In re Noble Corporation and Noble Cayman Acquisition Ltd - Ruling

¶ ```html IN THE GRAND COURT OF THE CAYMAN ISLANDS CAUSE NO： 63 OF 2009 IN THE MATTER OF SECTIONS 86 AND 87 OF THE COMPANIES LAW (2007 REVISION) AND IN THE MATTER OF NOBLE CORPORATION AND IN THE MATTER OF NOBLE CAYMAN ACQUISITION LTD. Coram： The Hon. Mr. Justice Foster Appearances： Mr. Colin McKie and Mr. Marc Kish of Maples and Calder for the Petitioners RULING 1. The particular issue which arises for determination in this matter is whether the 25 scheme of arrangement proposed in respect of the Second Petitioner company 26 constitutes an "amalgamation" or "reconstruction" within the meaning of section 27 87(1) of the Companies Law (2007 Revision) ("the Law") such that the Court 28 would have jurisdiction to sanction it in appropriate circumstances pursuant to 29 section 86(2) with provisions pursuant to section 87(1) (a)，(c) and (d) of the Law. Background Cor ayman") Id 2. The companies， “Noble an 32 Petitioner， Noble n d Noble 33 Cayman Acquisition Ltd. ("Merger Sub") petitioned the Court together for ```
```html 1 sanction of two proposed schemes of arrangement which are interconnected and 2 interdependent upon each other. 3 Both companies are part of the Noble Group, which is a leading offshore drilling 4 contractor for the oil and gas industry. The object of the proposed schemes is to 5 replace Noble Cayman with its wholly owned subsidiary, a company incorporated 6 under the laws of Switzerland (“Noble Switzerland”), as the ultimate holding 7 company of the Noble Group, thus moving the holding company from Cayman to 8 Switzerland, for reasons which are not relevant to the particular issue which is the 9 subject of this Ruling. Currently Merger Sub is a wholly owned subsidiary of 10 Noble Switzerland which is in turn a wholly owned subsidiary of Noble Cayman. 11 In order to effect the change of location of the parent company from Cayman to 12 Switzerland it is proposed to change the status of Noble Cayman from parent of 13 Noble Switzerland to subsidiary of Noble Switzerland and for Noble Switzerland 14 to become the ultimate holding company. This is proposed to be achieved by 15 repurchasing all of Noble Cayman's shares and merging it with Noble 16 Switzerland's existing subsidiary, Merger Sub. This “merger” would be carried 17 out in such a way as to allow Noble Cayman to continue to carry on business 18 through its numerous operating subsidiaries. In the resulting structure, Noble 20 Switzerland would continue to own its operating subsidiaries. In 21 effect, shareholders are being asked to exchange their shares in Noble Cayman for shares in Noble Switzerland. 22 At present, as explained, Merger Sub is a wholly owned subsidiary of Noble

¶ [1] Switzerland. By the proposed "merger" between Merger Sub and Noble Cayman, Noble Cayman would thereby become the wholly owned subsidiary of Noble Switzerland.

¶ [4] The sanction of the Court is sought simultaneously in relation to two schemes of arrangement. The first is a proposed scheme of arrangement between Noble Cayman, the holders of its ordinary shares ("the Scheme Shareholders") and Noble Switzerland (the "Noble Cayman scheme"). The second proposed scheme is between Merger Sub, its sole shareholder Noble Switzerland and Noble Cayman (the "Merger Sub scheme"). Both Noble Cayman and Merger Sub are Cayman Islands exempted companies limited by shares and have unrestricted objects. There are a significant number of Scheme Shareholders most having addresses in the U.S.A. Merger Sub has only one registered shareholder, namely Noble Switzerland.

¶ [5] The common purpose of the proposed schemes is to effect a re-organization and consolidation of Noble Cayman such that Noble Cayman combines its undertaking with that of Merger Sub and thereby becomes a wholly owned subsidiary of Noble Switzerland. Merger Sub would then be dissolved and Noble Switzerland would become holding company in Switzerland, the ultimate place of Noble Cayman.

¶ [6] Under the proposed schemes the Scheme Shareholders shares would be cancelled and in exchange the Scheme Shareholders would receive registered shares in Noble Switzerland on a one for one basis. In summary, in order to achieve this it is proposed that the following events would occur simultaneously on the date when the schemes become effective: (a) Under the Noble Cayman scheme, Noble Cayman would repurchase and cancel all of its relevant shares. (b) Under the Noble Cayman scheme, Noble Cayman would issue new ordinary shares to Noble Switzerland. (c) Under the Noble Cayman scheme, Noble Switzerland would issue and allot to each of the Scheme Shareholders one registered share for each ordinary share previously held in Noble Cayman, as well as issuing to Noble Cayman an amount of shares in Noble Switzerland to be held as treasury shares. The Scheme Shareholders would waive all claims and rights they may have in respect to the issuance of such treasury shares by Noble Switzerland. (d) Under the Merger Sub scheme, all of its property, rights and obligations to Noble Cayman and Merger Sub would be dissolved, without winding-up.
Under the Noble Cayman scheme, the rights of all Noble Cayman registered shareholders (the Scheme Shareholders) are affected. Under the Merger Sub scheme, Noble Switzerland, as the sole shareholder, is the only shareholder affected. The Petitioners duly applied pursuant to section 86(1) of the Law by summons, in the case of Noble Cayman to convene a meeting of its shareholders (the Scheme Shareholders) to consider and, if thought fit, to approve the Noble Cayman scheme. Since Merger Sub had only one shareholder, namely Noble Switzerland, which had already consented to the proposed schemes, it was sought to dispense with a Merger Sub shareholder meeting. At the hearing of the Petitioners' summons counsel for the Petitioners quite properly raised the question of whether the Merger Sub scheme amounted to an "amalgamation" or "reconstruction" within the meaning of section 87(1) of the Law, since, if it was not, the Court would not have jurisdiction to make the provisions which are part of the scheme. As that scheme is an integral and essential part of the whole proposed structural change, there would be little point in the Court giving directions in relation to shareholder meetings if it would have no jurisdiction to sanction the provisions pursuant to section 87(1) of the Law.
```markdown # The issue

¶ [9] Section 87(1) of the Law provides as follows: (1) Where an application is made to the Court under section 86 for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are specified in that section, and it is shown to the Court that the compromise or arrangement has been proposed for the purpose of or in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies, and that under the scheme the whole or any part of the undertaking or the property of any company concerned in the scheme (in this section referred to as "a transferor company") is to be transferred to another company (in this section referred to as "the transferee company") the Court, may either by the order sanctioning the compromise or arrangement or by any subsequent order make provision for: (a) the transfer to the transferee company of the whole or any part of the undertaking and of the property or liabilities of any transferor company; (b) the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company; (c) the dissolution, without winding up, of any transferor company; (d) the transfer to the transferee company of the whole or any part of the undertaking and of the property or liabilities of any transferor company; (e) the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company; (2) (3) (4) In this section- "property" includes property, rights and powers of every description; "liabilities" includes duties; and "company" means or body Island other juri. corporate transferee comns any comestablished lands or in arsdictio'ipain the

¶ [10] Under the Merger Sub scheme it is proposed that Merger Sub will transfer to Noble Cayman all of its assets and liabilities. Adopting the terms used in section ```
87(1) of the Law, Merger Sub is therefore the proposed “transferor” and Noble Cayman is the proposed “transferee”. Both Merger Sub and Noble Cayman are Cayman Islands companies and Noble Cayman accordingly falls within the definition of “transferee company” in section 87(4) of the Law. The question therefore is whether, on a proper construction of section 87(1) of the Law, the transfer of all the assets and liabilities of Merger Sub to Noble Cayman pursuant to the Merger Sub scheme is proposed “for the purpose of or in connection with a scheme for the reconstruction [my emphasis] of any company or companies or the amalgamation [my emphasis] of any two or more companies....” It was submitted for the Petitioners that in considering the meaning of the terms “amalgamation” and “reconstruction” the Court should adopt a broad construction, as it has done previously in interpreting other terms in that part of the Law, such as the expression “arrangement” as used in section 86 and 87 of the Law. See for example *In Re SIIC Medical Science and Technology (Group) Limited* [2003] CILR 355 where the judge said at 359: “the courts have construed “arrangement” as a word of very wide import, covering almost every type of legal so long as an element of give and take is present and it has the object of the concerned parties.”
It was submitted that in the ordinary sense, and in the sense that a business man nowadays would understand it, an "amalgamation" of two or more companies is a bringing together or a merger of their businesses or operations as currently represented by existing assets and liabilities. It was submitted that a "reconstruction" would be understood to be a re-organization, a re-fashioning or a re-ordering of an existing business or operation which results in something identifiably different in form or substance but yet retains identifiable characteristics of the original business or operation. On that basis it was contended that on a plain and ordinary construction the Merger Sub scheme - whereby Merger Sub would transfer to Noble Cayman all of its property, rights and liabilities - would amount to a bringing together or merger of the business and operations of Merger Sub, as currently represented by its existing assets and liabilities, with those of Noble Cayman. It was submitted that this would amount to an amalgamation with Noble Cayman or possibly a reconstruction of Merger Sub with Noble Cayman. Section 87 of the Law is substantially the same as section 427 of the English Companies Act 1985. I was informed that there is no reported English case which has directly considered the meaning of the term "amalgamation" in the context of an application under the Companies legislation. However, the term "reconstruction" was considered in the case of MyTraPlc [2005] Group BC LC 123. In that case an insolvent company applied to the court in respect of a scheme of arrangement the intended effect of which was that all the assets and undertaking
The document discusses a legal case where a company's assets would be transferred to a new company, which would assume a limited quantity of the company's debts but the bulk of the new company's share capital would be allocated to major creditors, leaving the existing shareholders with only a 4% stake in the new company. The court (Mann J.) upheld the contention of objecting bondholders that it was essential to the concept of a reconstruction that the shareholders in the new company should be the same, or substantially the same, as the shareholders in the old company, which was not the case in the proposed arrangement. The judge concluded that a company, which was to be treated as the same as its incorporators, was reconstructed when those incorporators were the same in both the old and the new companies (or at least there was substantial identity between them). In his judgment, the judge made reference to *Re South African Supply and Cold Storage Company* [1904] 268. That was a case relating to the interpretation of the words "reconstruction" and "amalgamation" as used in a company's articles of association and not in the context of an application to the Court in respect of a scheme of arrangement. Nonetheless, the judgment (Buckley J.) has been treated in England and elsewhere in the Commonwealth as authoritative on the meaning of the words in relation to schemes of arrangement or similar applications. At pckley J. said (age 281 Bul): "The meaning of the words 'reconstruction' and 'amalgamation' has been ascribed to them in a variety of contexts. Each is a legal event, either of the 'reconstruction' or 'amalgamation'. In each case one has to decide whether the transaction is such as that, in the meaning of commercial men, it is one which is comprehended in the term 'reconstruction' or 'amalgamation'."
Buckley J. then went on to consider the meaning of these two terms and said (page 286): What does “reconstruction” mean? To my mind it means this. An undertaking of some definite kind is being carried on, and the conclusion is arrived at that it is not desirable to kill that undertaking, but that it is desirable to preserve it in some form, and to do so, not by selling it to an outsider who shall carry it on - that would be a mere sale- but in some altered form to continue the undertaking in such a manner as that the persons now carrying it on will substantially continue to carry it on. It involves, I think, that substantially the same business shall be carried on and substantially the same persons shall carry it on. But it does not involve that all the assets shall pass to the new company or resuscitated company, or that all the shareholders of the old company shall be shareholders in the new company or resuscitated company. Substantially the business and the persons interested must be the same. Does it make any difference that the new company or resuscitated company does or does not take over the liabilities? I think not. I think it is none the less a reconstruction because from the assets taken over some part is excepted provided that substantially the business is taken, and it is immaterial whether the liabilities are taken over by the new or resuscitated company or are provided for by excepting from the scheme of reconstruction a sufficient amount to answer them. It is not, therefore vital that either the whole assets should be taken over or that the liabilities should be taken over. You have to see whether substantially the same persons carry on the business; and if they do, that, I conceive, is a reconstruction. Now what is an amalgamation? An amalgamation involves, I think, a different idea. There you must have the rolling, somehow or other, of two concerns into one. You must weld two things together and arrive at an amalgam - a blending of two undertakings. It does not necessarily follow that the whole of the two undertakings should pass - substantially they must pass - nor need all the corporators be parties, although substantially all must be parties. The difference between reconstruction and amalgamation is that in the latter is involved the blending of two concerns one with the other, but not merely the continuance of one concern. An amalgamation may take place, it seems to me, either by the transfer of undertakings A. and B. to a new corporation, C., or by the continuance of A. and B. by B. upon terms that the shareholders of A. shall become shar B. It is not you should have a conf one ojtha. You may continueance d have a ne eholders in necessary w company
```html 15. On the facts of that case Buckley J. found that the sale of some of the assets of First African etc Supply Company (“the Supply Company”) to the “Australasian Company” in return for shares in the Australasian Company and the subsequent sale to the “Cold Storage Trust”, which had been newly established for that purpose, of those shares together with the remaining assets of the Supply Company amounted to a “reconstruction” of the Supply Company. However, it was not an “amalgamation” of the Supply Company because “the Cold Storage Trust had nothing to bring into an amalgamation. It had no business of its own, but was acquiring its business by this purchase”. 11 By contrast, the judge concluded that the subsequent sale of the business of the Australasian Company to the “Imperial Company”, with the shareholders of the Australasian Company becoming shareholders in the Imperial Company constituted an “amalgamation” because the Imperial Company “also has a business of its own” and the business of each of the two companies became “blended in the hands” of the Imperial Company. 16. It was submitted that in the case before me the transfer of the assets and liabilities of Merger Sub to Noble Cayman pursuant to the Merger Sub Scheme would simulate a rec eaning of the Similarly const struction he South A wifrican 21 22 case. H strict rea 23 case might also lead to the conclusion that the proposal with respect to Merger Sub did not constitute an “amalgamation” because, like the Cold Storage Trust, it

¶ [1] was incorporated specifically for the purposes of the proposals behind the two schemes and, other than a nominal amount, it has no assets and no liabilities (other than nominal liabilities to its professional service providers) and has no employees.

¶ [2] 17. In **Citizens and Graziers' Life Assurance Company Ltd. v Commonwealth Life etc** [1934] 51 CLR 422 the High Court of Australia considered an application to sanction a scheme of amalgamation under a statutory court-supervised procedure to enable companies to amalgamate. After referring to the **South African Supply** case, Dixon J., in giving the judgment of the majority said (page 457):

¶ [3] "The union of shareholders, which amalgamation involves, is, of course, not concerned with the members of the combining corporations as persons. It is the reorganization of share capital that matters. The replacement of two separate systems of share capital by one appears to be required before a union of two companies limited by shares can justly be called an amalgamation of the companies. In the process of reorganization, classes or divisions of shares, or amount of shares, or amount of share capital, in one or other or both of the old companies may find no representation in the one system of capital which emerges. But the substantial result must be to reduce for practical purposes two or more organizations of capital to one, and two or more incorporated companies to one. The amalgamation to which the clause in the memorandum refers is not a mere combination of businesses separately conducted, but an amalgamation of companies. There is no context to enlarge the meaning of the expression. To accomplish such an amalgamation, it seems necessary, either to consolidate the constituent elements of the old companies into a new one, or to merge in one of the old companies the constituent elements of the other. Possibly a transaction may be an amalgamation although the corporate existence of the consolidating companies, or of the merged company, may be continued for some special and definite purpose. But the two companies must be amalgamated with their existing assets and liabilities, and the amalgamation must be complete and not partial."

¶ [4] It was submitted by counsel for the Petitioners that Dixon J. was not suggesting a test different from that in the **South African Supply** case but merely that an
```html 1 amalgamation or consolidation of different companies’ share capital into a single 2 share capital and two or more companies into one would be other key 3 characteristics to which the court would have regard. In the present case the 4 shares of Merger Sub are currently owned by Noble Switzerland and the shares of 5 Noble Cayman are currently owned by the Scheme Shareholders and the proposal 6 is that the new shares of the enlarged Noble Cayman will be owned by Noble 7 Switzerland alone so that arguably there would be a reduction of two existing 8 companies into one surviving company. 9 10 18. In the Citizens and Graziers’ case Starke J. gave a minority judgment. He agreed 11 that “amalgamation” is a commercial and not a legal term and went on to say 12 (page 447): 13 “The individual corporators in the old company are not corporators in the new 14 company. But is that essential to amalgamation? I do not think it is. It is uniting 15 in whole or in part the undertakings and business of two or more companies in a 16 new company or in one of the old companies, so that those undertakings and 17 businesses may in future be carried on as one business, that is the essence of 18 amalgamation. The fact that the corporators are the same is evidence of the 19 character of the transaction, but the shareholding of the transferring companies is 20 quite as strong in that direction as is the fact that the individual corporators in 21 the transferring companies are corporators in the new company; it shows that the 22 persons beneficially interested in the business now carried on by the new 23 company are in substance the same as those who were interested in the business 24 carried on by the old companies”. 25 26 On that case Stled that there 30 he present c stered slof Cayman 27 the facts of arke J. concialgamation 19. In tase the regi Merger Sub and No 28 lud. 29 eholders Sut 31 are clearly different but the persons beneficially interested in the Noble Cayman 32 and Merger Sub are the same. It was argued that in substance the persons who

¶ [1] have a beneficial interest to be carried on by the Noble Cayman are the same as those with a beneficial interest in the business currently being carried on by the existing Noble Cayman and in Merger Sub and I think that is right.

¶ [20] In further Australian case, **Re Stork ICM Australia Ltd. etc v Stork Food Systems** [2007] 25 ACLC 208, the Federal Court of Australia (Lindgren J.) considered the meanings of the terms "amalgamation" and "reconstruction" in the context of the section of the Australian Corporations Act equivalent to section 87 of the Law.

¶ [9] He said (para. 76):

¶ [10] "I agree with Mr. Oakes that a restrictive interpretation should not be placed on either the term "reconstruction" or the term "amalgamation". I also accept his submission that the approach should be simply to inquire whether the circumstances of a particular case fall within one or the other or both of the words, without first attempting to delineate their respective boundaries of meaning".

¶ [17] This is consistent with a broad and purposive construction approach.

¶ [21] In the relation to the term "reconstruction" Lindgren J. said (paras 77 and 78):

¶ [20] "In my view, the arrangement as proposed is a reconstruction. The whole of the undertaking, property and liabilities of Stork ICM is to be transferred to and vest in Stork FSA. These circumstances fall within Buckley J.'s description of "reconstruction" in **South African Supply**. Although the run-off activity of Stork ICM can hardly be called the "carrying on" of an undertaking, that business-related activity will be taken over by Stork FSA and will continue to be, indirectly, an activity of the parent company Stork NV, as it is at present. It will, however, be distinct from activity of receivers of claims Stork FSA.
To my mind the word "amalgamation" does not so easily lend itself to the proposed arrangement, because there will be no "blending" of the two activities, even though they will both be carried on by Stork FSA".

¶ [22] The High Court and the Federal Court of Australia apparently did not feel constrained to adopt a restrictive view of the South African Supply case and adopted a commercial meaning at the relevant time of the words "amalgamation" and "reconstruction" in the context of the particular proposal put before the court. It was emphasized before me that this Court should, in particular in viewing the use of companies specially incorporated for a particular proposed purpose (such as Merger Sub) note that attitudes have changed over the last century and should adopt a modern purposive and commercial approach.

¶ [23] I was also referred to some English tax related cases concerning schemes of reconstruction in the context of applications concerning stamp duty or capital gains tax in which a somewhat narrower view of the meaning of the term "reconstruction" was taken (see Brooklands Selangor Holdings Ltd. v IRC [1970] 1 WLR 429; Baytrust Holdings Ltd. v IRC [1971] 3 All ER 76; Swithland Investments Ltd. v IRC [1990] STC 448; and Fallon v Fellows [2001] STC 1409). These "fiscal" cases were considered and applied in the MyTravel case (ibid). However, it was submitted to me that until very recently the English courts have resisted a purrtruction and have traditionally adopted a literal interpretation of statutes and have traditionally adopted a literal interpretation of statutes. It was suggested that the Cayman courts should be slow to construe words appearing in our Companies Law by reference to authority deriving from
English tax legislation which has never had any counterpart here. In this context it was also noted that in the *Stork ICM* case in the Federal Court of Australia Lindgren J. referred to *Brooklands Selangor Holdings v IRC (ibid)* and *Baytrust Holdings Ltd. v IRC (ibid)* but he specifically noted that those are fiscal cases and he neither quoted from nor relied on them. In my opinion it is appropriate and desirable in this jurisdiction and at this time to adopt a purposive and broad interpretation approach to the provisions of sections 86 and 87 of the Law and in particular with respect to the meaning of the words “amalgamation” and “reconstruction”. That would be consistent with the broad interpretation already given to the term “arrangement” as it appears in the same sections by this Court and in my view the same general approach should be adopted when considering the construction of the terms “amalgamation” and “reconstruction”. I also respectfully and gratefully adopt the words of Buckley J. in the *South African Supply* case (ibid) that neither word has any definite legal meaning, that each is a commercial and not a legal term and that even as a commercial term has no exact definite meaning. He said that in each case one has to decide whether the transaction concerned is such that in the meaning of commercial men it is one which would be comprehended within the term “rec” or “amalgamation”. It that I would determine the transaction to be probably considered a reconstruction or amalgamation by commercial men in this day and age.
```html 1 25. Furthermore, in my opinion it is legitimate to look at the whole transaction which 2 is under consideration, albeit that in this case it necessarily consists of two 3 separate schemes of arrangement. It seems to me that in adopting a purposive 4 approach it would be artificial and unduly restrictive to consider whether the 5 proposed transfer of the assets and liabilities of Merger Sub to Noble Cayman 6 constitutes an “amalgamation” and/or a “reconstruction” in isolation given that it 7 is an integral part of the related and interdependent arrangement which Merger 8 Sub has been specifically incorporated to facilitate. Although I do not anyway 9 consider the narrower, more legalistic approach to the construction of these 10 words, which is based to a significant degree upon the English fiscal cases, which 11 was adopted in the MyTravel case, that case is clearly distinguishable on its facts 12 from the present circumstances in which the transfer of assets and liabilities by 13 Merger Sub to Noble Cayman is clearly an essential element in a greater overall 14 arrangement. 15 16 26. I also take the view that it is sufficient for these purposes that, as shareholders of 17 the ultimate parent company within the Noble Group, the Scheme Shareholders at 18 all times have ultimate beneficial ownership of both Noble Cayman and Merger 19 Sub (and Noble Switzerland) and that under both of the schemes of arrangement 20 ultimate bevnership wif course, N Sub ease to exis ll merger 21 itself will c st. 22 ```
```html 1 27. In all the circumstances of these particular proposed schemes of arrangement I am 2 satisfied that the proposed Merger Sub scheme is, in context, an “amalgamation” 3 and that accordingly the Court would have jurisdiction to make orders under 4 section 87 of the Law and sanction the Merger Sub scheme of arrangement if it 5 thought fit on the hearing of the joint Petition in due course. 6 7 8 9 10 11 Dated 18th June 2009 12 13 14 ``` ```latex \documentclass{article} \usepackage{geometry} \usepackage{graphicx} \usepackage{amsmath} \section{In all the circumstances of these particular proposed schemes of arrangement I am satisfied that the proposed Merger Sub scheme is, in context, an “amalgamation” and that accordingly the Court would have jurisdiction to make orders under section 87 of the Law and sanction the Merger Sub scheme of arrangement if it thought fit on the hearing of the joint Petition in due course.} \begin{table}[h] \centering \begin{tabular}{|c|c|} \hline 1 & 27. \\ \hline 2 & In all the circumstances of these particular proposed schemes of arrangement I am \\ \hline 3 & satisfied that the proposed Merger Sub scheme is, in context, an “amalgamation” \\ \hline 4 & and that accordingly the Court would have jurisdiction to make orders under \\ \hline 5 & section 87 of the Law and sanction the Merger Sub scheme of arrangement if it \\ \hline 6 & thought fit on the hearing of the joint Petition in due course. \\ \hline 7 & \\ \hline 8 & \\ \hline 9 & \\ \hline 10 & \\ \hline 11 & Dated 18th June 2009 \\ \hline 12 & \\ \hline 13 & \\ \hline 14 & \\ \hline \end{tabular} \end{table} \begin{flushright} \textbf{The Hon. Mr. Justice Angus Foster} \\ \textbf{Judge of the Grand Court (Acting)} \end{flushright}