House-clean Ltd and Another (Applicants)
| Jurisdiction | England & Wales |
| Judge | MR Justice Roth |
| Judgment Date | 03 May 2013 |
| Neutral Citation | [2013] EWHC 2337 (Ch) |
| Court | Chancery Division |
| Date | 03 May 2013 |
| Docket Number | Case No: 1338/2013 |
[2013] EWHC 2337 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand
London
WC2A 2LL
Mr Justice Roth
Case No: 1338/2013
In the Matter of the Companies (Cross-Border Mergers) Regulations 2007
And in the Matter of House-Clean Limited
On the Application of:
MR A JACK (instructed by Jeffrey Green Russell Ltd) appeared on behalf of the Applicants
This is an application for the court to approve pre-merger requirements for a cross border merger under the Companies (Cross-Border Mergers) Regulations 2007. The application is therefore made under regulation 6 of those Regulations, which I shall refer to simply as "the Regulations".
It has been adjourned to the judge by order of Registrar Barber 6 March 2013 because of certain issues that arose on this particular application and which, I have reason to believe, have arisen on a number of other such applications. As will be clear, a further issue emerged on the papers which was explored at the hearing of the application.
The basic facts are very simple. The merger proposed is between an English company, House-Clean Limited ("Limited"), which supplies building maintenance services, and a German company, House-Clean Verwaltungs GmbH ("GmbH"). Limited is now a wholly owned subsidiary of GmbH. Although Limited is an English company, its head office is in Germany and indeed all its operations are carried out in Germany. It has 34 employees. They are all employed and based in Germany.
The explanation for this which I was given by Mr Jack, who appears for the applicants, is that the capital requirements for a limited liability company under German law until very recently were much more onerous than for English companies. Together with the higher costs, in many cases, of notarisation of incorporation, as required for a German company, this made it attractive for businesses seeking limited liability to set up English companies albeit that all their operations were to be carried out and conducted in Germany.
In any event, the situation here is that it is now proposed that GmbH will acquire the English company that will be merged into it. Accordingly, under the tri-partite taxonomy of the Regulations set out in regulation 2, this is "a merger by absorption of a wholly-owned subsidiary".
Limited and GmbH agreed draft terms of merger on 30 March 2012. A directors' report was produced on 16 April 2012 and copies were sent to all 34 employees of Limited at that time. GmbH was purely a holding company which has not been trading and has no employees.
On 2 October 2012, Limited passed a board resolution approving the merger. From 19 October 2012, copies of the terms of merger and directors' report have been available for inspection at the registered office of Limited.
On 5 November 2012, a notice of the proposed merger was published in the London Gazette. Then on 22 February 2013 the present application was issued for an order pursuant to regulation 6. Regulation 6 provides, under the heading "Court Approval of Pre-Merger Requirements":
"(1) A UK merging company may apply to the court for an order certifying for the purposes of Article 10.2 of the Directive (issue of a pre-merger certificate) that the company has completed properly the pre-merger acts and formalities for the cross-border merger."
That is the first of the two stages involved under the scheme of the Regulations.
The Directive there referred to is the Cross-Border Mergers Directive, Directive 2005/56/EC. The Regulations give effect to the Directive in English law and are to be interpreted in accordance with the provisions of the Directive to give effect thereto.
The second stage is the approval of completion of a cross-border merger by the court in the country of the transferee company. Under the Regulations, that is covered by Part 3. In other words, the first court gives a pre-merger certificate and then an application is made to the second court, producing that pre-merger certificate. Under the Directive, the two stages are set out in Articles 10 and 11.
I return to the Regulations and regulation 6(2) which states:
"The court must not make such an order [this being the issue of a pre-merger certificate] unless the requirement of regulations 7 to 10 and 12 to 15 (pre-merger requirements) have been complied with."
The subsequent regulations, as indicated, set out the detailed requirements that have to be fulfilled. Some of them, however, do not apply to a merger by absorption of a wholly-owned subsidiary and therefore are not engaged in this case. Nonetheless, it may be appropriate to look at them to assist on the questions of interpretation.
In summary, regulation 7 deals with the requirement for the directors of the UK merging company to draw up and adopt draft proposed terms of the cross-border merger which then must fulfil specified requirements. Regulation 8 states that the directors of the UK merging company must draw up and adopt a report which again must fulfil specified requirements. Regulation 9 concerns an independent expert's report, but that does not apply to a merger of the kind at issue here. Regulation 10 requires the members of the UK merging company and its employees or their representatives to be able to inspect the documents to which I have just referred, i.e. the draft terms, the directors' report and independent expert's report, if there is one. Regulation 12 deals with public notice of receipt of registered documents, with a requirement to deliver them to the Registrar of companies who then who has to publish them. Regulation 13 deals with the need for approval of the draft terms of merger by members of the company (that requirement that does not apply to a merger by absorption of a wholly-owned subsidiary). Regulation 14 deals with approval by creditors and applies only where the court has ordered a meeting of creditors, as the English court has power to do under regulation 11: I should add that this is not something required under the Directive but included in the national legislation. And Regulation 15 deals with the provision of documents where a meeting of members takes place.
The present application therefore requests the issue of the pre-merger certificate from the English court on the basis of evidence that seeks to satisfy the court that the applicable requirements in the Regulations have been fulfilled. An issue arose as regards both the draft terms of merger and the directors' report. The draft terms of merger must give particulars of matters specified in regulation 7(2), which include at sub-paragraph (f):
"the date from which the transactions of the transferor companies are to be treated for accounting purposes as being those of the transferee company."
The directors' report must, as specified in regulation 8, paragraph 2(a):
"explain the effect of the cross-border merger for members, creditors and employees of the company."
Both the draft terms of merger and the directors' report in this case were prepared in German, but there have been produced and exhibited certified translations. The draft terms of merger state that the closing date of the merger is 1 January 2012, and that from this point on the transactions of Limited shall be carried out for the account of GmbH pursuant to regulation 7(2)(f). The directors' report states more simply: "The merger closing date shall be 1 January 2012." I queried this with Mr Jack since that is of course a date...
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