M2 Property Invest Ltd and Others

JurisdictionEngland & Wales
JudgeMr. Justice Snowden
Judgment Date08 December 2017
Neutral Citation[2017] EWHC 3218 (Ch)
Docket NumberCase No: CR-2017-007800
CourtChancery Division
Date08 December 2017

[2017] EWHC 3218 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

INSOLVENCY AND COMPANIES LIST (Ch D)

Royal Courts of Justice

Rolls Building,

Fetter Lane

London

EC4A 1NL

Before:

Mr Justice Snowden

Case No: CR-2017-007800

In the Matter of M2 Property Invest Limited
And in the Matter of Vendor Wind Service SP. Z.O.O.

Ms. Chloe Shuffrey and Ms. Rachael Earle (instructed by IMD Solicitors LLP) for the Applicant Companies

Hearing dates: 10 November, 24 November and 1 December 2017

Mr. Justice Snowden

Introduction

1

This is an application for the approval of the completion of a proposed cross border merger pursuant to Regulation 16 of the Companies (Cross-Border Mergers) Regulations 2007 ("the Regulations").

2

The Regulations give effect in the UK to the provisions of Directive 2005/56/EC on cross-border mergers of limited liability companies ("the Directive"). The Directive provides that Member States should facilitate the cross-border merger of limited liability companies if the national law of the relevant Member States permits mergers between such types of companies.

3

As regards the procedure to be adopted, Art 4(1)(b) provides that each company taking part in the merger should comply with the provisions and formalities of the national law to which it is subject, and Article 4(2) provides that such provisions and formalities shall, in particular,

"include those concerning the decision-making process relating to the merger and, taking into account the cross-border nature of the merger, the protection of creditors of the merging companies, debenture holders and the holders of securities or shares, as well as of employees…"

4

The Directive then sets out the requirements for the agreement, publication and approval by the shareholders of the merging companies of common draft terms of merger, and for the scrutiny by the designated authority in each relevant Member State of the merger process.

5

In particular, as regards the approval of shareholders to the terms of the merger at meetings under Article 9, Article 7 provides that,

"The management or administrative organ of each of the merging companies shall draw up a report intended for the members explaining and justifying the legal and economic aspects of the cross-border merger and explaining the implications of the cross-border merger for members, creditors and employees.

The report shall be made available to the members and to the representatives of the employees or, where there are no such representatives, to the employees themselves, not less than one month before the date of the general meeting referred to in Article 9."

6

The requirements for scrutiny of the merger by the relevant national authorities are set out in Articles 10 and 11, the material parts of which are as follows,

"Article 10

Pre-merger certificate

(1) Each Member State shall designate the court, notary or other authority competent to scrutinise the legality of the cross-border merger as regards that part of the procedure which concerns each merging company subject to its national law.

(2) In each Member State concerned the authority referred to in paragraph 1 shall issue, without delay to each merging company subject to that State's national law, a certificate conclusively attesting to the proper completion of the pre-merger acts and formalities.

…..

Article 11

Scrutiny of the legality of the cross-border merger

(1) Each Member State shall designate the court, notary or other authority competent to scrutinise the legality of the cross-border merger as regards that part of the procedure which concerns the completion of the cross-border merger and, where appropriate, the formation of a new company resulting from the cross-border merger where the company created by the cross-border merger is subject to its national law. The said authority shall in particular ensure that the merging companies have approved the common draft terms of cross-border merger in the same terms and, where appropriate, that arrangements for employee participation have been determined in accordance with Article 16.

(2) To that end each merging company shall submit to the authority referred to in paragraph 1 the certificate referred to in Article 10(2) within six months of its issue together with the common draft terms of cross-border merger approved by the general meeting referred to in Article 9.

7

The scheme of the Directive is thus that there are two stages of scrutiny of a cross-border merger. The first is performed in respect of each merging company by its own designated national authority, and relates to the compliance by the company with the relevant procedure under its national law. The second stage of scrutiny is performed only by the designated national authority of the company which results from the merger, and relates to the legality of the completion of the cross-border merger.

8

In the UK, the designated national authority is the Companies Court. Article 10(2) of the Directive is given effect by Regulation 6 which provides in relevant part,

"(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 pre-merger certificate) that the company has completed properly the pre-merger acts and formalities for the cross-border merger.

(2) The court must not make such an order unless the requirements of regulations 7 to 10 and 12 to 15 (pre-merger requirements) have been complied with."

9

Where the company resulting from the merger is an English company, Article 11 of the Directive is given effect by Regulation 16(1) which provides that the court may approve the completion of a cross-border merger if,

"(a) the transferee company is a UK company;

(b) an order has been made under regulation 6 (court approval of pre-merger requirements) in relation to each UK merging company;

(c) an order has been made by a competent authority of another EEA State for the purposes of Article 10.2 of the Directive (issue of pre-merger certificate) in relation to each merging company which is an EEA company;

(d) the application is made to the court on a date not more than 6 months after the making of any order referred to in sub-paragraph (b) or (c);

(e) the draft terms of merger approved by every order referred to in sub-paragraphs (b) and (c) are the same; and

(f) where appropriate, any arrangements for employee participation in the transferee company have been determined in accordance with Part 4 of these Regulations (employee participation)."

The Initial Evidence

10

The merger in this case is a merger by absorption of Vendor Wind Service Sp. Z.o.o. ("Vendor Wind"), a company incorporated in Poland, by its parent company, M2 Property Invest Limited ("M2"), a company incorporated in England and Wales.

11

Vendor Wind was incorporated in 2008 and has carried on business providing building services in Poland. M2 was recently incorporated in August 2016 and its annual accounts give its principal activities as the provision of consultancy services in the property sector.

12

Under the merger, Vendor Wind will transfer its whole business including all rights and obligations, to its parent M2. In the terminology of the Regulations, M2 is the transferee company which will survive the merger, and Vendor Wind is the transferor company, which will cease to exist.

13

The draft terms of the merger (the "Terms of Merger") were presented to the board of M2 in English on 13 March 2017 and were approved by Mr. Karol Kuczkowski who is the sole director and shareholder of M2. The Terms of Merger were presented to the board of Vendor Wind in Polish on 15 March 2017 and approved by Mr. Rafal Dost who was the sole director of Vendor Wind.

14

The report of the board of directors of M2 prepared for the purposes of Article 7 of the Directive was dated 13 March 2017 and included the following statements,

" Economic basis of the merger

[Vendor Wind] has for the time being concluded and/or suspended its operations and functions under its name. There are currently no economic basis for maintaining the functioning of the organisational structure in Poland. Further, the costs of liquidation of [Vendor Wind] outweigh the costs of the merger….

…The rationale for [M2] in proceeding with this merger is the net asset gain which may be lost by otherwise liquidation of their subsidiary.

Effect of the merger on the creditors

Any potential creditors' rights will not be adversely affected by the merger. [M2] is acquiring a net gain of assets and no special privileges are being extended to the creditors of [Vendor Wind].

Any potential creditor will therefore be in a better position as the pool of assets will increase. Such is the same position for the creditors of [Vendor Wind]."

15

These statements were also reflected in the equivalent report of the board of directors of Vendor Wind dated 15 March 2017, which stated,

"Economic rationale for the merger

[Vendor Wind] has now finished its operating business activity. Therefore, there are no economic grounds for maintaining the company organisational structure [in] Poland, whereas the costs of its liquidation and transfer of the company assets to the parent company exceed the costs of the cross-border merger of the two companies.

The merger effects for the creditors

The situation of possible creditors will improve as the liability for the subsidiary debts will extend onto the parent company on the universal succession basis. No modification in the Company liability is provided for."

16

The Terms of Merger and other relevant documents were made available for inspection at M2's registered office and on its website and the relevant documents were also delivered to the Registrar of Companies and published in the Gazette as required by Regulations 10,...

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3 cases
  • Re Easynet Global Services Ltd
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 18 January 2018
    ...Ltd [2012] EWHC 3576 (Ch); [2013] BCC 275 (Sales J); Re Livanova Plc [2015] EWHC 2865 (Ch) (Morgan J); and most recently, Re M2 Property Invest Ltd [2017] EWHC 3218 (Ch) (Snowden J). Some difficulty has arisen in arriving at a definitive position on this because of the absence of adversa......
  • MDNX Group Holdings Ltd & Others
    • United Kingdom
    • Chancery Division
    • 7 December 2018
    ...strictly complied with. 25 The meaning of the term “conclusively attesting” was considered by Snowden J in Re M2 Property Invest Ltd [2017] EWHC 3218 (Ch). In that case the court was considering a pre-merger certificate issued by the Gdansk District Court in Poland in respect of a transfero......
  • Trade Holding PL-UK Ltd
    • United Kingdom
    • Chancery Division
    • 16 August 2019
    ...the impact of the cross-border merger on the creditors of the two merging companies: see for example M2 Property Invest Limited [2017] EWHC 3218 (Ch), per Snowden J at [24]–[27] and [57]–[67]. It is unnecessary for me to resolve the issue in this case, since I am satisfied that the cross-b......

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