England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		The Rolls Building Fetter Lane London EC4A 1NL
		23 September 2015

MR JUSTICE MORGAN:

1. The application before the court is headed In the Matter of Livanova plc and in the Matter of Sorin SPA and in the Matter of the Companies (Cross-Border Mergers) Regulations 2007.
2. I will refer briefly to some of the provisions in those Regulations which themselves refer back to Directive 2005/56/EC on Cross-Border Mergers of Limited Liability Companies. Many of the provisions of the Directive and of the Regulations are relevant as background to the points arising in this case, but I think, as to the Directive, it is sufficient to refer to Articles 11 and 12 and, in the case of the Regulations, it is sufficient for present purposes to refer to Regulations 16 and 17. Article 11 of the Directive is headed: “"Scrutiny of the legality of the cross-border merger”". I will not read out the full text of Article 11; it refers to Member States designating the competent authority to scrutinise the legality of the cross-border merger as regards certain matters. Article 12 deals with the “"Entry into effect of the cross-border merger”". Article 12 provides that:

“"The law of the Member State to whose jurisdiction the company resulting from the cross-border merger is subject shall determine the date on which the cross-border merger takes effect. That date must be after the scrutiny referred to in Article 11 has been carried out.”"

3. Part III of the 2007 Regulations has the heading: “"Court Approval of Cross-Border Merger”". Regulation 16(1) starts with this wording:

“"The court may, on the joint application of all the merging companies, make an order approving the completion of the cross-border merger for the purposes of Article 11 of the Directive (scrutiny of completion of merger) if— …”"

4. What follows that wording are several matters which must be demonstrated to the court which is asked to give approval under Regulation 16(1). Regulation 16(2) is in these terms:

“"Where the court makes such an order—

(a) it must in the order fix a date on which the consequences of the cross-border merger (see regulation 17) are to have effect; and

(b) that date must be not less than 21 days after the date on which the order is made.”"

Regulation 16(3), as substituted by the Companies (Cross-Border Mergers) (Amendment) Regulations 2015, regulation 2, with effect from 6 April 2015, contains so far as material the following wording:

“"After the consequences of the cross-border merger have taken effect (see regulation 17)…

(b) the cross-border merger may not be declared null and void.”"

5. Regulation 17 is headed: “"Consequences of a cross-border merger”". Regulation 17(1) provides what those consequences are. In summary, the assets and liabilities of transferor companies are transferred to the transferee company; there is provision for what is to happen as regards contracts of employment of the transferor company; and the transferor companies are dissolved. In the case of a merger by absorption – I interpose that is the present case – the members of the transferor companies become members of the transferee company. Regulation 17(2) provides:

“"The consequences take effect—

(a) where an order has been made under regulation 16 (court approval of merger), on the date fixed in that order … .”"

Regulation 17(2) provides for an alternative to which it is not necessary to refer.

6. It is not necessary for the purposes of this judgment to go into any of the background facts of this application. Nor is it necessary to describe the terms and conditions of the merger which have been put forward and have met with approval from those persons who have been asked to indicate their position. What I need to do for the purpose of this judgment is to refer to the draft order I am asked to make. The draft order contains two operative provisions. The first order is in these terms:

“"It is ordered, pursuant to Regulation 16 of the Companies (Cross-Border Mergers) Regulations 2007 that the completion of the proposed cross-border merger between the Applicants be approved for the purposes of Article 11 of Directive 2005/56/EC on Cross-Border Mergers of Limited Liability Companies.”"

7. The second operative order provides:

“"And it is ordered that the consequences of the merger will take effect as of 00:01 am London time on 19 October 2015, subject to the transaction agreement dated 23 March 2015 entered into between among others the Applicants (the “"Transaction Agreement”") not having been terminated by Sorin SPA and Cyberonics Inc under the terms of the Transaction Agreement.”"

The reference to Cyberonics is to a Delaware company. It is intended (without going into the detailed arrangements) that Cyberonics will participate in a further merger and acquisition transaction or more accurately a further stage of the merger and acquisition transaction following the merger which is the subject of the application to the court.

8. A point has been raised at the hearing as to the court’'s response to a draft order which states that the consequences of the merger will take effect at specified time, but subject to the underlying transaction (including this merger for which approval is sought) not having been brought to an end by a party exercising a right to termination under the underlying contractual arrangements. To answer that question I need to look at Articles 11 and 12 of the Directive and Regulations 16 and 17 of the Cross-Border Mergers Regulations 2007. In my judgment there is nothing in Articles 11 and 12 which prevents the court from making an order of the kind I am asked to make. Turning to the Regulations, Regulation 16(1) permits the court to approve “"the completion of the cross-border merger”" and Regulation 16(2) obliges the court when giving that approval to “"fix a date on which the consequences of the cross-border merger (see regulation 17) are to have effect”".
9. In my judgment, those provisions permit the court to make an order in the terms sought. I am asked to approve completion of the proposed cross-border merger within Regulation 16(1), even though when I give that approval there is a possibility, contemplated by the order itself, that the merger will not complete. In other words, I am approving completion if the matter does complete. Similarly, as regards the court’'s obligation to fix a date on which the consequences are to have effect I am fixing the date of 19 October 2015 on which the consequences are to have effect. Of course it may be that they will not have effect if the matter is terminated on or before that date, but in the event of the consequences having effect that is the date on which they will have effect. That is the date fixed by the court. These provisions do not oblige the court to make an order that the parties carry into effect the merger; that would give rise to different considerations. So I am satisfied that I have jurisdiction to make an order in these terms.
10. I have been shown the decision of Birss J in re International Game Technology plc [2015] 2 BCLC 45 where the learned judge reached a similar conclusion. I have looked at the matter afresh and I have perhaps analysed the matter in a way which is not identical to the analysis of that learned judge but I reach the same conclusion as he did.
11. Given that I have power to make an order in the terms sought, the next question is whether I should make such an order. Is there anything in the order which I should find unacceptable? Should I withhold approval on the ground that this merger might not happen? It seems to me that in a case, very different from the present, if the court thought that the possibility of the merger not happening meant that the application to the court was academic or premature the court might say so and withhold approval. As Mr Moore QC acting for the applicant said, a test of that kind should pose a relatively low hurdle before the court was prepared to give its approval. I would not welcome submissions being made in a case of this kind which required the court to speculate over-much as to what the prospects were of the merger happening or not happening. In most cases of this kind, and in this case, the merger is very likely indeed to occur. I would leave open what attitude the court would take in a case where it was most unlikely that the merger would take place. The court might consider that it was acting in vain or was taking time over a matter which did not deserve to be given that time. As far as this case is concerned there is no reason of a discretionary character as to why I should withhold approval to an order of the kind sought.
12. Before concluding, there is one other matter to which I wish to refer. I have read Article 11 of the Directive as to the nature of the exercise which a court or other competent authority should carry out under Article 11. I have also read the language of Regulation 16 which refers to the court approving completion of the merger “"for the purposes of Article 11 of the Directive (scrutiny of completion of merger)”". My attention has been drawn to the decision of Sales J in re Diamond Resorts (Europe) Ltd [2013] BCC 275. The headnote in the report of that case reads as follows:

(1) The test to be applied by the court in its discretion under regulation 16 of the 2007 Regulations, whether to approve a cross-border merger involved a process of review over and above simply satisfying itself that the various pre-merger steps had been undertaken. The court must examine the proposed merger with a view to being satisfied that it did not adversely affect any stakeholder (whether shareholder, employee or creditor) in any of the merging companies in any material way, and that there was no other good reason why approval of the proposed merger should be refused.

(2) As a matter of general principle, the weight that the court should accord to the pre-merger certification by a foreign competent authority under the Directive depended upon the nature of the competent authority and the extent of any investigation which it may have conducted into the benefits or dis-benefits of the proposed transaction for shareholders, employees and creditors of the company falling within its jurisdiction. The applicant was however unable to point to any substantive investigation by the Spanish Commercial Registry into the commercial merits or demerits of the particular transaction from the point of view of shareholders, employees or creditors of the Spanish companies which it was proposed should be merged into DREL.

(3) In those circumstances the proper function for the court in the exercise of its discretion under regulation 16 of the 2007 Regulations was to examine with care the question whether, if the mergers proceeded and were authorised, the stakeholders in the merging Spanish companies would suffer a material detriment such that the mergers ought not to be approved. The objectives of the mergers were entirely legitimate and proper objectives likely to be of potential benefit to all the companies which were to be merged.”"

13. The headnote continues with a passage I need not read, referring to the detailed facts of that case. Sales J gave detailed reasons for his ruling. He began with a concession made by counsel for the applicants in that case. The learned judge heard from one side only, so the legal argument put before the judge proceeded from that starting concession on behalf of the applicants.
14. Turning to the present case, carrying out the exercise identified by Sales J, I am satisfied that this is a proper case for the court to give approval under Regulation 16. It may be, for the purposes of the present case, sufficient to leave the matter there. However, I consider that it is well arguable that Sales J went too far in describing the nature of the exercise required of the court under Regulation 16. I have referred to the language of the Directive and of Regulation 16 and it seemed to me in the absence of authority (and indeed in the absence of any argument in the case before me) that the exercise required of the court might involve a much narrower process of review in two respects. First, it might be argued that the English court should not take upon itself the burden of looking at the procedures adopted in other Member States as regards the citizens of those Member States. Secondly, it might be argued that the obligation on the court (identified by Sales J) to consider the benefits and dis-benefits for shareholders, employees and creditors went beyond what was required by the language of the Directive and the Regulations.
15. I mention this matter because the court has an interest of its own in knowing what exactly it is expected to do on an application of the present kind. If it is asked to carry out a careful, thorough scrutiny of the benefits and dis-benefits of the proposal that will require the parties to put in extensive material to satisfy the court of those matters. It will involve the judge doing extensive pre-reading, particularly in a case where he is likely to hear from one side only. The judge may then need to conduct a detailed and lengthy hearing of the application. If a court must do what Diamond Resorts (Europe) Ltd says, then so be it; the court will do it. But if the legislation does not require that exercise to be carried out, then it would be unfortunate if the court nonetheless carried out in every case what might be an unnecessary exercise.
16. In those circumstances, I would welcome this matter being considered again by the court in a future case where the court had before it the competing arguments. Whether those arguments were put by one legal team acting for the applicant or whether those arguments were put by the applicant’'s legal team and a friend of the court appointed for the purpose, it is not necessary for me today to say.
17. However, as I have indicated that is by the way in relation to the matter before me. I have carried out the more extensive exercise suggested by re Diamond Resorts (Europe) Ltd. I am satisfied that it is proper to make the order in the terms in which it has been sought.