Easynet Global Services Ltd v the Companies (Cross-Border Mergers) Regulations 2007

JurisdictionEngland & Wales
CourtChancery Division
JudgeBirss J
Judgment Date31 Oct 2016
Neutral Citation[2016] EWHC 2681 (Ch)
Docket NumberCase No: CR-2016-004493

[2016] EWHC 2681 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

Royal Courts of Justice, Rolls Building

Fetter Lane, London, EC4A 1NL

Before:

The Honourable Mr Justice Birss

Case No: CR-2016-004493

Between:
In the Matter of Easynet Global Services Limited
Claimant
and
Defendant

Stephen Horan (instructed by Bird & Bird LLP) for the Claimant

Hearing dates: 18 October 2016

Birss J

INTRODUCTION

1

I have before me an application by Easynet Global Services Ltd ("the Company") for permission under Regulation 11 of the Companies (Cross-Border Mergers) Regulations 2007 to convene a meeting of its sole shareholder. This is intended to be the first step in a series of procedural steps under the Cross-Border Mergers Regulations whereby 22 companies will be merged in to the Company. I will refer to what is proposed to be done as the transaction. All the companies are members of the same group but there is more to the group as a whole than just the companies involved in this transaction.

2

Ordinarily an application of this kind would be before the Registrar of the Companies Court but it has been made to a judge because the applicant is seeking confirmation:

a) that there is jurisdiction ultimately to confirm the merger;

b) that there is no reason apparent at this stage why the court should not exercise its discretion to sanction the merger; and

c) that the arrangements for the waiver of consideration are capable of being approved by the court.

3

Bringing an application of this type to the court at this stage is clearly a sensible thing to do in order for the Company to find out whether there are any difficulties in the transaction which it intends to enter in to before it starts incurring significant cost.

4

Before me Mr Horan instructed by Bird & Bird LLP appears for the Company and has ably represented his client to explain the issues to be decided and why orders should be made in his client's favour. There is no opponent. Following the hearing, and with my permission, Mr Horan made further submissions in writing having regard to the concerns I had raised. I have taken them into account.

5

The existing corporate structure bears some explanation although the precise details do not matter. There is a company called Interoute Communications Ltd which holds as a subsidiary MDNX Group Holdings Ltd. That company in turn holds ten companies, nine of which are UK companies and the tenth, Interoute Capital Markets BV, is a Dutch company. I will refer to this Dutch company as BV. One of the companies owned by MDNX Group Holdings Ltd is the applicant, i.e. the Company. Another of the ten companies is Easynet Ltd which in turn owns four foreign companies from China, Hong Kong, USA and Switzerland. Those four foreign companies are not to participate directly in the proposed transaction. Another company of the ten, Easynet Worldwide Ltd, owns a further series of companies the precise details which do not matter save to note that in the sub-structure is a company called EGL (UK) Ltd which holds six further companies, two of which are to be transferor companies in the proposed transaction and the remaining four, which are Spanish, Italian, French and Dutch respectively, are not to participate directly in the transaction. This second Dutch company (Easynet Nederland BV) also holds a Belgian company which again will not directly participate.

6

The transaction aims to merge all the other UK companies in the structure as well as BV into the Company, Easynet Global Services Ltd. The result will be that the Company will hold the shares in eight of the foreign companies mentioned above, i.e. the Chinese, Hong Kong, Swiss, USA, Spanish, Italian and French companies as well as Easynet Nederland BV. That is what I meant by those companies not directly participating. The Company will be left holding the various assets and liabilities of the other 21 companies. Two diagrams were provided which show the structure before and after the transaction has completed – they are in Annex 1.

7

Some or all of the eight foreign companies are trading, have employees and are earning income. The transaction is of significant value. It would increase the attributable reserves within the Company from about £28m to about £70m.

8

Subject to three points addressed below, based on the information I have seen so far there is nothing else about this transaction which would suggest that the court might refuse to approve its completion at a final hearing under the Cross-Border Mergers Regulations. Some of the companies directly involved have trade creditors. None have employees. Many of them have inter-company group obligations but without binding any decision in future made with more information than is provided at this stage, one would not expect those to cause difficulty.

9

Two matters were raised in the application which I can deal with shortly.

10

The first short point is the proposed arrangements relating to the control of the transferee company itself. Under the draft terms of the merger the end result is to be that the Company will be held directly by Interoute Communications Ltd. In order to facilitate this the Company is to buy back its sole share held by MDNX Group Holdings Ltd and then issue a share to Interoute Communications Ltd UK. Mr Horan submitted this should not cause difficulty in these circumstances and I cannot see any reason why it would.

11

Second is the point at paragraph 2(c) above about the arrangements for the waiver of consideration. The draft terms of the merger provide that apart from one share to be issues by the Company to Interoute Communications Ltd following buy back of its one share held by MDNX, all other shareholders of the transferor companies waive their entitlement to any shares or other consideration for the merger. This makes sense because these companies are all in the same group and are being merged in to another member of the same group. Terms of this kind were considered by Hildyard J in Re Olympus UK Ltd [2014] 2 BCLC 402 and after giving the matter careful consideration he held that such arrangements were capable of being sanctioned under the Cross-Border Mergers Regulations. I respectfully agree and have nothing to add on that.

The problem

12

The problem is the following. Of all the 22 companies involved only one is an EEA company outside the UK. That is BV. BV is dormant. It has never traded and has no appreciable assets (only some modest inter group receivables about €17,000). While BV was not created simply for the purpose of it becoming involved in this transaction, it is also manifest (and not denied) that its only purpose in this transaction is to bring it within the scope of the Cross-Border Mergers Regulations. In my judgment it is fair to describe the inclusion of BV in this transaction as a device. The question I have to decide whether that device works or is capable of working.

13

Mr Horan submits that the transaction falls within the court's jurisdiction provided by the Cross-Border Mergers Regulations and there is no reason to refuse to approve it. To address this I need to deal with relevant legislation.

14

The overall scheme set up by the Cross-Border Mergers Regulations and the stages it involves have been described elsewhere, see e.g. paragraphs 13–25 of Olympus. I will not repeat it in detail. Briefly, there is a process involving certification at the pre-merger stage by a "competent authority" in each of the relevant member states for all the companies (transferee(s) and transferor) and then a final approval by the competent authority in the transferor's member state. Following approval the order is delivered to the Registrar of Companies and the merger takes effect on a given date by operation of law. The designation of a competent authority is up to each member state. It could be a court, notary or other competent authority. In the UK it is the court.

15

A key provision is Regulation 2, which needs to be interpreted in the light of Article 2 of the relevant Directive (2005/56/EC). They are:-

Regulation 2 of the UK Regulations

" 2 Meaning of "cross-border merger"

(1) In these Regulations "cross-border merger" means a merger by absorption, a merger by absorption of a wholly-owned subsidiary, or a merger by formation of a new company.

(2) In these Regulations "merger by absorption" means an operation in which—

(a) there are one or more transferor companies;

(b) there is an existing transferee company;

(c) at least one of those companies is a UK company;

(d) at least one of those companies is an EEA company;

(e) every transferor company is dissolved without going into liquidation, and on its dissolution transfers all its assets and liabilities to the transferee company; and

(f) the consideration for the transfer is—

(i) shares or other securities representing the capital of the transferee company, and

(ii) if so agreed, a cash payment,

receivable by members of the transferor company."

Article 2 of the EU Directive

"Definitions

For the purposes of this Directive:

[…]

2. 'merger' means an operation whereby:

(a) one or more companies, on being dissolved without going into liquidation, transfer all their assets and liabilities to another existing company, the acquiring company, in exchange for the issue to their members of securities or shares representing the capital of that other company and, if applicable, a cash payment not exceeding 10% of the nominal value, or, in the absence of a nominal value, of the accounting par value of those securities or shares; or

(b) two or more companies, on being dissolved without going into liquidation, transfer all their assets and liabilities to a company they form, the new company, in exchange for the issue to their members of securities or shares...

To continue reading

Request your trial
2 cases
  • Re Easynet Global Services Ltd
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 18 January 2018
    ...EWCA Civ 10 IN THE COURT OF APPEAL (CIVIL DIVISION) ON APPEAL FROM THE HIGH COURT (CHANCERY DIVISION) THE HON. MR JUSTICE BIRSS [2016] EWHC 2681 (Ch) IN THE MATTER OF THE COMPANIES (CROSS-BORDER MERGERS) REGULATIONS 2007 Royal Courts of Justice Strand, London, WC2A 2LL Lord Justice Davis Lo......
  • Portman Insurance Plc (Claimant)
    • United Kingdom
    • Chancery Division
    • 23 November 2016
    ...the traditions of the Bar. It is an issue identified from the decision of Mr Justice Birss in Re Easynet Global Services Limited [2016] EWHC 2681 (Ch). This was a claim for approval under the Companies (Cross-Border Mergers) Regulations 2007 of a merger of 22 companies. Only one of the 22 w......
2 firm's commentaries
  • When is a merger a cross-border merger?
    • United Kingdom
    • JD Supra United Kingdom
    • 20 January 2017
    ...but a genuine merger between the companies concerned. It therefore sanctioned the merger. Re Easynet Global Services Limited [2016] EWHC 2681 (Ch); Re Portman Insurance Plc [2016] EWHC 2994 (Ch) Richard BarhamCandice Chapman...
  • 2016 half-year in review: M&A legal developments
    • United Kingdom
    • JD Supra United Kingdom
    • 19 January 2017
    ...within the scope of the Cross-Border Mergers Regulations purely to meet commercial objectives. (Re Easynet Global Services Limited [2016] EWHC 2681 (Ch)) 72016 Half-year in Listed companies A number of rulings by English courts, the FCA and the Takeover Appeal Board are of particular intere......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT