Section 238 Valuations
Section 238 of the Cayman Islands Companies Law provides minority shareholders who dissent from a statutory merger the right to a court determination as to the fair value of their shareholdings. In the past two years, against a context of increasing take-private transactions of listed entities registered in the Cayman Islands, such litigation has been on the rise.
The Importance of Section 238 Valuations
Between Q1 2015 and Q3 2017 there were 30 delistings from US exchanges mainly following the privatisation of Chinese entities registered in the Cayman Islands. The motivations for such transactions can be wide-ranging. Often, it is reported that Chinese entities are undervalued on US exchanges.
Concurrently, in August 2015 the Grand Court of the Cayman Islands issued a judgment in Re Integra Group which clarified its approach to determining the fair value of shareholdings in section 238 proceedings brought by dissenting shareholders pursuant to a merger carried out under Part XVI of the Cayman Islands Companies Law.
Since that judgment, several additional cases have been brought before the Grand Court. In April 2017, the Grand Court ruled in Re Shanda Games Limited, that the fair value of the dissenting shareholders’ shares was over 2.3 times the share price offered in the take-private proceedings. The ruling underlines the importance of robust expert evidence in fair value determination proceedings, and the reliance that courts may place on credible, independent expert testimony on valuation and accounting issues.