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Competing take-private proposals – Re Ehi Car Services Limited

In a recent decision of the Grand Court of the Cayman Islands, Justice Kawaley struck out a petition for the winding up of Ehi Car Services Limited, a NASDAQ-listed, Cayman incorporated company.

The petition was filed by Ctrip Investment Holdings Ltd, a substantial minority shareholder in the Company on just and equitable grounds, although Ctrip were not seeking to wind the Company up but asking for alternative relief.

In particular, Ctrip was seeking the Court’s intervention in having a person appointed by the Court to solicit the highest possible bids by which the Company should be taken private, and an injunction preventing further shares from being issued prior to an EGM to sanction the completion of a take-private proposal.

The Company had formed a Special Committee to evaluate any take-private proposals and to make a recommendation to the Board of Directors as to which proposal was in the best interests of the Company. At the time of the hearing, the Company had two competing proposals before it, one was advanced by a consortium led by the Chairman of the Company, while the other was advanced by Ocean Link, another shareholder in the Company, and supported by Ctrip. Although the Ocean Link proposal was at a significant premium to that of the Chairman consortium, the Special Committee recommended that the Board accept the Chairman’s proposal. Ctrip had contended that the Special Committee did not adequately consider the Ocean Link proposal. It raised concerns as to the Chairman’s continued involvement with the Company notwithstanding an alleged conflict of interest in advancing a take-private proposal and evidence that it may issue shares to members of the Chairman consortium but not to members of the Ocean Link consortium in advance of an EGM.

Justice Kawaley ultimately struck out the Petition finding that it fell short of the threshold in Loch v John Blackwood [1974] where a shareholder petition will be dismissed if the company did not visibly “depart from the standards of fair dealing and the conditions of fair play which a shareholder is entitled to expect”.

The Court held that it was not improper for the Chairman to continue his role within the Company while advancing his own take-private proposal. It also held that allegations of improper motive must be made with reference to primary facts and that any action to prevent the dilution of the Ocean Link interest in the Company prior to an EGM could only take place at the stage where the Company takes steps to issue those shares with a view to affect the outcome of an EGM.

 

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