Changyou.com Ltd (Appellant) v Fourworld Global Opportunities Fund Ltd and 7 others (Respondents) (Cayman Islands)
Case ID: JCPC 2023/0018
Jurisdiction: Court of Appeal of the Cayman Islands
Case summary
Issue
Are the appraisal rights under section 238 of the Companies Act (2020 Revision)(the "Act") available to minority shareholders in a subsidiary which merges in a "short-form" merger with a holding company?
Facts
The appellant, incorporated in the Cayman Islands on 6 August 2007, was a leading online game developer and operator in China. The respondents are former shareholders in the appellant. At the relevant time, the appellant was a member of the Sohu Group of companies (the "Sohu Group"), which held 95.2% of the votes exercisable in a general meeting of the appellant.
On 9 September 2019, with the goal of effecting an internal restructuring, the Sohu Group proposed acquiring all of the outstanding shares it did not already own in the appellant in a "going-private" transaction. On 27 March 2020, the respondents gave written notice of their objection to the merger and demanded payment for the fair value of their shares. On 17 April 2020, the merger became effective.
Part XVI of the Act, consisting of sections 232 to 239A, sets out the statutory merger and consolidation regime. Section 233(7) of the Act dispenses with the ordinary need for a special resolution if a merger is between a parent company and a subsidiary and a copy of the plan of merger is given to every member of the subsidiary. A parent company is one which holds at least 90% of the voting shares in the subsidiary. A merger effected in this way is known as a "short-form" merger. Section 238 of the Act entitles members of a constituent company who dissents from a merger or consolidation to payment of the fair value of their shares. The steps set out for appraising the fair value of the shares is predicated on the merger or consolidation. In a short-form merger, there will be no vote.
The question which arises in the appeal is whether or not the section 238 appraisal right is available to minority shareholders in a subsidiary which merges in a "short-form" merger. This question engages questions of statutory and constitutional interpretation, with section 15 of the Bill of Rights permitting the compulsory acquisition of property only where provision is made by the relevant law for the prompt payment of adequate compensation and access to the court for the determination of the amount of such compensation.
The Grand Court held that the section 238(1) appraisal right extends to minority shareholders involved in a short-form merger and the respondents had taken appropriate steps to dissent. The Court of Appeal dismissed the appeal, though for different reasons. It held that, as a matter of statutory construction, appraisal rights were not available in relation to short-form mergers. However, it was possible to read and give effect to section 238 in a manner that made it compatible with section 15 of the Bill of Rights, pursuant to the interpretive obligation under section 25 of the Bill of Rights.
The appellant now appeals to the Judicial Committee of the Privy Council. The respondents also cross-appeal in relation to the appropriate steps to dissent from the merger.
Parties
Appellant
Changyou.com Ltd
Respondent
(1) Fourworld Global Opportunities Fund Ltd, (2) Corbin Opportunity Fund LP, (3) Corbin Erisa Opportunity Fund Ltd, (4) Boothbay Diversified Alpha Master Fund LP, (5) Boothbay Absolute Return Strategies LPFM, (6) Athos Asia Event Driven Master Fund
Appeal
Justices
Lord Briggs, Lord Hamblen, Lord Leggatt, Lord Burrows, Lord Justice Nugee
Hearing start date
7 October 2024
Hearing finish date
8 October 2024