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New restructuring process for Cayman Islands

The Cayman Islands legislature gazetted the Companies (Amendment) Bill, 2021, on 21 October, which introduced a new corporate restructuring process. The bill represents a welcome development to the restructuring regime in the Cayman Islands and once again fortifies the Cayman Islands’ reputation as a leading offshore financial hub and a popular destination for foreign investment opportunities. This article examines the amendments introduced in the bill and the implications for existing and prospective investors in the Cayman Islands.

James Noble
Partner at Carey Olsen in Singapore
Tel: +65 6911 8322

Current position under the Cayman Companies Act, 2021. Before the introduction of the bill, there was no formal restructuring regime in the Cayman Islands akin to the UK’s administration process or to Chapter 11 proceedings in the US. Under the act, the only option available to a company in distress is to appoint provisional liquidators, which will trigger a moratorium that will in turn allow the company breathing space and, where appropriate, enable it to propose a restructuring to its creditors.

In practice, this means that a winding-up petition against the company will first have to be presented for it to undergo any restructuring. That can be done by the company – through a shareholders’ special resolution – its creditors or contributories. Further, directors may present a winding-up petition on the company’s behalf without needing the sanction of a shareholders’ special resolution provided that such power is expressly provided for in the company’s articles and assuming it was incorporated after 1 March 2009.

At the hearing of a winding-up petition, the court has jurisdiction to, inter alia, make appropriate orders to facilitate a restructuring of the company. This would ordinarily involve the appointment of provisional liquidators to facilitate the restructuring process. The presentation of a winding-up petition alone will not give rise to a moratorium. Only the making of an order for the appointment of a provisional liquidator, or an official liquidator, will have that effect.

Amelia Tan
Senior associate at Carey Olsen in Singapore
Tel: +65 6911 8323

The new regime under the bill. With the introduction of the bill, part V of the act will be amended to include provisions for a company restructuring. The new provisions introduce a formal, standalone restructuring procedure for companies outside the traditional winding-up regime prescribed in the act.

The new regime establishes the concept of a “restructuring officer”, a qualified insolvency practitioner who acts as an officer of the court, and who will supervise the company’s restructuring process.

A company’s directors are empowered under that regime to present a petition for the appointment of a restructuring officer. This can be done without a shareholders’ resolution or any express power in the company’s articles. That being said, the company’s members may have grounds to restrain the directors from doing so where there is a provision in the company’s articles that expressly prohibits this.

Under the proposed section 91B, a company may present a petition to the court for the appointment of a restructuring officer on the basis that the company is, or is likely to become, unable to pay its debts and intends to present a compromise or arrangement to its creditors, or classes of creditors, either pursuant to the act, the law of a foreign country, or by way of a consensual restructuring.

It will therefore no longer be necessary for a winding-up petition to be presented as a precursor to a court-supervised restructuring, and the court will not have the power to wind up the company when presented with a petition to appoint a restructuring officer. Pending the hearing of that application, the company may also apply ex parte to the court for the appointment of an interim restructuring officer.

An automatic moratorium would be triggered upon the presentation of a petition to appoint a restructuring officer. This would prevent the continuation or commencement of any proceedings against the company without the leave of a court, including all foreign proceedings and any proceedings to wind up the company. However, secured creditors will still be able to enforce their security against the company, without needing court sanction and without seeking the approval of the restructuring officer.

The powers conferred on a restructuring officer are generally flexible and will be subject to the court’s discretion.

Where the restructuring officer proposes to pursue a scheme of arrangement as part of the company’s restructuring plan, he/she may make an application within the restructuring proceedings without the need for separate proceedings under the act for sanction of that scheme. As a result, there will be significant time and cost savings for a company already in distress.

Vivian Siah
Associate at Carey Olsen in Singapore
Tel: +65 6911 8328

In addition to the introduction of a standalone restructuring regime, there is another notable amendment in the proposed legislation. That amendment will allow directors of companies incorporated after the bill comes into force to present a winding-up petition on behalf of the company on the grounds that the company is unable to pay its debts as they fall due or, where a winding-up petition has been presented, to apply on the company’s behalf for the appointment of a provisional liquidator.

As stated above, at present, directors may present a winding-up petition on the company’s behalf without the sanction of a special resolution passed at a general meeting only if such power is expressly provided for in the company’s articles of association and the company was incorporated after 1 March 2009. The new bill, however, grants directors this authority without either of the restrictions. It will be necessary for provisions to be included in the company’s articles to either expressly remove or modify the directors’ authority in this regard, should the stakeholders wish to depart from this statutory right.

Implications for the client

The client as creditor. The interests of creditors of a company intending to appoint a restructuring officer are well protected under the regime introduced in the bill. Among other things, the petition for the appointment of a restructuring officer must be heard on an inter partes basis unless the company can otherwise satisfy the court that there are grounds justifying an ex parte application.

In addition, creditors of the company, including contingent or prospective creditors, may apply to the court to seek either a variation or discharge of the order appointing a restructuring officer, or for that officer’s removal or replacement. Thus, for example, if the creditor has concerns about the independence of the restructuring officer proposed by the company, they will have an opportunity to nominate their own candidate.

If the restructuring under the guidance of a restructuring officer fails, and the company is subsequently wound up, the winding-up will be deemed to have commenced from the presentation date of the petition for the appointment of a restructuring officer. This will affect, inter alia, the scope of the official liquidators’ powers to claw back any preference payments made to creditors within the relevant period.


The bill presents a welcome approach to facilitate company restructurings in the Cayman Islands. The benefits of the “light touch” provisional liquidation under the current regime are retained, while the negativity and stigma associated with a winding-up petition are no longer present with the establishment of a standalone restructuring process. It is anticipated that this will present a more collaborative and cohesive approach in cross-border restructurings.


Carey Olsen Singapore

10 Collyer Quay #29-10

Ocean Financial Centre

Singapore 049315

Tel: +65 6911 8310


Overview of Cayman Islands investment funds regime

With its agile regulatory framework, independent political and legal environments, flexible structuring options, tax neutrality and well-developed infrastructure, the Cayman Islands is set to remain the perfect investment funds jurisdiction in 2022, and continue to offer Asia-based fund managers and investors the ideal location to capitalise on opportunities.

Evolving framework

Despite 2021 being a challenging year globally, the number of investment funds registered with the Cayman Islands Monetary Authority (CIMA) increased by more than 9.7% over the year. The continuing appeal of the Cayman Islands as an investment funds jurisdiction is attributable in part to the sensible policies of its government and the commercially practical regulatory system.

The government recently introduced a raft of legislation in its continuing efforts to strengthen oversight and keep in line with global standards and industry developments.

Regulation of private funds and limited investor funds. In particular, the Cayman Islands enhanced its investment funds regulation by requiring all Cayman Islands-based private equity and venture capital investment funds to be registered with the CIMA. Since registrations commenced in 2020, there are now more than 14,680 “private funds” (closed-ended funds where investors do not have the option to redeem) and limited investor funds (15 or fewer investors) registered.

CIMA rules on net asset value (NAV) calculation, content of offering documents and segregation of assets. In 2020, CIMA published three rules for regulated funds: (1) rules on the calculation of NAVs; (2) rules on the segregation of assets; and (3) rules on the contents of offering documents. The rules aim to enhance the standard of disclosures made to investors and to ensure fund assets are adequately segregated from the fund operator’s assets, and accounted for.

Robert Searle
Partner at Campbells in Hong Kong
Tel: +852 3708 3014

Economic substance legislation. As a result of the Organisation for Economic Co-operation and Development’s (OECD) global base erosion and profit shifting (BEPS) initiative, and the EU code of conduct group substance requirements modelled on BEPS action 5, the Cayman Islands enacted the International Tax Co-operation (Economic Substance) Act (2021 Revision) (ESA). Under the ESA, certain vehicles formed or registered in the Cayman Islands are required to have “economic substance” in the Cayman Islands.

Importantly, regulated investment funds are outside the scope of the ESA and not required to have economic substance in the Cayman Islands. Cayman Islands managers may be in scope and require specific advice.

Data Protection Act. The Data Protection Act (as revised) regulates the processing of all personal data in the Cayman Islands or by Cayman Islands entities. It impacts all entities established in the Cayman Islands, and applies irrespective of whether personal data is processed outside of the Cayman Islands or if the personal data relates to non-Cayman Islands resident individuals. This provides significant comfort to investors regarding the processing of their personal data.

Anti-money laundering (AML) regime. The Cayman Islands has comprehensive legislation and guidelines to combat money laundering practices. The principal legislation is the Proceeds of Crime Act (as revised), the Anti-Money Laundering Regulations (as revised) and related guidance notes, which apply to a range of business activities conducted in the Cayman Islands, including investment funds and investment managers.

Independent legal system

As a British overseas territory, the Cayman Islands enjoys economic and political stability, and a high degree of independence compared to some of its competitors. Its laws are a combination of common law, equity and statute based heavily on English law. It has a sophisticated judiciary, and the English Privy Council remains the highest court of appeal for Cayman Islands decisions.

Flexible structuring

James McKeon
Senior Associate at Campbells in Hong Kong
Tel: +852 3708 3022

Investment funds established in the Cayman Islands may take several different forms and new types of fund structures are constantly being developed. This flexibility enables fund managers and investors to adapt their investment fund structures to best capitalise on new opportunities.

The core investment vehicles are companies, unit trusts and limited partnerships, or a structured combination of these. In the Cayman Islands there is no tax imposed on income, capital gains or share transfers at the entity level, leaving investors and fund managers to be taxed on income and capital gains received in the jurisdictions where they reside. There are also no foreign exchange controls in the Cayman Islands.

Exempted companies have many of the characteristics of companies in other jurisdictions where investment funds exist. A board of directors manages the operation, while investors own shares that each carry an entitlement to a proportion of the profits or gains of the relevant class of shares, equal to that of any other share in the same class of shares in the company.

Most corporate investment funds are “open-ended”, meaning that investors have the right to redeem their interest or subscribe for more shares periodically. Both are usually based on the prevailing NAV per share of the particular class of fund shares.

Limited liability companies (LLCs) are similar in key respects to Delaware limited liability companies. The LLC is a versatile entity with a hybrid of the benefits of an exempted limited company and partnership. An LLC is a body corporate with a separate legal personality to its members but maintains the internal accounting and record keeping flexibility of an exempted limited partnership. An LLC may either be managed by its members in accordance with its agreement, or by “managers” appointed by the members. Its members benefit from limited liability to the amount of each member’s agreed maximum contributions, with substantial contractual freedom to agree to the internal workings of the LLC vehicle set out in an agreement within the framework of the LLC Act. US investors may prefer an LLC, given their familiarity.

Exempted segregated portfolio companies. The segregated portfolio company allows the creation of separate portfolios, which operate as a separate pool of assets and liabilities. Each segregated portfolio can have a separate investment strategy. If one portfolio incurs substantial liabilities in excess of its assets, that will not affect other segregated portfolios. The segregation of assets provides statutory protection for umbrella funds created within a single legal entity, and potentially lessens the administrative burden for the fund. In some circumstances, it may also allow investors to switch between portfolios without incurring a tax charge in their tax domicile. The segregated portfolio company structure is very popular.

Exempted unit trusts, in contrast to a company, is not a separate legal entity under Cayman Islands law, but a trust arrangement where legal ownership of the fund’s assets is vested in a trustee who holds the assets on trust for the benefit of the unit holders. The exempted unit trust will be constituted by means of a trust instrument made by a Cayman Islands licensed trustee company, and will be governed by common law and the Trusts Act. Japanese investors are familiar with the unit trust.

Exempted limited partnerships are a type of partnership widely used for investment funds, particularly closed-ended funds, covering private equity or venture capital. One or more of the partners is a general partner who has legal responsibility for the operation and management of its business, together with unlimited liability for the debts of the partnership.

The remaining partners are limited partners who are restricted from participating in the management of the partnership’s business, but who have liability for the partnership’s debts limited to the extent of their investment. An exempted limited partnership is not a separate legal entity from its partners under Cayman Islands law.

Well-developed network

The Cayman Islands has a well-developed network of highly organised international professional services firms, many of whom also have a presence in Asia and can provide time-sensitive access to funds, managers and investors.

Cryptocurrency funds

Cayman Islands investment funds have become instrumental in providing digital asset and cryptocurrency investment strategies. There are particular challenges with conducting AML on investors who subscribe for fund shares in cryptocurrency, along with how to value and custody such assets. The Cayman Islands is at the forefront of procedures to deal with these risks.

2022 and beyond

For the above-mentioned reasons, the Cayman Islands continues to set the standard for investment fund jurisdictions, and is the perfect location for funds to target opportunities in 2022 and beyond.


1301, 13/F, York House, The Landmark
15 Queen’s Road Central
Hong Kong
Tel: +852 3708 3000

SPAC IPO v traditional IPO: A Cayman perspective

Special purpose acquisition companies (SPACs) have taken Wall Street by storm in the past year, with unprecedented numbers being used as an alternative route for companies to go public. In just the first quarter of 2021, a record USD96 billion was raised from 295 newly formed SPACs, according to a report by Harvard Business Review on 16 October 2021. As of 20 December 2021, about USD162 billion was raised from 609 newly formed SPACs, with an average IPO size of USD266 million.

Matt Roberts
Partner at Maples Group in Hong Kong and Singapore
Tel: +852 3690 7405, +65 8388 8567

The Cayman Islands and the British Virgin Islands (BVI) have been popular jurisdictions of choice for SPAC owing to the suitability of their respective company laws to SPACs, their flexibility, tax neutrality, market familiarity, the ability to redomicile to another jurisdiction on a business combination if required, and straightforward statutory merger regimes that are commonly used as a means of effecting a business combination, i.e. the acquisition or merger with the identified target business.

SPACs led by an experienced management team are backed by a sponsor and raise cash to acquire or merge with a target company in a specific sector or industry. For US listings, the SPAC IPO and traditional IPO engage in an approval process with the US Securities and Exchange Commission (SEC).

The major differences revolve around the securities, the transaction documentation, the length of the process, the amount of disclosure in the offering document, and the valuation of the fund offering.

The securities

In a SPAC IPO, units sold to investors generally comprise a class A share and a fraction of a warrant to purchase a class A share. These separate securities comprising each unit can trade separately 52 days after the IPO, but not before. The class A shares are not subject to transfer restrictions and investors can choose to redeem their investment before the business combination or continue with the investment after assessing the potential return of the target business.

Richard Holden
Associate at Maples Group in Hong Kong
Tel: +852 3690 7519

In contrast, class B shares are issued to the sponsor and comprise the “promote”, and typically convert into class A shares at the time of the business combination on a one-for-one basis. The class B shares include the right to appoint and remove directors of the SPAC before the closing of a business combination. Cayman Islands or BVI companies listing on a US stock exchange choose to list American depositary receipts (ADRs) rather than making a direct equity listing.

Each ADR evidences an ownership interest in American depositary shares which, in turn, represent an interest in the shares of the IPO company held by the applicable depository.

Transaction documentation

The key legal documents applicable to a traditional IPO process from a Cayman Islands and BVI perspective are the listing document, including the prospectus, the amended and restated memorandum and articles of association of the company (IPO M&A), any Cayman Islands and BVI legal opinions required by regulators, exchanges, depositories, registrar and transfer agents, or brokers or underwriters and requisite corporate approvals.

In addition, documentation may be required to effect any pre-listing restructuring of the business group for the listing. Applicable underwriting agreements and depository or custody agreements would also be required.

The key legal documents applicable to a SPAC IPO process from a Cayman Islands and BVI perspective are similar. These include the registration statement (for listing on a US stock exchange), the amended and restated memorandum and articles of association of the SPAC (SPAC IPO M&A), legal opinions at the time of the public filing regarding, among other things, the validity of the shares being issued in the offering, and those required by each of the underwriters and the registrar and transfer agent, and requisite corporate approvals.

Material contracts, including the underwriting agreement, private and public warrant agreements, investment management trust agreement, transfer agency and registrar services agreement, and registration rights agreement, would be reviewed at the appropriate stage.

The IPO M&A or SPAC IPO M&A will need to follow a form that meets the requirements of the applicable US stock exchange on which the company or SPAC is to be listed, as well as the legal requirements of the Cayman Islands or BVI.

Cost and timing

SPACs can be incorporated and go public in eight to 12 weeks, whereas an operating company may take anywhere from six to 12 months (or more) to go public when including the required preparations during a traditional IPO.

The reason for the shorter timeline is that SPACs are not operating companies, thereby avoiding the need for lengthy due diligence, and there is a limited amount of information to disclose in a SPAC’s registration statement. As a result, there are clear cost and time benefits to the sponsor of a SPAC IPO compared with a traditional IPO.

Acquisition window

On a SPAC IPO, there is a defined timeframe (typically 18 to 24 months) within which the SPAC must complete the acquisition of a target business. A SPAC can quickly move to secure an acquisition target and de-SPAC – the name given to the acquisition process – relatively quickly due to its large cash reserves held in trust. If the SPAC fails to acquire a business within this defined timeframe, it must liquidate and return all funds raised in the SPAC IPO to its investors.


SPAC sponsors receive what is known as the “promote”, which is usually 20% of the SPAC post-IPO issued share capital. This compensates the sponsors for the risk they take in putting up their at-risk capital to form and operate the SPAC between the time of its IPO and the de-SPAC, but effectively dilutes the public shareholders’ ownership of the IPO.

Less scrutiny

Going through a traditional IPO exposes a company to enormous scrutiny over the months leading up to the IPO, and can result in uncertainty around valuation methods up to the pricing of the IPO. SPACs are selling a management team rather than a product and company with an operating history, and are therefore usually not subject to the same level of examination.

Redemption and PIPEs

The ability of investors in a SPAC IPO to redeem their class A shares creates uncertainty on the amount of funds available to the SPAC to complete an acquisition, and whether the sponsors can secure additional funds from the private investment in public equity (PIPE) or other investors to complete the acquisition.

The availability and costs of such additional funds are highly dependent on the market and economic conditions, and it may have a dilutive effect on the shareholding structure of the SPAC. This issue does not arise in a traditional IPO since investors cannot redeem shares to get their money back from the company.

Underwriting fee

One of the appealing features of a SPAC is that the underwriting fee for a SPAC IPO tends to be lower, at about 5.5%, than the 7% that investment banks charge in a traditional IPO.

Looking ahead

While some of the heat has come out of the SPAC IPO market since the beginning of 2021 amid increasing regulatory scrutiny (for example, the tightening of accounting guidance by the SEC) and a “wait and see” approach in the market, the main draw to the US SPAC IPO market, namely liquidity and trading volume, is likely to continue in the medium term.

Of course, challenges lie ahead in both camps. As they go through their IPO and subsequent de-SPAC process, SPACs face many regulatory, legal and business hurdles, including obtaining the appropriate amount and type of insurance.

For traditional IPOs, the choice of listing venue will be an ever more pressing concern, taking into consideration the company’s activities and factors like the level of shareholder approval, disclosure and minimum profitability requirements imposed by the rules of a particular listing venue, and wider geopolitical considerations such as data security and data privacy.

Despite these challenges, opportunities abound for those companies, fund managers and sponsors seeking to raise capital in 2022 using the traditional or SPAC IPO route, provided they are prepared to navigate an increasingly complex regulatory landscape, where uncertainty is becoming the norm.


26/F Central Plaza, 18 Harbour Road
Wan Chai, Hong Kong
Tel: +852 2522 9333

Understanding red-chip structures in Cayman Islands

Over the decades, Hong Kong has become the preferred listing venue for Chinese companies that are ineligible for listing on Chinese stock markets and/or are seeking to finance themselves on the global stage. However, Chinese enterprises listing with Hong Kong Exchanges and Clearing Limited (HKEX) directly must comply with the directions and mandates of the China Securities Regulatory Commission (CSRC) and obtain its approval. The shares issued by successful applicants are called H shares, and every new additional issuance of H shares shall be qualified with prior written approval from the commission, which can be a very time consuming and costly process.

This caused the creation of the so-called “red-chip” structure (RCS), inspired by the term “blue chip” in American stock markets. In the early days of poker games, players bet in blue, white and red chips, and the blue chips had the highest value. The terminology was then borrowed and used to describe high-priced, stable and/or long-lasting stocks in the US. Probably because the colour of red represents good fortune and joy in Chinese culture, and is used extensively across Greater China, the special structure initially employed by high-valued Chinese enterprises to list themselves on the HKEX was thus described a “red-chip” structure.

Nowadays, red chips do not necessarily mean those mature companies that represent the stalwarts of an industry. Private or smaller-scale enterprises adopting the same structure will nonetheless be called red chips.

Working definition

Calamus Huang
Partner at Harneys in Shanghai
Tel: +86 21 2030 7840

Adopting the RCS will allow Chinese companies to indirectly list on the HKEX. For this purpose, the RCS mainly connotes two different legal frameworks – the shareholding framework and the variable interest entity (VIE) framework.

Shareholding framework. This framework will be required to incorporate an offshore holding company or a special purpose vehicle (SPV) as the listing company, the shares of which will ultimately be listed and traded on the HKEX, normally in the Cayman Islands. Such an SPV will then indirectly, through certain SPVs incorporated in Hong Kong, hold the equities in the underlying domestic operating company (OpCo), which holds the China-based assets and interests.

VIE framework. Using the framework of equity control is not always feasible due to the relevant restrictions under PRC law, such as restrictions on foreign investment in certain industries. For example, a wholly foreign-owned enterprise (WFOE) cannot provide online news services, nor can an OpCo be owned by a WFOE. In this context, the adoption of the VIE structure helps those companies with foreign ownership to circumvent the potential restrictions.

The offshore portion of this structure up to the WFOE level is exactly the same as the traditional shareholding RCS, and is only different from it in that the WFOE’s control of a VIE, being a domestic Chinese company with no foreign ownership that owns and operates the underlying business, is achieved through a set of contractual agreements instead of equity ownership.

With a VIE structure, foreign shareholders can become the ultimate beneficiaries of the economic interests of the VIE, consolidate the financial performance of it with the overseas subsidiaries held by the same listing company, and face fewer regulations in conducting or investing in business in China.

Using a red-chip structure

There was a steady increase in the number of HKEX listing companies incorporated in the Cayman Islands from 2017 to 2020, while no such increase was observed for listing companies incorporated in other jurisdictions including the British Virgin Islands (BVI). By the end of 2020, 1,319 mainland China enterprises were listed on the HKEX, out of which 1,026 employed the RCS and a vast majority were incorporated in the Cayman Islands.

Jessie Xu
Counsel at Harneys in Shanghai
Tel: +86 21 2030 7805

One question inevitably arises: Why is the Cayman Islands so welcomed? Being one of the UK’s overseas territories means that the Cayman Islands shall be rightly regarded as a British common law jurisdiction. This not only means its legal framework is on an equal footing with Hong Kong, but also means its courts are subject ultimately to appellate supervision by the judicial committee of the Privy Council in London. Such participation of English judges in the judicature of these jurisdictions links their laws and legal systems to one of the great legal traditions of the world so that their courts can apply orthodox and predictable legal doctrines and procedural approaches in deciding commercial disputes.

Taxation. Entities incorporated in the Cayman Islands are also not subject to taxation on corporate income or capital gains. There is no stamp duty charged on share transfers (with limited exceptions), or withholding tax imposed on payments of dividends to shareholders.

The Cayman Islands Cabinet Office further allows Cayman exempted companies to apply for a written undertaking that they will not be subject to any Cayman tax on profits, income, gains or appreciation for a period of up to 30 years, should these taxes ever be introduced in the islands.

Confidentiality. Under the Companies Act (as revised) of the Cayman Islands, an SPV, being an exempted company incorporated in the Cayman Islands, must keep and maintain a register of members that may, but need not be, kept at the registered office. The register of members of a Cayman SPV is not filed with any government or regulatory authority, and is not available for public inspection. The memorandum and articles of association, as well as any director or shareholder resolutions of a Cayman SPV, are not available to the public. In the BVI, the memorandum and articles of association of an SPV are available for inspection upon payment of a fee.

Efficiency. In Cayman, the memorandum and articles of association of an exempted company shall take effect upon adoption of a special resolution passed by the shareholders, and is not subject to the approval of any government authorities. However, in the BVI, the memorandum and articles of association of a business company will not take effect until it is registered with the Registry of Corporate Affairs.

Under the HKEX listing regime for overseas companies, the Cayman Islands is a recognised jurisdiction that attracts less security in corporate governance than an acceptable jurisdiction such as the BVI. The HKEX has adopted and is continually enforcing special measures for BVI-incorporated applicants.

For example, article 4.1 of the HKEX Country Guide – the British Virgin Islands requires BVI-incorporated issuers to demonstrate how their practices conform to the requirements on the Joint Policy Statement Regarding the Listing of Overseas Companies. These will cause unnecessary delays that can be avoided by incorporating the entity in the Cayman Islands.

Ericsson Yu
Intern at Harneys in Shanghai

Co-operation with the CSRC. On 22 March 2018, China’s State Council approved the launch of the Pilot Programme of Innovative Enterprises Domestically Issuing Stocks or Depository Receipts, and agreed that eligible red chips shall be included under the programme.

On 5 November 2018, the Cayman Islands Monetary Authority entered into a memorandum of understanding (MoU) with the CSRC, which was designed to enhance the exchange of supervisory information and cross-border enforcement co-operation with regards to Cayman Islands-registered companies that carry out public or private securities offerings in China and/or have securities trading on China’s stock exchanges.

On 30 April 2020, the CSRC issued the Announcement on Arrangements for the Domestic Listing of Innovative Red-Chip Enterprises under the Pilot Programme. Seen in this vein, the MoU has paved the way for those Cayman incorporated red chips to list on the Shanghai Stock Exchange’s Star Market.

Currently, there are two alternative routes for red chips to list on the Star Market. One is for a Cayman listing company to issue shares directly to Chinese shareholders. The other way is for a Cayman listing company to engage a depository institution that will issue Chinese depository receipts (CDRs) to Chinese shareholders.

Under the CDR approach, the depository institution may further entrust an asset management agency to manage the offshore-based underlying securities. The complexity of this method decides that it is less employed by the interested red chips.

Five Cayman red chips have been successfully listed on the Star Market with a VIE structure, and only one adopted the CDR approach. The explanation for this may be that for a red chip with a VIE to list itself on the Star Market via issuing shares, the CSRC will consult the State Council, the National Development and Reform Commission and the Ministry of Commerce for their opinions concerning the operation of the OpCo of that red chip. This will not take place in the case of the issuance of CDRs.


Aristodemou Loizides Yiolitis, Shanghai Representative Office (Cyprus)
Unit 2, 9/F, Tower 3, Lujiazui Finance Plaza
826 Century Avenue, Pudong New Area,
Shanghai – 200120, China
Tel: +86 21 2030 7888

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