Taken From: http://www.cozens-hardy.com/

← Back

Cross-Border Merger Proposal ‘Not a Device’, Court of Appeal Rules

There are tax and other advantages in using European, rather than domestic, law mechanisms when seeking approval for cross-border corporate mergers and, as one case showed, judges are alert to the possibility of the system being abused.

The case concerned plans to merge 22 companies in the same group into one. All the companies were registered in the UK, save one, a dormant Dutch company that had never traded and had no appreciable assets. The only purpose of including the Dutch company in the merger was to make the transaction a cross-border merger to which the Cross-Border Mergers Directive (2005/56/EC) applied.

The proposed transferee of the companies’ shares took the view that, for tax and other reasons, proceeding under the Directive – which was implemented in the UK by the Companies (Cross-Border Mergers) Regulations 2007 – was preferable to invoking scheme of reconstruction procedures under the Companies Act 2006 or the Insolvency Act 1986. There was also concern that taking the latter course would imply insolvency and cause reputational damage.

The transferee asked the High Court to approve the cross-border merger, but its application was dismissed by a judge on the basis that the inclusion of the Dutch company was a device that was designed to take advantage of the more favourable regime provided by the Directive. He ruled that the proposed merger did not fall within the scope of the Directive and that the court had no jurisdiction to sanction it.

In ruling on the transferee’s challenge to that ruling, the Court of Appeal noted that the supervisory role of the courts in respect of cross-border mergers is no rubber stamp and involves independent analysis and a critical eye where necessary.

In upholding the transferee’s appeal, however, the Court found that the proposed cross-border merger did not offend against the European principle of abuse of law. It could not be said that the participating companies had a collateral purpose in mind or that they were seeking to exercise rights under the Directive for a purpose other than that for which they were created. There was nothing illegitimate about the merger proceeding under the Directive and the inclusion of the Dutch company was not a device.



 
Contact us for more information

← Back