Simga Tau Pharmaceutical Ltd & Anor, Re

When approving completion of a cross-border merger, the court must scrutinise the proposed merger from the perspective of stakeholders in each merging company. Approval is appropriate where the court is satisfied that the merger causes no material adverse effect to shareholders, employees or creditors and that there is no other good reason to refuse approval. A pre-merger certificate issued by an overseas competent authority does not remove that scrutiny. Where the statutory requirements are met and the evidence discloses no stakeholder detriment, the court may approve the merger and specify an effective date complying with the applicable minimum period.

Two sister companies applied jointly for approval of a proposed merger by absorption under the Companies (Cross-Border Mergers) Regulations 2007. The English company was to absorb the Portuguese company’s business, assets and liabilities, after which the Portuguese company would be dissolved.

The court considered compliance with the pre-merger formalities, the absence of applicable employee participation procedures, the solvency of both companies, and the effect of the merger on shareholders, creditors and employees. The central issue was whether the statutory conditions were satisfied and whether the merger should be approved in the exercise of the court’s discretion.

1. The application was granted. The proposed cross-border merger was approved, with effect from 1 December 2013.
2. Under regulation 16 of the Companies (Cross-Border Mergers) Regulations 2007, the court’s task was to decide whether to approve completion of the merger for the purposes of Article 11 of Directive 2006/56/EC. The court adopted the approach described in Diamond Resorts (Europe) Ltd [2012] EWHC 3576 (Ch): it had to be satisfied that the merger would not materially adversely affect any stakeholder in any merging company and that there was no other good reason to refuse approval.
3. The court was required to scrutinise the position of stakeholders in the Portuguese company notwithstanding the certificate issued by the Portuguese competent authority. That scrutiny disclosed no material detriment. The companies were sister companies with the same ultimate owner, both were solvent, and the employees at Funchal were expected to continue working at the same facilities, albeit employed by the English company.
4. The statutory conditions were satisfied. The English company was the UK transferee; the required English and Portuguese pre-merger acts and formalities had been certified; the application was made within six months; and the merger plan remained unchanged. The employee participation provisions did not apply because there were no procedures by which participation rights were to be determined.
5. The order was therefore made approving completion of the merger. Its effective date was not less than 21 days after the order.