In re Itau BBA International Ltd

This case concerned the construction of the definition of "existing transferee company" in the Companies (Cross-Border Mergers) Regulations 2007 and whether a UK company formed for the purposes of a proposed cross-border merger could act as the transferee in a merger by absorption. The court examined the Merger Regulations in the light of Directive 2005/56/EC (the Directive), the Transposition Note and the scheme of the regulations.

Key legal principles and grounds:

• The Directive contemplates three forms of cross-border merger and describes the transferee in a merger by absorption as "another existing company" (article 2(2)(a)); the Directive contains no express restriction excluding companies formed for the purposes of a merger by absorption.
• The Merger Regulations must be read to give effect to the Directive and, absent a clearly articulated policy reason, should not be interpreted to impose additional substantive restrictions on which existing companies may be transferees.
• Where a drafting mistake produces an unintended and inexplicable restriction, the court may correct the wording by construction if it is clear what the draftsman intended (applying the principles in Chartbrook Ltd v Persimmon Homes Ltd).

The judge held that the definition should be read as excluding only companies formed for a "merger by formation of a new company" and declared that the claimant company (a shelf company acquired to obtain banking authorisation) was an "existing transferee company" for the purposes of the Merger Regulations, so the court had jurisdiction to entertain the application.

Background and parties: The applicant, Itau BBA International Limited (the Company), a UK private company incorporated as a shelf company and acquired by the group to obtain Financial Services Authority authorisation, sought orders under the Merger Regulations to convene a members' meeting (regulation 11) and an adjourned hearing for a pre-merger certificate (regulation 6) in connection with a proposed cross-border merger by absorption with its wholly owned Portuguese group affiliate, Banco Itaú BBA International S.A. The proposed merger would transfer the European wholesale banking headquarters from Lisbon to London.

Procedural posture: The claim was issued as a Part 8 application and was adjourned by the Registrar to a High Court Judge to determine the preliminary point whether the Company qualified as an "existing transferee company" under regulation 3(1) / regulation 2 of the Companies (Cross-Border Mergers) Regulations 2007. The resolution of that point determined whether the court had jurisdiction to proceed.

Nature of the legal issue and relief sought: The central issue was whether the definition of "existing transferee company" excludes a transferee that has been formed for the purposes of, or in connection with, the proposed merger by absorption. The Company sought declaratory relief that it was an "existing transferee company" and therefore that the court had jurisdiction to hear its application.

Issues framed by the court:

• The literal meaning of the Merger Regulations' definition of "existing transferee company" and whether it is broader than the corresponding description in the Directive.
• Whether any policy reason exists to exclude companies formed for the purposes of a merger by absorption from acting as transferees.
• Whether the provision should be corrected by construction to reflect the intended transposition of the Directive.

Reasoning and decision:

• The judge compared the Merger Regulations with Directive 2005/56/EC, noting that the Directive describes the transferee in an absorption merger simply as "another existing company" (article 2(2)(a)) and does not impose conditions about purpose, substance or duration of existence.
• The Transposition Note gave no indication of an intention to widen the Directive's scope in this respect; no policy mischief or protection rationale for a broader restriction could be identified; practical examples showed that any such restriction would be unworkable and readily circumventable.
• Applying established principles on correction of drafting errors (as explained in Chartbrook Ltd v Persimmon Homes Ltd), the judge concluded that the definition suffered from a drafting error and should be read as excluding only transferee companies formed for the purposes of a "merger by formation of a new company". He therefore declared the Company to be an "existing transferee company" under the Merger Regulations and found that the court had jurisdiction to entertain the application.

Wider context: The judgment emphasised that the Merger Regulations were intended to transpose the Directive without introducing unexplained substantive extensions and that the remedy of correcting drafting errors by construction is cautiously available where the intended meaning is clear.

This first instance application resulted in a declaration that the Company is an "existing transferee company" for the purposes of the Companies (Cross-Border Mergers) Regulations 2007 and that the court therefore has jurisdiction to entertain the application. Henderson J held that the definition in the regulations should be read as excluding only companies formed for the purposes of a "merger by formation of a new company", correcting a drafting error by reading in the words "by formation of a new company" to align the regulations with Directive 2005/56/EC, because there was no policy justification for a broader restriction and the intended meaning was discernible.