Treasury Shares

The Amendment Law permits a company to hold its

shares as treasury shares, which will provide additional

flexibility in structuring employee share schemes,

buybacks and other share capital transactions. Provided

there is no express prohibition against treasury shares in

a company’s articles of association, the holding by the

company of its own shares as treasury shares may be

approved by the company’s board of directors. Treasury

shares may not be issued by a company but may be

held only following a repurchase or redemption by, or

surrender to, a company of its own shares. Previously

any shares repurchased or redeemed by a Cayman

company were required to be cancelled. There is no

express limit to the number or amount of treasury shares

that may be held by a company, provided that there must

always be at least one non-treasury share in issue.

Treasury shares may be cancelled, transferred or held.

Unless transferred, treasury shares carry no rights except

with respect to participation in bonus issues.

The Amendment Law prescribes how the proceeds of a

transfer of treasury shares are to be accounted for. Such

proceeds must be applied to make up any payment from

capital or share premium on the acquisition of the share

but, subject to a solvency test, directors may determine

that all or part of the proceeds of that transfer be

reflected in the company's profit and loss account.

Surrender of Shares

The question of surrender of fully-paid shares has been

the subject of some debate. The Amendment Law

and non-Cayman

companies, and the absence of any such provisions

covering non-Cayman companies that were not registered

as foreign companies under the Existing Law, had

led to practical difficulties. These were exacerbated by

the Mercury decision in England which required a procedure

for the execution of deeds which was cumbersome

and inconsistent with previous practice.

The Amendment Law covers execution of documents by

both Cayman companies and non-Cayman companies

(whether or not registered in Cayman as foreign companies).

A contract or other instrument to be governed by

Cayman law is, and is treated as, a deed or instrument

under seal, if it is executed (i) in the case of a Cayman

company, as required by Cayman law, and (ii) in the case

of a non-Cayman company, in accordance with the

requirements of the laws of the place of the non-Cayman

company’s formation or incorporation and in accordance

with that company’s constitutional documents.

Further, a contract, deed or instrument is validly executed

if executed in any manner contemplated by the parties.

This could include fully executing the complete

document or, as is common for multi-party closings, by

each party executing a signature page and such signature

page being attached, with the express or implied

authority of the executing party, to the relevant

document. This latter approach is permitted even if the

document itself was not in final form at the time of execution

of the signature page. These changes apply to

contracts, deeds and instruments executed before the

enactment of the Amendment Law.

A change has also been made to the provisions for

appointment by a company of persons authorised to

execute deeds and other instruments under seal on its

behalf. Such an appointment is no longer required to be

under seal or by deed and the person so appointed,

although not an attorney-in-fact for the purposes of the

Powers of Attorney Law, will have the authority conferred

on him by the instrument appointing him.

Segregated Portfolio Companies

Cayman’s segregated portfolio company provisions

under the Existing Law have, for many years offered,

clients the ability to achieve statutory segregation of

assets and liabilities within a single corporate vehicle.

The Amendment Law leaves this successful framework

intact and introduces two principal improvements of

note.

First, the Amendment Law repeals the provisions under

the Existing Law that imposed personal liability on the

directors for failure properly to execute agreements on

behalf of a specific segregated portfolio. This provision

had long been considered draconian for the directors

and of limited value to creditors, shareholders and

counterparties affected by any such failure. The

Amendment Law takes the more pragmatic approach of

giving statutory authority to the directors to rectify any

defects by attributing the commitment correctly and

notifying any party to the relevant contract or any person

who may be adversely affected by the attribution. To

protect creditors from abuse, this is coupled with a

statutory right for anyone who objects to petition the

court for a re-attribution.

Second, the Amendment Law gives greater certainty as

to how a segregated portfolio that has no further assets

or liabilities (otherwise than by reason of a receivership)

can be terminated. The Amendment Law confirms the

common practice of effecting this simply by a resolution

of the directors, and permits a terminated segregated

portfolio to be reinstated by resolution of the directors.

A segregated portfolio company was previously

required, when paying its annual filing fee to the

Registrar, to notify the Registrar of each segregated

portfolio created: this requirement now extends to any

segregated portfolio terminated.

Mergers and Consolidations

The Amendment Law revises various provisions, in the

light of experience since they were introduced in 2009,

which apply to mergers and consolidations under the

Existing Law. In particular the requirement for dual

resolutions of individual constituent companies and of all

shareholders of the surviving company has been

replaced by a requirement for a special resolution of

each of the constituent companies and such other

authorisation, if any, as may be specified in such

constituent company's articles of association. Nonvoting

shares will no longer have the right to vote in

respect of merger or consolidation proposals unless

provided for in the articles of association of the relevant

constituent company. Shares of a constituent company

may now be cancelled or surrendered as part of a

merger or consolidation.

There is also a new section permitting the surviving

company or consolidated company to be a non-

Cayman company, effectively combining a merger or

consolidation with a transfer by way of continuation

from Cayman to a foreign jurisdiction. The requirements

for such a merger or consolidation reflect this and

require, in addition to the directors’ declaration in

relation to the Cayman constituent company, a further

declaration in relation to the non-Cayman constituent

company which is to be the surviving or consolidated

company.

It has been clarified that no constituent company participating

in a merger or consolidation may be a segregated

portfolio company.

Company Names

The Amendment Law gives greater flexibility in the

naming convention for exempted companies, which will

be of particular interest to the Asian market. Previously,

a company did not have to be formed with an “English”

name, but the name had to use the Roman alphabet.

The Amendment Law retains this core requirement, but

allows exempted companies to be formed with, or to

adopt, an additional name in non-Roman script, eg.

Chinese, Japanese, Cyrillic and Arabic. Importantly, this

dual foreign name does not have to be a direct translation

of the Roman name; but in its translated form it

must not fall foul of the restrictions under the Existing

Law on names that are too similar to existing names or

that contain restricted words such as “bank”, “insurance”

etc. The dual foreign name will appear on the

Certificate of Incorporation, and may appear on the

company seal. The registration procedure for registration

and verification of the translated name will be dealt

with by regulations made under the Amendment Law.

Transfers of Listed Shares and Branch Registers

Transfers of Listed Shares

Shares of Cayman companies are listed on many of the

world's major exchanges. The Amendment Law

confirms common practice, such that (i) shares may be

transferred in accordance with the rules and regulations

of the approved stock exchange on which those shares

are listed, and (ii) the register of members may be

maintained in electronic non-legible form, provided that

it is capable of being reproduced in legible form.

Branch Registers

The Existing Law required a company to keep a single

register of members and was silent as to the location of

that register and to the status of duplicate registers.

This had a particular relevance to segregated portfolio

companies and umbrella funds with separately administered

portfolios or classes, for which duplicate registers

were a practical necessity; as well as for listed companies

which also had unlisted shares.

The Amendment Law requires a principal register to be

maintained in one location, but permits branch registers

to be kept elsewhere. A branch register is required to be

maintained in the same way as the principal register, and

a duplicate of each branch register must be maintained

at the location of the principal register. Shares registered

in a branch register must be distinguished from those

entered in the principal register, and no transaction

entered in a branch register may also be entered in the

principal register or in any other branch register.

Where only some of a company’s shares are listed on an

approved stock exchange, the company must maintain

a separate register in respect of its unlisted shares.

Conclusion

The Amendment Law enhances the usability of Cayman

companies, while deliberately leaving intact all the provisions

of the Existing Law that have made Cayman the

leading international financial centre for investment

funds and corporate transactions.