Olympus UK Ltd and Others (Applicants)
| Jurisdiction | England & Wales |
| Judge | The Honourable Mr Justice Hildyard,The Hon. Mr Justice Hildyard |
| Judgment Date | 01 May 2014 |
| Neutral Citation | [2014] EWHC 1350 (Ch) |
| Date | 01 May 2014 |
| Court | Chancery Division |
| Docket Number | Case Nos: 2238 and 2239 of 2014 |
[2014] EWHC 1350 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Hildyard
Case Nos: 2238 and 2239 of 2014
In the Matter of Olympus UK Limited and Olympus UK (Holding) Limited
And in the Matter of Olympus Newco Limited
And in the Matter of the Companies (Cross-Border Mergers) Regulations 2007
Mr Ben Shaw (instructed by Field Fisher Waterhouse LLP) for the Applicants
Hearing date: 31 March 2014
Further hearing: 9 April 2014
Supplemental written submissions and evidence 14 April, 17 April & 22 April 2014
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
The issue raised by these applications
These applications under Regulations 11 and 13 of the Companies (Cross-Border Mergers) Regulations 2007 ("the CCBMR 2007" or "the Regulations") raise an important legal issue concerning the construction of the CCBMR 2007 and Directive 2005/56/EC on cross-border mergers of limited liability companies (the "Directive"). This issue is fundamental to the proposed mergers in this case and is (so I am told) of general market interest.
The issue is whether a proposed cross-border merger would be compliant with, and effective under, the CCBMR 2007 in circumstances where the shareholders in the transferor company have agreed not to receive shares or other securities in the transferee.
This issue arises because, at least on one reading, the CCBMR 2007 contemplate that in a cross-border merger (other than a merger by absorption of a wholly-owned subsidiary), shareholders in the transferor company will actually receive, as consideration for the merger, "shares or other securities representing the capital of the transferee company": see Regulations 2(2)(f) and 2(4)(c). In the present case, and in light of the fact that all the companies concerned are (albeit indirectly) wholly-owned by the same ultimate holding company (Olympus Corporation, a Japanese body corporate), the draft terms of merger provide that the shareholders in the Applicant transferor companies will not receive any consideration from the transferee companies.
It is because such a point of principle is raised that the matter was (entirely correctly, in my view) listed before a Judge, rather than before a Registrar: and see per David Richards J in Re Oceanrose Investments Ltd [2008] EWHC 3475 as to the procedure under the Regulations (paragraphs 5 and 6 of that judgment), the usual practice of the Companies Court (paragraph 7) and the circumstances in which, exceptionally, it is appropriate that the matter is brought before a judge (paragraph 10).
Result
I have not found the issue straightforward. There are differences between the CCBMR 2007 and the Directive in the manner in which the same concepts and objectives are expressed; and some of the words and expressions used in the Directive would bear specialised but well-established meanings in English company law which, it seems to me, were not intended. The search for an autonomous meaning has necessitated two further rounds of expert evidence, and additional hearings. I have not had the benefit of adversarial argument, though Mr Ben Shaw, Counsel for the Applicants, has sought to identify contrary arguments and has given me considerable assistance (for which I am most grateful).
In the end, after not a little wavering, my conclusion is that the transactions in question are operations that comply with the CCBMR 2007 and the Directive and qualify as mergers by absorption. In light of that conclusion, on 15 April 2014 I made the directions which were sought by the applications. I now set out below my approach and reasoning at some length in light of the interest which I understand there is in the issue and the research and assistance provided to me.
Definition of merger in the CCBMR 2007
The CCBMR 2007 (which came into force on 15 December 2007) are designed and intended to give effect to the Directive in this jurisdiction.
The Regulations provide for and enable three specific types of cross-border merger, in each case where a UK company is involved in a merger with one or more EEA bodies corporate: (1) a "merger by absorption", (2) a "merger by absorption of a wholly-owned subsidiary" and (3) a merger by formation of a new company.
It is the first type of merger ("merger by absorption") that is of particular relevance in this case, even though some of the principles engaged may have a broader application.
Regulation 2(2) of the CCBMR 2007 defines the meaning (for the purposes of the CCBMR 2007) of the three types of "cross-border merger" identified in Regulation 2(1) as follows:
"(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 these companies is a UK company;
(d) at least one of these 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 of 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.
(3) In these Regulations "merger by absorption of a wholly-owned subsidiary" means an operation in which –
(a) there is one transferor company, of which all the shares or other securities representing its capital are held by an existing transferee company;
(b) either the transferor company or the transferee company is a UK company;
(c) either the transferor company or the transferee company is an EEA company; and
(d) the transferor company is dissolved without going into liquidation, and on its dissolution transfers all its assets and liabilities to the transferee company.
(4) In these Regulations "merger by formation of a new company" means an operation in which –
(a) there are two or more transferor companies, at least two of which are each governed by the law of a different EEA State;
(b) every transferor company is dissolved without going into liquidation, and on its dissolution transfers all its assets and liabilities to a transferee company formed for the purposes of, or in connection with, the operation;
(c) 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;
(d) at least one of the transferor companies of the transferee companies is a UK company."
Definition of merger in the Directive
That definition is intended to reflect and implement the definition of "merger" in Article 2(2) of the Directive. It is there provided that for the purposes of the Directive a:
"'merger' means an operation whereby:
"(a) one or more companies, on being dissolved without going into liquidation, transfer all of 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 that they form, the new company, in exchange for the issue to their members of securities or shares representing the capital of that new 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; and
(c) a company, on being dissolved without going into liquidation, transfers all its assets and liabilities to the company holding all the securities or shares representing its capital."
Only Regulation 2(2) of the CCBMR 2007 and Article 2(2)(a) of the Directive are engaged in the present case, though Regulation 2(3) and (4) of the CCBMR 2007 and Article 2(2)(b) and (c) of the Directive may of some relevance to the process of interpretation.
Overall scheme of the Directive and the CCBMR 2007
The Directive was introduced to permit, standardise, simplify, and ensure the effectiveness of cross-border mergers between companies governed by the laws of different Member States within the European Union. The Explanatory Memorandum presented by the Commission of the European Communities in November 2003 in support of a proposal ultimately implemented in the form of the Directive identified its purpose as being
"…to fill a significant gap in company law left by the need to facilitate cross-border mergers of commercial companies without the national law governing them – as a rule the laws of the countries where their head offices are situated – forming an obstacle."
That Explanatory Memorandum also states that
"the definitions of merger by acquisition and merger by formation of a new company are taken from Directive 90/434/EEC…and are in keeping with those in Directive 78/855/EEC concerning domestic mergers of public limited liability companies."
The Directive applies to 'mergers' of limited liability companies
"formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community, provided at...
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