Bermuda, the Cayman Islands and the British Virgin Islands (BVI) are among the most prominent offshore jurisdictions. All three enjoy a strong global reputation, with modern, business friendly corporate laws and effective judicial systems that follow the common law tradition and enjoy a final right of appeal to the Judicial Committee of the Privy Council in the United Kingdom. All three are also on the “white list” of the Financial Action Task Force (FATF).
In particular, Bermuda and Cayman exempted companies are among the most popular choice of vehicles for IPOs in Hong Kong. Currently, there are around 2,500 companies listed on the Hong Kong Stock Exchange, of which over 70% are incorporated in either Bermuda or Cayman.
The statutory procedures for re-domiciling a Bermuda, Cayman or BVI company to a different jurisdiction (and for foreign companies re-domiciling into Bermuda, Cayman and BVI) are broadly similar, and generally involve passing relevant board and shareholder resolutions approving the redomicile, preparing and filing relevant declarations, undertakings and documents of the company with the relevant companies registry of Bermuda, Cayman or BVI, and payment of requisite fees.
All three jurisdictions permit a company to redomicile among themselves (Bermuda to Cayman or BVI, and vice versa, for example) or to redomicile to and from popular jurisdictions such as Delaware, Singapore or the United Kingdom.
The companies legislations in each of Bermuda, Cayman and the BVI recognise the continuity of existence of a company before and after the redomicile, by providing that the change of domicile does not create a new legal entity or affect the property, rights or obligations of the company from the offshore legal standpoint.
Why Re-domicile?
Re-domicile is an effective legal tool to facilitate various restructuring and corporate transactions which allow a company to take advantage of particular benefits of the new jurisdiction. Essentially, a company may decide that its business interests are best served by being incorporated under the laws of a different jurisdiction to its existing place of incorporation.
For example, in the context of privatisation and de-listing from the Hong Kong Stock Exchange by way of a shareholders' scheme of arrangement, Bermuda has retained the “head count” test, such that the scheme must be approved by (i) a majority in number (ii) representing 75% in value of the members approving the scheme. In some situations, the majority-in-number requirement may prove difficult to achieve, especially in the modern context of electronic trading via brokerages and nominees. However, in Cayman a shareholders' scheme of arrangement only requires the approval of 75% in value of the members – i.e. no head count test for Cayman.
Across the Pacific, many Cayman companies are also listed on US exchanges, including as SPACs. Cayman allows for a statutory merger of one company into another, which has been a widely accepted method for privatisations of Cayman companies as well as de-SPAC transactions especially in the US market. However, some Cayman companies instead prefer to re-domicile to a US jurisdiction first (such as Delaware) and undertake the merger in a jurisdiction where they perceive the legislation and jurisprudence in respect of dissent actions of minority shareholders to be more familiar (if not favourable) to the company.
In the context of a pre-IPO restructuring, companies looking to list on a stock exchange in Hong Kong or the US will often incorporate a new Cayman or Bermuda holding company and do a share swap, essentially “flipping-up” the shareholders of the previous holding company to the Cayman level. In situations where companies find it difficult to persuade all existing investors to agree to the consideration, price and ratio, or otherwise to effect the share swap, a company can re-domicile to its jurisdiction of choice upon obtaining requisite member approval (which is unlikely to require unanimity) instead of conducting a share swap.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.