Diamond Resorts (Europe) Ltd, Re

Approval of a cross-border merger under regulation 16(1) involves more than checking that the prescribed pre-merger steps have been completed. The court must consider whether the merger would materially adversely affect any shareholder, employee or creditor of a merging company, and whether there is any other good reason to refuse approval.

Where a foreign competent authority has issued pre-merger certification, the weight given to that certification depends on the authority’s status and the extent of its investigation into the transaction’s effects on stakeholders. If the authority has not conducted a substantive investigation, the English court must examine the issue with care.

Diamond Resorts (Europe) Ltd, an English holding company, applied under regulation 16 of the Companies (Cross-Border Mergers) Regulations 2007 for approval of its merger with 14 Spanish subsidiary companies. The Spanish companies were to be absorbed into the English company, assuming their rights and liabilities and ceasing to exist under Spanish law.

The Spanish Commercial Registry had issued the required pre-merger certificates. The central issue was whether the English court should look behind those certificates, particularly because the applicant had previously been balance-sheet insolvent while most of the Spanish companies were solvent.

1. Application granted. The court approved the proposed merger and made the order required to give it effect under regulation 16(1) of the Companies (Cross-Border Mergers) Regulations 2007.
2. Regulation 16(1) confers a discretion. The court must therefore undertake a review beyond confirming that the prescribed pre-merger requirements have been fulfilled. The relevant test is whether the merger would materially adversely affect any stakeholder of a merging company, and whether there is any other good reason to refuse approval.
3. The weight given to certification by a foreign competent authority depends on the authority’s nature and on the extent of its investigation into the transaction’s benefits or detriments for shareholders, employees and creditors. The Spanish Commercial Registry did not have the status of a full court, and no substantive investigation by it into those matters had been shown. The court therefore examined the potential effect on the Spanish companies’ stakeholders with care.
4. The proposed simplification of the corporate structure, anticipated synergies, administrative savings and reduction in costs were legitimate objectives. The court placed no significant weight on the applicant’s expiring letter of comfort, but accepted the updated balance sheet showing positive net assets of approximately £7.759 million. The solvent Spanish companies’ assets also substantially exceeded the modest deficit of the one insolvent subsidiary.
5. There would be no significant material detriment to the creditors, shareholders or employees of the merging companies. No specific employee arrangements required further consideration, and no other good reason for refusal existed.

First-instance decision. The judgment does not state any prior appellate history.