National Arts Holding seeks to redomicile

Cayman-registered company cites Grand Court slowness

Investment holding company National
Arts Holding has announced its intention to redomicile from the Cayman Islands
to Bermuda.

The Hong Kong-based company, which
is mainly engaged in film production and distribution, aims to undergo a
significant financial restructuring and is seeking to implement a capital
reorganisation, share consolidation and a new share option programme, among
others.

In a filing with the Hong Kong
Stock Exchange, the company cited the cost and lack of speed of the Cayman
Grand Court for the redomiciliation.

The capital reorganisation, which
involves a capital reduction in the Cayman Islands, would need to be sanctioned
by the Cayman Islands Grand Court. However, the company claimed in its stock exchange
filing that this “sanction cannot be obtained in a commercially expedient time
frame”.

The management of National Arts
Holding has therefore decided to effect the capital reorganisation by
de-registering in Cayman and moving the domicile of the company to Bermuda
first. According to the firm’s legal advisers, no court order is required for
the change of domicile and the subsequent capital reorganisation in Bermuda,
the firm stated.

“The board considers that it would
save the company’s time and costs for carrying out the capital reorganisation
in Bermuda by first implementing the change of domicile,” National Arts Holding
said in its filing.

In order to facilitate the change
of domicile the company proposed to insert a new article to the articles of
association to allow the company to de-register in the Cayman Islands and
register by way of continuation in another jurisdiction.

Other firms have redomiciled

It is not the first time that Hong
Kong-based firms registered in the Cayman Islands have redomiciled to Bermuda
in order to effect a capital reorganisation in a jurisdiction where a capital
reduction does not require the sanction of a court.

Brilliant Arts Multimedia Holding
announced a similar move in February 2009 and Info Communication Holdings asked
shareholders for permission to redomicile from Cayman to Bermuda in July 2010.
Both companies aimed to reorganise their capital structure and reduce their
share capital to offset accumulated losses with the arising credit.

Brilliant Arts Multimedia Holding
said in its filing that a change of domicile to Bermuda and capital reorganisation
could be carried out between eight and 12 weeks faster than to apply for the
approval of the transaction with the Cayman Islands Grand Court.

Egana Goldpfeil, another Hong Kong
company registered in the Cayman Islands, initiated a capital reduction very
early in 2008, stating that “the necessary procedures in the Cayman Islands for
effecting the capital reduction are time-consuming and likely to delay
completion of the restructuring proposal if not initiated well in advance. A
delay in completion of the restructuring proposal could jeopardise the
continuing operations of the group”.

Offshore law firm Harneys cited a
similar motivation for an unnamed Hong Kong company that relocated from Cayman
to the British Virgin Islands in an article published in April 2009. In the
case study the company needed funds to offset debt quickly.

”In view of the imminent needs of
Company Y and the client’s perception that the Cayman capital reduction process
was a potentially difficult route, an alternative procedure of continuation
into BVI and effecting the reduction of capital under the less restrictive BVI
law procedures was considered as an alternative,” the authors Michael Gagie and
Leon Mao wrote.

The Grand Court application and
consideration process normally entailed a four- to six-month time frame before
a matter can be listed and heard, they added.

Grand Court approval required

The Companies Law of the Cayman
Islands requires a special shareholder resolution and the Grand Court’s
approval to reduce the company’s share capital. Cayman’s regime of a court
approval is not unusual. The court’s sanction is required in most jurisdictions
to protect the interests of shareholders and creditors and is therefore not a
mere formality.

Conyers Dill & Pearman, a law
firm based in Hong Kong, the Cayman Islands and Bermuda among others, said it
had significant experience assisting firms with regard to redomiciliation and
continuations to other jurisdictions and confirmed that the firm has recently
been involved with the continuation of some companies from the Cayman Islands
to Bermuda.

Richard Hall, associate at Conyers,
noted, however, the large number of Cayman-registered companies listed on the
Hong Kong Stock Exchange as an indicator of the Cayman Islands’ popularity.

“In Hong Kong, where Cayman
companies were first permitted to list in the mid 1990s, the Cayman Islands is
one of only four jurisdictions, other than Hong Kong, Bermuda and the PRC, that
the Hong Kong Stock Exchange has generally approved as suitable for listing,”
he said.

“At the end of 2008, of the
approximately 1,100 companies listed on the Main Board in Hong Kong, 342 were
incorporated in Cayman, whilst of the 174 companies listed on Hong Kong’s GEM
market, 102 were incorporated in Cayman, making it the most popular choice of
jurisdiction,” he added.

“In 2008, 29 new companies listed
on the Main Board of the Hong Kong Stock Exchange, of which approximately 50
per cent were Cayman Islands incorporated.”

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