The Companies Court has considered whether it is necessary for shares or other securities to be transferred between group companies as consideration for cross-border mergers in the recent landmark case of Re Olympus UK Ltd and others  EWHC 1350 (Ch).
The case concerned a proposed "merger by absorption" of two UK companies into a single German parent company where the UK companies had agreed not to receive shares or other securities in the German parent company as consideration. The immediate issue before the court was whether the interpretation of the term "merger" provided by the Companies (cross-border mergers) Regulations 2007 (regulations), itself, a translation of the Council Directive (EC) 2005/56 (directive), was the intended definition of the term, or if it could have been misconstrued.
The English translation of the directive defined "merger" to mean an operation whereby: "…two or more companies, on being dissolved without going into liquidation, transfer all their assets and liabilities to another existing company, the acquiring company, in exchange for the issue to their members of securities or shares representing the capital of that other company..." [emphasis added].
The fundamental point for the court to consider was whether the proposed cross-border mergers could be considered compliant with, and effective under the regulations, when the UK companies' decision to waive their entitlement to receive consideration appeared to directly contradict the wording of the legislation.
After contemplating translations of the directive and receiving independent expert evidence on the subject, the judge resolved that: "the real question was not what an ‘issue…of securities or shares' would mean as a matter of English company law but instead, what this term means in a European context." The court recognised that, "some of the words and expressions used in the directive had specialised meanings in English company law which were not intended."
In the spirit of the teleological approach to interpretation favoured by the ECJ/CJEU, the court granted the applications sought on the basis that it would not be right to read the definition of "merger" as requiring the strict sense of that word in English company law context. It was held that all that was required was that the UK companies were "offered" shares in exchange, even if that offer was declined.
This is an important decision for companies with pan-European group structures. It shows that the English courts are willing to take a flexible and purposive approach to new group restructuring processes. However, it also highlights that differences — whether they be conceptual or linguistic — still remain between Continental Europe and the English legal system.
A table detailing UK in-bound and out-bound cross-border mergers can be found here.