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The offering process

i General overview of the IPO process Listing on the CSX

The Listing Rules, at Chapter 6, set out the requirements for the listing of equity securities on the CSX. A draft of the listing document must be provided to the Listing Committee in reasonable time for comment and amendment prior to the proposed listing date, and the final document is subject to approval by the Listing Committee.

The listing document is required to include a summary of:

  1. the particulars of the issuer (including the issuer's capital structure and the issuer group's activities), the securities to be issued, any listing agent and underwriters, and particulars of other advisers, including legal counsel and auditors;
  2. the offered securities, including the total number offered, the offer price of each security and its nominal value;
  3. material risks relating to the investment in the applicable equity securities;
  4. the provisions of the issuer's constitutional documents relating to, inter alia, voting rights of directors, director remuneration, changes in capital and arrangements for the transfer of securities;
  5. consolidated financial information regarding the issuer group; and
  6. the management of the issuer group.

The listing document must also include particulars of any litigation or material claims against the issuer group, and a list of the parties to and dates of any material contracts (being those entered into not in the ordinary course of business).

Securities must have an International Securities Identification Number to be admitted to listing on the CSX and must be eligible for deposit in an acceptable electronic clearing and settlement system (including Clearstream, Euroclear or the Depository Trust Company). The issuer must appoint a share transfer agent or registrar, and paying agent in a financial centre acceptable to the CSX, although if the issuer can demonstrate to the CSX that it is capable of doing so, it may perform these functions itself.

Unless otherwise approved by the CSX, the listing must apply to the entire class of the equity securities to be listed, and such securities must be freely transferable. The CSX will admit convertible securities to listing only if it is satisfied that investors will be able to obtain the information necessary to form a reasonable opinion in respect of the value of the securities into which they are convertible.

Listing on an international exchange

From a Cayman Islands perspective, the key documents applicable to an international IPO are the listing document, the memorandum and articles of association of the company, and associated corporate approvals. Although unlikely, Cayman Islands law-governed key contracts, including any underwriting agreement, or depository or custody agreement, should also be reviewed by Cayman Islands counsel.

During the listing process, Cayman Islands counsel generally prepares disclosures describing Cayman Islands companies and the corporate law framework of the Cayman Islands for inclusion in the listing document. This can include a comparison of the applicable laws governing companies incorporated in the IPO jurisdiction as against Cayman Islands law so that potential investors are provided with sufficient information to assess the consequences of the use of a Cayman Islands company as the listing vehicle compared with an entity formed in the IPO jurisdiction.

While governed by the legal requirements of the Cayman Islands, the constitutional documents of the issuer must also meet the requirements of the applicable stock exchange upon which the company is to be listed. With the guidance of lead counsel on the IPO, to determine the requirements of the relevant stock exchange, Cayman Islands counsel will prepare constitutional documents that are in compliance with such rules.

UK exchanges

Unlike public companies listed on the LSE with a registered office in the United Kingdom, the Channel Islands or the Isle of Man, Cayman Islands issuers listed on the LSE (whether on the Main Market or AIM) are not automatically subject to the UK Takeover Code and the jurisdiction of its Panel on Takeovers and Mergers.

The Takeover Code is designed to ensure that shareholders in an offeree company are treated fairly and are not denied an opportunity to decide on the merits of a takeover, and that shareholders in the offeree company of the same class are afforded equivalent treatment by an offeror. It also provides an orderly framework within which takeovers are conducted.

However, the constitutional documents of a Cayman Islands issuer listing in London will commonly include provisions that seek to mirror some or all the protections that shareholders would enjoy under the Takeover Code.

US exchanges

The advantages of 'foreign private issuer' status may be available to Cayman Islands companies intending to list on the main US exchanges, including: reduced reporting and disclosure requirements; certain exemptions from US proxy rules; flexibility to elect to apply accounting standards other than US generally accepted accounting principles, as well as in choice of reporting currency; and the ability to apply certain 'home country' standards in respect of the composition, election and classification of directors and key corporate governance practices.

Rather than making a direct equity listing, Cayman Islands companies listing on key US exchanges may instead choose to list American depositary receipts (ADRs), which permits the listed security to be US-dollar denominated and to clear through US settlement systems, but allows the company's equity to continue to be denominated in a currency other than US dollars. Each ADR is a negotiable certificate that evidences an ownership interest in American depositary shares. This, in turn, represents an interest in the shares of the issuer, which are held by the applicable depository.

HKSE

The requirements of the HKSE listing rules and ongoing requirements can easily be met within the Cayman Islands framework, and the constitutional documents of the listing vehicle can be prepared accordingly. Importantly, there is no relevant Cayman Islands law relating to the holding of an annual general meeting or the auditing of accounts, and generally, Cayman Islands counsel will assist to conform the issuer's constitutional documents to the required HKSE standards.

Shanghai Stock Exchange Science and Technology Innovation Board

Cayman Islands companies are also able to list Chinese depositary receipts on the Star Market of the Shanghai Stock Exchange. The first non-Chinese company to apply for registration on that exchange was a Cayman Islands company.

As with listing on other exchanges, generally, Cayman Islands counsel will assist to conform the issuer's constitutional documents to the required listing standards.

Euronext

There are a number of Cayman Islands companies listed on Euronext Amsterdam, including SPACs. As with listing on other exchanges, generally Cayman Islands counsel will assist to ensure the issuer's constitutional documents conform to the required listing standards.

SGX

Cayman Islands companies are also able to list on SGX, and as noted above, the SGX permitted SPAC listings toward the end of 2021. As with listing on other exchanges, generally Cayman Islands counsel will assist to ensure the issuer's constitutional documents conform to the required listing standards.

ii Pitfalls and considerations

One of the key advantages of using a Cayman Islands company as a listing vehicle of choice is the high level of flexibility that Cayman Islands law provides. Issuers do not need, for example, to hold annual general meetings or to produce audited accounts, although such matters are generally provided for to address investor expectations. As a result, issuers tend to find that this flexibility results in fewer pitfalls than might perhaps otherwise be expected.

Potential claims may be available to subscribers for shares in an IPO offering under Cayman Islands law against the company and other parties, such as its directors, its auditors and its advisers. While for a Cayman Islands issuer with equity listed on an international exchange it is more likely that proceedings will be brought in another jurisdiction, such as the jurisdiction from which an applicant subscribed for shares and in which a copy of the listing document was made available to them, the position that would apply in respect of proceedings before a Cayman Islands court applying Cayman Islands law is considered below.

In addition, although proceedings may be brought before a Cayman Islands court, it may be asked to apply, in accordance with Cayman Islands conflicts of laws rules, the laws of another jurisdiction as the appropriate system of law to the relevant action. These conflicts of laws aspects are particularly important in the case of exempted companies because they are prohibited from offering their shares to the public in the Cayman Islands, unless the company is listed on the CSX.

Misstatements

There may be civil liability in tort for misstatements in a listing document: either negligent misstatements (under the rule in Hedley Byrne v. Heller) or fraudulent misstatements of fact.

The terms of the listing document place a duty of care on the company and may be argued to place a duty of care on the directors, the promoters and even professional advisers named or referred to in the listing document (or otherwise responsible for its content), in favour of persons who subscribe or apply for shares in the company on the faith of the content of the listing document. Breach of this duty would give rise to a claim against those persons for any loss attributable to statements in the parts of the listing document for which responsibility was expressly or impliedly accepted by those persons. Reliance on the listing document must be proved by the relevant subscriber.

Liability for a fraudulent misstatement of fact does not extend to a promise, forecast or expression of opinion. 'Fraudulent' in this context is widely interpreted to mean made either with knowledge that the statement was false or not caring whether the statement was true or false. An aggrieved investor may, by bringing an action for deceit (a civil claim in tort rather than contract), obtain damages for deceit if it can be shown that a material misstatement was fraudulently made, and he or she was induced to subscribe for shares as a result of the misstatement.

To found an action for deceit, it is not necessary to show either an intent to defraud or that the fraudulent statement was the sole cause that induced the investor to take up the shares.

Pursuant to the Contracts Act (as revised) of the Cayman Islands, damages may be recovered for any precontractual misrepresentation if liability would have arisen had the representation been fraudulently made, unless the person making the representation proved that he or she had reasonable grounds to believe, and did believe up to the time the contract itself was made, that the facts represented were true. Generally, this gives a statutory right to damages in respect of negligent misstatements and, where a misrepresentation has been made, the court may award damages in lieu of rescission.

Given that the relevant contract (the offering of shares on the terms of the listing document) is with the issuer itself, the subscriber's claim would be against the issuer, although it might, in turn, be able to claim against its directors, promoters or advisers.

Contractual liability

The listing document will form the basis of a contract between the issuer and the successful applicants for shares. If it is inaccurate or misleading, applicants may be able to rescind the contract or sue, or both, the company, the promoters or the directors for damages. Given that the relevant contract is with the issuer itself, the subscriber's claim would be against the issuer.

Under Cayman Islands conflicts of laws principles, these questions would be determined according to the governing law of the contract for subscription. Where the documentation makes no express choice of governing law (as is common in a listing document), it is likely that a Cayman Islands court would consider Cayman Islands law as the governing law, on the basis that the issuer is incorporated in the Cayman Islands and the subject matter of the contract is shares in a Cayman Islands company.

Criminal liability

Criminal liability may arise under Section 257 of the Penal Code (as revised) of the Cayman Islands, which provides that an officer of a company (or person purporting to act as such) 'with intent to deceive members or creditors of the body corporate or association about its affairs, publishes or concurs in publishing a written statement or account that, to his or her knowledge, is or may be misleading, false or deceptive in a material particular commits an offence and is liable to imprisonment for seven years'. This section would extend to false statements contained in a listing document.

Further, the Penal Code (as revised) also provides that:

  1. any person who dishonestly obtains property belonging to another, with the intention of permanently depriving the other of it, is guilty of an offence and is liable on conviction to imprisonment for 10 years; and
  2. any person who by any deception dishonestly obtains for himself or herself or another any pecuniary advantage is guilty of an offence and is liable to imprisonment for a term not exceeding five years.

A person is treated as obtaining property if he or she obtains ownership, possession or control of it. 'Obtain' includes obtaining for another or enabling another to obtain or retain.

For the purposes of this section, 'deception' means any deception (whether reckless or deliberate) by words or conduct in respect of fact or law, including deception regarding the present intentions of the person using the deception or any other person.

iii Considerations for foreign issuers

The CSX is not usually an exchange of choice for foreign issuers, and such listings are uncommon in the Cayman Islands.