House-Clean Ltd & Anor, Re Companies (Cross-Border Mergers) Regulations 2007

At the first stage of a cross-border merger, the court’s function is principally to ascertain whether the prescribed pre-merger requirements have been complied with. Re Diamond Resorts (Europe) Ltd [2012] EWHC 3576 (Ch), concerning the court’s discretion at the second stage, does not govern the issue of a pre-merger certificate. Nevertheless, documents prepared under the Companies (Cross-Border Mergers) Regulations 2007 must not be so stale, or overtaken by material changes, that they no longer fulfil their regulatory purpose. Where the evidence shows that relevant circumstances remain materially unchanged, the court may certify compliance despite the passage of time.

House-Clean Limited, an English company wholly owned by House-Clean Verwaltungs GmbH, a German company, applied under regulation 6 of the Companies (Cross-Border Mergers) Regulations 2007 for a certificate confirming completion of the applicable pre-merger requirements for a merger by absorption of a wholly-owned subsidiary.

The draft merger terms and directors’ report had been prepared in 2012, and the public notice had been given several months before the application. The issues were whether the documents were sufficiently current, whether the court should assess possible creditor detriment at the first stage, and whether the statutory requirements had been fulfilled.

1. The application was granted and a pre-merger certificate was issued. The court was satisfied that the applicable requirements had been properly complied with.

2. Regulation 6 differs materially from regulation 16. Regulation 6(2) requires the court to ascertain whether the specified pre-merger requirements have been complied with. It does not confer the broader approval discretion available at the second stage under regulation 16(1). The approach in Re Diamond Resorts (Europe) Ltd [2012] EWHC 3576 (Ch), requiring review of whether stakeholders would suffer material detriment, therefore did not apply at stage 1.

3. The first-stage documents must not be treated as compliant regardless of their age. If their staleness, or a material change in circumstances since their preparation, suggests that they no longer fulfil the purpose of the Regulations, the court may refuse certification. This is a purposive construction consistent with legal certainty.

4. The court’s consideration should ordinarily be rapid and paper-based. It is concerned with significant staleness or material change, including in the draft terms, directors’ report, any independent expert’s report and the vetting required by regulation 12(4).

5. The court retains the discretion under regulation 11 to order a meeting of creditors and, in a merger by absorption of a wholly-owned subsidiary, a meeting of members. The exercise of that discretion was briefly considered in Re Oceanrose Investments Ltd [2008] EWHC 3475 (Ch).

6. On the evidence, the German parent had not traded, its financial position had not changed, the employees remained the same, and the public notice remained sufficient. The lapse of time therefore did not prevent compliance with regulations 7, 8 and 12.

First-instance decision. No prior appellate decision is stated in the judgment.