Olympus UK Ltd & Ors

The court considered whether proposed cross-border mergers under the Companies (Cross-Border Mergers) Regulations 2007 (CCBMR 2007), implementing Directive 2005/56/EC, could be effective where shareholders of the transferor companies agreed to waive any entitlement to be issued shares or other securities by the transferee. The judge adopted a teleological approach to interpretation of the Directive and the Regulations, examined other authentic language versions and expert evidence from Germany and France, and concluded that the words in Article 2(2) of the Directive and the corresponding definitions in Regulation 2 of the CCBMR 2007 do not require the strict English-company-law meaning of an "issue" entered on a register.

On that basis the court held that the CCBMR 2007 are capable of accommodating a waiver by all transferor shareholders of their entitlement to consideration, particularly in the context of wholly-owned intra-group restructurings, and that the proposed transactions complied with the definition of a "merger by absorption". The court made the directions sought on 15 April 2014, while noting the particular factual context (wholly-owned group) and the absence of adversarial argument as a caveat.

This was an application under Regulations 11 and 13 of the Companies (Cross-Border Mergers) Regulations 2007 concerning two proposed cross-border mergers involving English incorporated transferor companies and German transferee companies (including Societas Europaea forms). The central question was whether a merger by absorption remains compliant and effective under the Directive 2005/56/EC and the CCBMR 2007 where the shareholders of the transferor companies agreed not to receive shares or other securities in the transferee.

• Nature of the application: pre-merger applications to the court in the Companies Court stage (to convene meetings and proceed with the prescribed process) and to determine whether the proposed merger documentation, which provided for waiver of share allotment, was consistent with the Regulations and Directive.
• Issues framed by the court: (i) the proper interpretation of Article 2(2)(a) of the Directive and Regulation 2(2) of the CCBMR 2007 with respect to the required consideration ("issue" of securities or shares), (ii) whether shareholders can waive entitlement to consideration so that no new securities are allotted, (iii) the relevance of other language versions and an autonomous EU meaning, (iv) comparative national rules (notably German law), and (v) secondary considerations such as freedom of establishment and commercial practicality in intra-group restructurings.
• Evidence and comparative law: the court received expert and supplementary evidence on German and French law which showed that the German and French language texts of the Directive use terminology that is closer to "granting" or "allocation" rather than the strict English notion of "issue"; evidence also explained that German domestic law expressly permits waiver of consideration in certain circumstances.
• Court's reasoning: the judge applied a purposive and teleological approach to interpret the Directive and the implementing Regulations. Because different authentic language versions do not uniformly require the narrow English meaning of "issue" and because an autonomous EU meaning should be sought, the term was given a broader meaning (encompassing grant/allotment/allocation) which does not necessarily require entry on a register or discrete issuance in the strict English company-law sense. The Regulations' phrase that consideration be "receivable by members of the transferor company" was regarded as capable of accommodating a waiver of the right to receive consideration. Practical and Treaty-consistency considerations (including freedom of establishment and the commercial realities of intra-group restructurings) supported a non-formalistic interpretation. The judge emphasised the factual importance of the wholly-owned group context and declined to decide whether the same approach would apply in other contexts. The judge also noted the absence of adversarial argument as a relevant caveat.

Result: the court concluded that the proposed transactions qualified as cross-border "mergers by absorption" under the CCBMR 2007 and the Directive and made the directions sought on 15 April 2014.

The court allowed the applications. It held that the proposed operations qualified as cross-border mergers by absorption under the Companies (Cross-Border Mergers) Regulations 2007 and Directive 2005/56/EC despite the draft terms providing that transferor shareholders waived entitlement to be issued shares or other securities. The rationale was a purposive, autonomous interpretation of the Directive and Regulations, informed by other language versions and comparative law, which permits a broader meaning of "issue" and allows waiver of the right to consideration in the factual context of wholly‑owned intra‑group restructurings. Directions sought were given on 15 April 2014, subject to the caveat of no adversarial argument and the particular wholly‑owned context of the case.