Honda Motor Europe Ltd, Re

The court may commence a Companies Court process where it cannot yet be said that the process will inevitably waste the court’s time or lead to refusal of the eventual sanction. A transaction is not abusive merely because a court order is required to implement a commercially genuine reorganisation. The question whether sanction should be granted belongs to the judge hearing the sanction application. At that stage, the court may examine the transaction’s substance and the interests of stakeholders broadly. Earlier authority concerning a purely nominal capital reduction used to implement a private sale does not prevent the court from commencing a statutory cross-border merger process where the statutory jurisdiction requires court involvement.

Honda Motor Europe Limited sought an order under regulation 11 of the Companies (Cross-Border Mergers) Regulations 2007 convening a meeting of its sole shareholder. The proposed transaction involved a merger by absorption of an Italian subsidiary, which would receive the sales business of a Spanish company immediately before the merger became effective.

The purpose was to overcome procedural obstacles under Spanish law and to reorganise the business without requiring the new subsidiary to trade. The issue was whether the proposed structure was an abuse of the court’s process, or whether sanction was inevitably bound to be refused because the new subsidiary was merely a conduit.

1. Application granted. The order convening the shareholder meeting was made under regulation 11 of the Companies (Cross-Border Mergers) Regulations 2007.
2. The application was not deliberately abusive. Honda Europe had a proper commercial and organisational justification for the proposed reorganisation, and the Regulations required court involvement in the cross-border merger process.
3. The court should not refuse to commence the process merely because a future sanction application might fail. Refusal at this stage would be justified only if it were clear that the process would waste the court’s time and that sanction would inevitably have to be withheld.
4. The ultimate decision on sanction must be made by the judge hearing that application. That judge must remain free to examine the reality of the transaction and the interests of stakeholders in the transferring business. The transaction could be structured so that the sanction court was able to conduct that examination, notwithstanding that the de-merger would take effect immediately before the merger.
5. Rylands – Whitecross Limited (21st December 1973, unreported) was distinguishable. It concerned use of a court-supervised capital reduction solely to implement a private share sale which the parties could complete themselves. The present process was materially different because the statutory cross-border merger regime required court involvement.
6. Re Tip-Europe Limited [1988] BCLC 231 did not create an insuperable obstacle. Its principle concerning a conditional capital reduction might be relevant by analogy, but it did not establish that sanction of the proposed merger was necessarily impossible.