Easynet Global Services Ltd, Re

A transaction does not become a genuine cross-border merger merely because a dormant EEA company is included to bring an otherwise domestic reorganisation within the Companies (Cross-Border Mergers) Regulations 2007. Regulation 2 must be interpreted purposively, having regard to the Directive’s objective of facilitating movement and cooperation across Member State borders. The court may examine the substance of the transaction and the purpose served by the participating EEA company. Where the cross-border element is only a device, the transaction falls outside the Regulations. Alternatively, that feature may justify refusal of approval at the court’s discretionary stage.

Easynet Global Services Ltd applied under regulation 11 of the Companies (Cross-Border Mergers) Regulations 2007 to convene a meeting of its sole shareholder. It proposed merging 22 companies in the same corporate group into the applicant, including a dormant Dutch company with negligible assets and no trading activity. The Dutch company’s inclusion supplied the only non-UK EEA element.

The application also sought early confirmation of jurisdiction, the likely exercise of the court’s discretion at the final approval stage, and the capability of waiving merger consideration. The central issue was whether the proposed transaction was a cross-border merger within regulation 2, or whether the inclusion of the dormant Dutch company was merely a device.

1. Jurisdiction refused. The proposed operation literally satisfied the express structural criteria in regulation 2(2), but that was not conclusive. The court had to consider what gave the transaction its cross-border character and the purpose for which the legislation was enacted.
2. The only cross-border element was the inclusion of a dormant Dutch company. The transaction would be substantially identical without it. Its inclusion was therefore a device intended to bring an essentially domestic reorganisation within the Regulations. The Directive was intended to facilitate cooperation, consolidation and movement across Member State borders, not to create a novel route for purely domestic company-law transactions.
3. The descriptive language considered in In re Itau BBA International Ltd [2012] EWHC 1783 (Ch) did not require the court to ignore the reality or purpose of the transaction. That case concerned a genuine commercial reason for the UK company’s involvement and did not address an artificial device.
4. The court accepted the European and autonomous character of the legislation discussed in Re Olympus UK Ltd [2014] 2 BCLC 402, but its facts were materially different. The proposed waiver of consideration was capable of being sanctioned, consistently with Olympus.
5. The alternative methods of reorganisation, including a reconstruction under section 900 of the Companies Act 2006 and a procedure under section 110 of the Insolvency Act 1986, did not justify use of the cross-border merger procedure. Their different processes and legal effects, particularly for creditors, employees and contractual counterparties, reinforced the need to determine whether the Regulations were properly available.
6. Alternatively, if jurisdiction existed, the device would be a material discretionary consideration and the court would refuse final sanction. The application therefore could not proceed on the proposed basis.

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