ITAU BBA International Ltd, Re

The definition of an “existing transferee company” in the Companies (Cross-Border Mergers) Regulations 2007 excludes only a company formed for a merger by formation of a new company. It does not exclude a company incorporated for the purposes of a merger by absorption.

Where statutory language contains an evident drafting error, the court may correct it by construction if it is clear that something has gone wrong and clear what the corrected meaning must be. Such correction is part of interpretation, provided that the court does not rewrite the legislation.

The claimant, an English shelf company incorporated under the Companies Act 2006, sought to use the cross-border merger procedure to absorb a Portuguese wholly-owned group company. The proposed transferee had been acquired and renamed for the purpose of becoming the group’s UK banking entity.

The Companies Court had to determine whether the claimant was an “existing transferee company” under regulation 2(2)(b) of the Companies (Cross-Border Mergers) Regulations 2007, despite having been formed before the proposed merger for that purpose. The issue was referred to a High Court judge because it concerned jurisdiction and had no precedent or guidance.

1. Declaration. The claimant was an “existing transferee company” within the meaning of the Companies (Cross-Border Mergers) Regulations 2007. The court therefore had jurisdiction to entertain the application.
2. The Regulations were intended to transpose the Directive’s three types of cross-border merger without significant extension, apart from the additional creditor-approval provisions. Under article 2(2)(a), “another existing company” described a company already in existence when the merger was proposed. It imposed no condition concerning the company’s history, substance, capitalisation or purpose.
3. The statutory context confirmed that interpretation. The Directive distinguished an acquiring company in a merger by absorption from a company formed as the vehicle for a merger by formation of a new company. The Regulations’ definitions were intended to reflect that distinction. There was no discernible policy reason to disqualify a shelf company used as the transferee in a merger by absorption, and any such restriction would be difficult to apply consistently.
4. The literal wording of the definition produced an unexplained and pointless restriction. It also created an arbitrary distinction which could readily be circumvented by structuring the transaction as a merger by formation of a new company. The court therefore read the definition as excluding only a transferee company formed for the purposes of, or in connection with, a “cross-border merger by formation of a new company”.
5. Applying the principles restated by Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, the court held that the error was sufficiently clear and that the intended correction was sufficiently certain. The correction was an exercise of interpretation, not impermissible rewriting.