Get Business Services Ltd & Anor, Re Companies (Cross-Border Mergers) Regulations 2007

Under Companies (Cross-Border Mergers) Regulations 2007, the date specified in the merger terms for shareholders’ entitlement to participate in profits is principally a matter for agreement between the merging parties. Regulation 7(2)(e) contains no implied requirement that the date must be the date on which the merger takes effect, and it may precede that date. The exemption in regulation 7(3) for mergers involving wholly-owned subsidiaries cannot be extended to a merger between sister companies. On an application under regulation 16, the court may inquire into the potential effect of the merger on creditors and must be satisfied that they will not suffer material prejudice.

GET Business Services Limited, an English company, and ICT Business Services GmbH, a German company, applied for approval of the completion of a cross-border merger by absorption. Both were wholly owned subsidiaries of the same German parent. GET was the transferee company and ICT the transferor company.

The court was satisfied on the face of the application that the pre-merger requirements and certificates had been obtained. It nevertheless required further consideration of two issues: whether the merger terms complied with regulation 7(2)(e), given that the specified profit-entitlement date, 1 January 2017, preceded the anticipated effective date; and whether the merger might materially prejudice creditors.

1. Approval. The court approved completion of the cross-border merger under regulation 16. The parties had complied with the applicable pre-merger requirements and the evidence established that creditors would not suffer material detriment.
2. Regulation 7(2)(e). The date from which shares in the transferee company entitle their holders to participate in profits is intended to define the allocation of profits after the merger. It is essentially a matter for agreement between the merging parties. The provision contains no implied restriction preventing the selection of a date before the merger becomes effective.
3. The court declined to extend the specific exemption in regulation 7(3) beyond its wording. That exemption applies to a merger by absorption of a wholly-owned subsidiary, not to a merger between two wholly-owned sister companies.
4. The concern expressed in Re iTouch Ltd [2016] EWHC 3448 (Ch) was not determinative. That decision had not decided whether regulation 7(2)(e) required a future effective date, because regulation 7(3) applied on its facts. The present court, having considered the provision and its legislative origins, respectfully rejected the underlying assumption that the date must be the merger’s effective date.
5. In exercising the discretion under regulation 16, the court may inquire into the merger’s potential effect on creditors, as recognised in Diamond Resorts (Europe) Limited [2012] EWHC 3576 (Ch). Updated financial evidence showed that both companies were solvent and gave no obvious basis for concluding that creditors would be materially prejudiced.