Easynet Global Services Ltd, Re

This is a first instance application under Regulation 11 of the Companies (Cross-Border Mergers) Regulations 2007 for permission to convene a meeting of the applicant's sole shareholder as a preliminary step to a cross-border merger by absorption under the Regulations. The primary legal question was whether the proposed transaction fell within the meaning of a "cross-border merger" in Regulation 2 read with Article 2 of Directive 2005/56/EC, given that the only non-UK EEA company included (a Dutch BV) was dormant and included only to give the transaction a cross-border character.

The judge held that although the formal criteria of Regulation 2 could be literally satisfied, the inclusion of the dormant BV operated as a device to create a cross-border element and the court should not ignore that reality. The Regulations must be interpreted in light of their purpose of facilitating genuine cross-border reorganisation in the single market and protecting third-party interests. On that basis the proposed merger did not, in reality, fall within the scope of Regulation 2 and so was outside the jurisdiction of the court. Even if the court had jurisdiction, the device of including the BV would be a discretionary ground to refuse to sanction the merger under the Regulatory approval process (Regulation 16).

The applicant, Easynet Global Services Ltd, sought permission under Regulation 11 of the Companies (Cross-Border Mergers) Regulations 2007 to convene a shareholder meeting as the first step in a group reorganisation that would merge 22 group companies into the applicant. All companies were in the same group; one transferor, a Dutch BV, was dormant with negligible assets and its only apparent role in the proposed transaction was to provide a cross-border element.

Nature of application: permission to convene a meeting ahead of a cross-border merger and, by way of preliminary judicial guidance, confirmation that the court has jurisdiction and would be likely to sanction the merger and the proposed waiver of consideration.

Issues framed:

• Whether the proposed transaction qualified as a "cross-border merger" under Regulation 2 read with Article 2 of Directive 2005/56/EC when the only EEA element derived from the inclusion of a dormant Dutch company that served as a device.
• Whether the court should exercise any discretion under the Regulations to refuse to sanction the merger given the circumstances, and whether the waiver-of-consideration arrangements were capable of approval.

Court's reasoning: The judge accepted that the transaction, on its face, met the descriptive criteria of Regulation 2. However, the court must look to the purpose of the Directive and Regulations — to facilitate genuine cross-border mergers within the single market — and should not close its eyes to the reality that the only cross-border feature was produced by a device. The inclusion of the dormant BV was material: the operation would have been essentially identical without it and the BV's inclusion did not reflect the aim of the legislation. The court should therefore interpret Regulation 2 purposively and conclude that this transaction was not the kind of cross-border merger the Regulations were enacted to facilitate. The judge also held that, alternatively, the device would be a proper basis to exercise the court's discretion to refuse approval under Regulation 16. The judge accepted that waiver-of-consideration arrangements of the type proposed can be sanctioned in appropriate cases, following Re Olympus UK Ltd, but that did not alter the conclusion on jurisdiction and discretion.

Procedural posture: first instance Chancery Division; no opponent. The court reserved the form of order and indicated it would hear counsel on terms.

The application was refused on the ground that the proposed transaction did not, in reality, fall within the scope of the Companies (Cross-Border Mergers) Regulations 2007 because the sole non-UK EEA company included in the merger was a device to create a cross-border element. The Court held that the Regulations must be interpreted purposively in light of Directive 2005/56/EC and that it should not approve a transaction whose cross-border character derives solely from such a device. The judge further stated that, even if jurisdiction existed, the court would exercise its discretion to refuse to sanction the merger in these circumstances.