Interoute Networks Ltd & Ors, Re

For a cross-border merger under the Companies (Cross-Border Mergers) Regulations 2007, the court must first confirm that the formal requirements in Regulation 16(1) are satisfied. The court may also apply the approach in Diamond Resorts (Europe) Ltd [2012] EWHC 3576 (Ch), examining whether the merger materially prejudices any stakeholder or whether there is another good reason to refuse approval. That test is satisfied where the merger is an intra-group restructuring presenting no material prejudice. A transferor may waive its entitlement to shares as consideration where the court has power to permit such a waiver.

The applicants sought sanction under Regulation 16 of the Companies (Cross-Border Mergers) Regulations 2007 for two linked mergers by absorption involving 13 companies in the Interoute group. The first merger involved English, Scottish and Dutch companies, with MDNX Group Holding Ltd as transferee. The second involved MDNX and other group companies, with Interoute Networks Ltd as transferee.

The first merger had previously been refused by Rose J because of a defect in the Scottish pre-merger certification. That defect was subsequently cured. The central issues were whether the statutory requirements for sanction were met, whether the court retained a discretion to refuse approval, and whether transferor companies could waive their entitlement to shares.

1. The court sanctioned both mergers. The formal requirements in Regulation 16(1) were satisfied: the transferees were UK companies; the required UK and EEA pre-merger certificates had been issued; the applications were in time; the draft terms were identical; and employee-participation arrangements did not apply because none of the Regulation 22 criteria was met.
2. The court followed the approach in Diamond Resorts (Europe) Ltd [2012] EWHC 3576 (Ch). It examined whether the proposed mergers materially adversely affected any stakeholder, or whether there was another good reason to refuse approval. The court noted that there was a range of judicial opinion about the extent of the discretion, and did not resolve whether a discretion was theoretically consistent with the underlying directives. It nevertheless applied the Diamond Resorts test.
3. The mergers were intra-group reorganisations intended to make the corporate structure more efficient. No material prejudice to shareholders, employees or creditors, or other reason for refusal, was identified. The applicable approval test was therefore satisfied.
4. The transferor companies could waive their entitlement to shares in the transferees. The court relied on Re Olympus UK Ltd [2014] BCLC 402 as authority for that power.
5. The court made orders sanctioning both mergers, with provision for a staged completion process and liberty to restore if a legally disruptive change arising from the United Kingdom’s possible withdrawal from the European Union affected enforceability or recognition before the effective date.

The judgment was a first-instance decision. It records that Rose J had earlier declined to sanction Merger 1 because of a defect in the Scottish pre-merger certification. Following fresh proceedings and certification, the defect was treated as cured in the present applications.