Judgment

MR JUSTICE ROTH:

"(1) A UK merging company may apply to the court for an order certifying for the purposes of Article 10.2 of the Directive (issue of a pre-merger certificate) that the company has completed properly the pre-merger acts and formalities for the cross-border merger."

That is the first of the two stages involved under the scheme of the Regulations.

9. The Directive there referred to is the Cross-Border Mergers Directive, Directive 2005/56/EC. The Regulations give effect to the Directive in English law and are to be interpreted in accordance with the provisions of the Directive to give effect thereto.

10. The second stage is the approval of completion of a cross-border merger by the court in the country of the transferee company. Under the Regulations, that is covered by Part

3. In other words, the first court gives a pre-merger certificate and then an application is made to the second court, producing that pre-merger certificate. Under the Directive, the two stages are set out in Articles 10 and 11.

11. I return to the Regulations and regulation 6(2) which states: "The court must not make such an order [this being the issue of a pre-merger certificate] unless the requirement of regulations 7 to 10 and 12 to 15 (pre-merger requirements) have been complied with."

12. The subsequent regulations, as indicated, set out the detailed requirements that have to be fulfilled. Some of them, however, do not apply to a merger by absorption of a wholly-owned subsidiary and therefore are not engaged in this case. Nonetheless, it may be appropriate to look at them to assist on the questions of interpretation.

13. In summary, regulation 7 deals with the requirement for the directors of the UK merging company to draw up and adopt draft proposed terms of the cross-border merger which then must fulfil specified requirements. Regulation 8 states that the directors of the UK merging company must draw up and adopt a report which again must fulfil specified requirements. Regulation 9 concerns an independent expert's report, but that does not apply to a merger of the kind at issue here. Regulation 10 requires the members of the UK merging company and its employees or their representatives to be able to inspect the documents to which I have just referred, i.e. the draft terms, the directors' report and independent expert's report, if there is one. Regulation 12 deals with public notice of receipt of registered documents, with a requirement to deliver them to the Registrar of companies who then who has to publish them. Regulation 13 deals with the need for approval of the draft terms of merger by members of the company (that requirement that does not apply to a merger by absorption of a wholly-owned subsidiary). Regulation 14 deals with approval by creditors and applies only where the court has ordered a meeting of creditors, as the English court has power to do under regulation 11: I should add that this is not something required under the Directive but included in the national legislation. And Regulation 15 deals with the provision of documents where a meeting of members takes place.

14. The present application therefore requests the issue of the pre-merger certificate from the English court on the basis of evidence that seeks to satisfy the court that the applicable requirements in the Regulations have been fulfilled. An issue arose as regards both the draft terms of merger and the directors' report. The draft terms of merger must give particulars of matters specified in regulation 7(2), which include at sub-paragraph (f): "the date from which the transactions of the transferor companies are to be treated for accounting purposes as being those of the transferee company."

15. The directors' report must, as specified in regulation 8, paragraph 2(a): "explain the effect of the cross-border merger for members, creditors and employees of the company."

16. Both the draft terms of merger and the directors' report in this case were prepared in German, but there have been produced and exhibited certified translations. The draft terms of merger state that the closing date of the merger is 1 January 2012, and that from this point on the transactions of Limited shall be carried out for the account of GmbH pursuant to regulation 7(2)(f). The directors' report states more simply: "The merger closing date shall be 1 January 2012." I queried this with Mr Jack since that is of course a date long before the application to this court for a pre-merger certificate and then any consequent application to the German Court for approval of the merger. I note that Article 12 of the Directive provides that the court approving the merger (i.e. in the present case the German court) shall determine the date on which the merger takes effect, and that this date must be after the scrutiny under Article 11 has been carried out. Accordingly, as one would expect, the merger can take effect only after the second stage of the regulatory regime has been completed.

17. Clearly, this merger cannot take place on 1 January 2012. The explanation is that the translation is misleading. The German originals use the word "Verschmelzungsstichtag", which I was told by Mr Jack means the accounting date for the merger. He explained that this is a reference only to the date for the purposes of regulation 7(2)(f), that is to say when in the accounts to be prepared for GmbH, the transactions of Limited will be treated as transactions of GmbH. It is not intended to be a statement that the merger will take place or close on 1 January 2012. That would be impossible and indeed accounts have been produced for Limited showing it as trading in the year ended 31 December 2012.

18. It is obviously unfortunate when an approved translation is inaccurate in that regard, but I accept the explanation and, therefore, that there is nothing wrong with those two documents in their original. Clearly, if they had been materially inaccurate there would be reason to find that they do not comply with the requirements of regulations 7 and 8.

19. I turn, therefore, to the points that were raised by the learned Registrar and led her to adjourn the matter to the judge. The first was whether, in order to comply with the relevant provisions, and in particular regulations 7, 8, 10 and 12, the documents have to be accurate to a date falling within a given period leading up to the date of the hearing. Mr Jack submitted that there is no requirement that the documents have to be correct as of a date within any particular period. He stressed that there is nothing in the Regulations or the Directive imposing any such time limit. By contrast, the application for approval of the cross-border merger to be made under stage 2 is subject to an express time limit. It must be made within six months of the issue of the pre-merger certificate under stage 1: see regulation 16(1)(e), corresponding to Article 11, paragraph 2 of the Directive. On that basis, he argued that where the Directive and Regulations seek to impose any time limit that is done expressly.

20. I see the force of that submission as a matter of literal construction. I accept that there is no specified or particular time limit as such required for the various steps prescribed under regulations 7, 8, 10 and 12, or indeed for the preparation of an independent expert's report where that is applicable under regulation 9. However, I would not go so far as to say that such documents, however stale, must necessarily be regarded as fulfilling the regulatory requirements. The fact that the pre-merger certificate must be produced to the court whose approval for the merger is sought at stage 2 within six months shows that the scheme of the Regulations is that the matter cannot be allowed to be very stale.

21. In a case where it appears to the English court, whose pre-merger certificate is sought, that the requisite documents are so old or that such a time has elapsed between their production and the application to the court to suggest there may be material changes in the relevant circumstances, the court would be entitled, in my view, to say that this does not constitute proper compliance with the relevant regulations. I do not think that involves an application of the Regulations that breaches legal certainty, which of course is a general principle of European law. It is, in my view, simply applying a purposive construction to these requirements, such that they can fulfil the role that is obviously intended under the regulatory scheme.

22. I am reinforced in that view by the provisions regarding the independent expert's report. They do not apply in the present case, but the question of staleness would be equally relevant in a case where regulation 9 was engaged. One of the key points of the independent expert's report is for him or her to give an opinion as to whether the methods used to arrive at the share exchange ratio and values used are reasonable in all the circumstances. For that purpose, he may need a valuation of the relevant companies. It seems to me self-evident that a valuation made or indeed an opinion as to share of exchange ratios given, for example, many years before the application for pre-merger approval, may be of little relevance. Mr Jack suggested that the way this should be dealt with is not by the court refusing to accept that the Regulations have been fulfilled, but by ordering a meeting of creditors under regulation 11. However, that does not address the question of possible prejudice to members. Further, it is not clear to me that the court has power to summon a meeting of creditors under regulation 11 of its own motion: I would not wish to reach a view on that question, which does not arise in this case, without further argument. But in any event, the provision about summoning a meeting of creditors is, as I have mentioned, an addition in the Regulations not found in the Directive. The problem of excessive delay, to which I have referred, is one that applies to the operation of the Directive; I do not think it can be resolved by a simple resort to that additional provision.

23. Mr Jack also submitted that these matters should not be considered by the court at stage 1, but can be taken account of by the court of the other member state at stage 2 when it decides whether to give approval to the cross-border merger. He drew attention to the fact that under Article 10, dealing with the pre-merger certificate, the authority scrutinising the matter is designated by the Member State and may be not a court but a notary or other authority. He said that it is asking too much for a mere administrative officer to look into these matters.

24. The answer to that is, first, that exactly the same wording applies under Article 11 for the stage 2 approval process; and secondly, that in the United Kingdom the designated authority is the court, which therefore should, in my view, carry out functions that a court is able to undertake.

25. I have addressed this matter in some detail because it was expressly raised by the Registrar in her order and has apparently arisen in other cases. I am not suggesting that the court should conduct a detailed investigation of the circumstances, and I would expect that the point I have raised can be considered rapidly on the papers. It is only where there are grounds for considering that the matters are significantly stale or that there has been a material change in circumstances that there would be cause for concern. This applies both to the production of the documents (i.e. the draft terms of merger, the directors' report and, where applicable, the independent expert's report) and to the vetting of those documents, as required by regulation 12(4).

26. The third point raised by the learned Registrar is whether, in the light of the decision of this court in Re Diamond Resorts (Europe) Ltd [2012] EWHC 3576 (Ch), the court should, prior to granting a certificate under regulation 6, consider whether, if the merger proceeds, the creditors would suffer material detriment such that the merger ought not to be approved; and if so whether, on the evidence before the court, the court may properly be satisfied that such creditors would not suffer any detriment.

27. Re Diamond Resorts (Europe) Ltd was a decision of Sales J on regulation 16(1). It accordingly dealt with approval of a cross-border merger at stage 2 coming under Part 3 of the Regulations. Regulation 16 (1) reads:

"The court may, on the joint of 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 mergers) if..." [My emphasis]

Then various conditions necessary for that approval are set out.

28. As is clear from Sales J's judgment, he proceeded on the basis, accepted by the applicant in that case, that the court has a discretion under regulation 16(1) whether to approve the merger and therefore has to consider whether it is proper to exercise that discretion in favour of approval. That, the learned judge said, involves: "a process of review over and above simply satisfying itself that the various pre-merger steps have indeed been undertaken."

29. It was on that basis that Sales J reached the view, as set out at paragraph 10 of his judgment, that: "The proper function for this court in the exercise of its discretion under regulation 16(1) of the 2007 Regulations is to examine with care the question whether, if the merger proceeds and is authorised, stakeholders in the [applicable companies] will suffer a material detriment such that the merger ought not to be approved."

30. The wording of regulation 16(1) which I quoted is to be contrasted with the wording of regulation 6(2) which I have set out above but repeat for convenience:

"The court must not make such an order (that is to say issue of pre-merger certificate) unless the requirements of regulations 7 to 10 and 12 to 15 (pre-merger requirements) have been complied with."

Although expressed in a negative formulation, in my judgment it is clear that regulation 6 does not give or seek to give the court the discretion provided for the different stage of the procedure under regulation 16. In my view, as Mr Jack submits, the approach set out in Re Diamond Resorts (Europe) Ltd therefore does not apply when dealing with the stage 1 approval of the pre-merger requirements. It follows that, in my judgment, the task of the court at stage 1 under Part 2 of the Regulations is limited to ascertainment whether the requirements of the various regulations have been complied with, subject only to this: that regulation 11 does give the court a discretion to order a meeting of creditors and also, in my view, of members in the case of a merger by absorption of a wholly-owned subsidiary. I say that because in the other two types of merger a meeting of members is mandatory under regulation 13. The question of the court's exercise of such a discretion was considered briefly by David Richards J in Re Oceanrose Investments Ltd [2008] EWHC 3475 (Ch) at paragraph 29.

31. On that basis, I turn to consider whether the requirements have here been complied with. The draft terms of merger, to which I have already referred, satisfy the requirements of regulation 7 and the contents of the directors' report satisfy the requirements of regulation 8. Those documents date back to March and April 2012 respectively, but in this case the situation is that the financial position of GmbH has not changed since that date, as shown by the evidence filed in this court, since it has not traded. The position for creditors, as explained in the directors' report, is therefore not adversely affected or altered by the passage of time. Regulation 8(5) requires the directors to deliver copies of their report to the employees and that, as I mentioned, was done on 16 April 2012, the day the report was prepared. However, there is now evidence from Mr Fritsch (the sole director of Limited), by a witness statement made on 28 March 2013, that the employees to whom those documents were sent over a year ago have not changed and that no additional staff have been employed since.

32. In these circumstances, the lapse of time between the approval of the terms of merger and the making of the directors' report does not, in my view, mean that there has not been full compliance with regulations 7 and 8. Regulation 9 is not engaged. As regards the public notice, that was given on 5 November 2012, and again in the circumstances here that seems to me proper compliance with regulation 12, where the application was issued on 22 February 2013.

33. Accordingly, I am satisfied that the requisite requirements in the Regulations were properly complied with and it is therefore appropriate to issue a pre-merger certificate under regulation 6, as requested.