[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Oceanrose Investments Ltd, Re: [2008] EWHC 3475 (Ch) (29 October 2008) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2008/3475.html Cite as: [2008] EWHC 3475 (Ch), [2009] Bus LR 947

[New search] [Printable RTF version] [Buy ICLR report: [2009] Bus LR 947] [Help]

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		29/10/2008

MR. JUSTICE DAVID RICHARDS:

1. The Companies (Cross-Border Mergers) Regulations 2007 ("the Regulations") make provision for the merger of two or more companies in cases where at least one of the companies is incorporated in any part of the United Kingdom and another is governed by the law of a state within the European Economic Area other than the United Kingdom. The Regulations give effect in the UK to Directive 2005/56/EC on cross-border mergers of limited liability companies.
2. There are three types of merger defined in the Directive and in the Regulations all of which involve a transfer of assets and liabilities from one or more companies to another company. The Directive and, to a slightly greater extent, the Regulations provide in detail for a series of requirements which must be satisfied before a merger can take effect. The Directive requires each member state to designate the court, notary or other authority competent to scrutinize the legality of the cross-border merger as regards that part of procedure applicable to each company subject to its national law. The Regulations designate the High Court as the competent authority in England and Wales. The merger cannot proceed without a certificate from each relevant authority that the pre-merger steps have been properly completed. The decision to approve the merger is reserved to the member state whose laws govern the transferee company.
3. The pre-merger steps required by the Directive are the preparation of common draft terms of cross-border merger which must include at least the particulars set out in article 5, publication of the draft merger terms in the manner prescribed by the laws of each relevant member state, a report on the merger drawn up by the management explaining and justifying the merger which must be made available to the members and to the employees or their representatives, an independent expert report for the benefit of members and approval by the general meeting of each company. In specified circumstances the requirement for an independent expert report and for approval in general meeting may not apply.
4. Part 2 of the Regulations (Regulations 6 to 15) make provision for the pre-merger requirements as regards the UK. Provision is also made in the Regulations for approval by a meeting or meetings of creditors. It will be necessary to look at some of these provisions in detail. The Directive and the Regulations also makes provision for employee participation, but they do not arise for consideration in the present case.
5. In terms of procedure the Regulations envisage at least two applications to the court as the competent authority and a third if the transferee company is a UK company.
6. The first application is for an order summoning a meeting or meetings of members and/or creditors: Regulation 11. The second application is for an order certifying that the pre-merger acts and formalities required of the UK company have been properly completed: Regulation 6(1). Paragraph 17(a) - (c) of Practice Direction Applications Under the Companies Acts and Related Legislation make detailed provision for the procedure to be adopted.
7. The practice of the Companies Court is that save in exceptional cases the first and second applications are heard by a registrar and where approval to the merger is required under Part 3 of the Regulations the third application is heard by a judge.
8. The application in the present case is at the first stage and would normally come before a registrar. The proposed merger is between the applicant company, Oceanrose Investments Limited, a private company incorporated in England and L.A. Filati SRL, a private company incorporated in Italy. Oceanrose Investments Limited, ("the company"), is a single member company, its only member being another Italian company. It has no employees and so far as known to the management its only creditor is its sole member. The sole member has been closely involved in the negotiation of the merger terms and approves the merger. By a written resolution signed in Italy on 11th October 2008 it formally approved the merger terms.
9. Two reasons were given for making the present application to a judge rather than a registrar. First a point of principle arises on the Regulations as to whether the requirement for approval of the draft terms of merger by members at a meeting summoned under Regulation 11 is necessary in a case such as the present where the company has only one member who has formally signified its consent. Secondly, there is an urgency to complete the merger before the end of the present calendar year for reasons connected with Italian tax law and it is thought that this can better be achieved if the first and second applications are heard by a judge.
10. The first of these grounds, in my view, justifies the course taken. Where a point of principle or general practice arises for decision the matter is properly brought before a judge. I do not consider that the second ground would itself justify a departure from the usual practice. Arrangements can be made with the Companies Court for an urgent hearing by a registrar. Normally steps are taken in advance to agree a provisional timetable with the court. The suggested urgency is not convincing when it appears from the evidence that the merger terms in this case were agreed in August this year. There does appear to have been delay in taking advice on the steps necessary in England.
11. As I have mentioned the Directive requires approval by a general meeting of members of each of the merging companies. Recital 6 states in part that the common draft terms of the cross-border merger are to be approved by the general meeting of each of those companies. Article 9(1) provides that after taking note of the reports referred to in articles 7 and 8 the general meetings of the merging companies shall decide whether to approve the common draft terms of cross-border merger. Article 6(1) requires that the draft merger terms be publicised in accordance with national law at least one month before the date of the general meeting.
12. Likewise the management's report is to be made available to members and to employees or their representatives not less than one month before the date of the general meeting. Where there is an independent expert report it must also be made available not less than one month before the meeting. The individual expert report is not required if all the members of each of the companies involved in the merger have so agreed: article 8.4. There is no similar provision for a waiver of the report of management even if the company concerned has no employees.
13. The central provisions of the Regulations as regards meetings are regulations 11 and 13. Regulation 11(1) provides:

"(1) The court may, on an application under this regulation, order a meeting of —

(a) members or a class of members, for the purposes of regulation 13 (approval of members in meeting);

(b) creditors or a class of creditors, for the purposes of regulation 14 (approval of creditors in meeting);

to be summoned in such manner as the court directs."

Regulation 13(1) provides:

"(1) Except as provided in paragraphs (3) and (4), the draft terms of merger must be approved by a majority in number, representing 75% in value, of each class of members of the UK merging company, present and voting either in person or by proxy at a meeting summoned under regulation 11 (power of court to summon meeting of members or creditors)."

Regulation 13(3) providing the first exception to the requirement for a meeting under regulation 13(1) is as follows:

"The approval of the members is not required in the case of a transferor company concerned in a merger by absorption of a wholly-owned subsidiary."

The second exception in Regulation 13(4) applies to an existing transferee company where a number of requirements there set out are satisfied.

14. The exception provided by Regulation 13(3) applies where the merger involves a transfer of assets and liabilities from a wholly owned subsidiary to its parent company. Necessarily that is a case where there is only one beneficial owner of shares in the subsidiary and it may well be a case where there is only one member of the subsidiary. It does not, however, apply in the present case because the merger is not with the company's parent company but with a third company. The terms of the Regulations on their face impose a requirement for a meeting even where there is only one member unless the company is the wholly owned subsidiary of the transferee company and it is a merger by absorption of a wholly owned subsidiary as defined in Regulation 2(3).
15. Regulation 6(2) provides as regards an order under Regulation 6(1) certifying that the pre-merger acts and formalities have been completed that:

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

One of those requirements is, of course, the requirement that the merger has been approved by the members in general meeting.

16. There are a number of arguments which may be considered in determining whether it is necessary, as a matter of the correct interpretation of the Regulations, to hold a meeting even where there is only one member of the transferor company. First, the word meeting in its general legal usage requires the attendance of two or more persons. If there is a single member a meeting in that sense is therefore impossible. It is, however, established in a number of authorities that in exceptional cases a meeting will include a meeting attended by only one person. Most obviously this is the case where there is only one member of the class for which a meeting must be held.
17. I reviewed the relevant authorities in re Altitude Scaffolding Limited [2007] 1 BCLC 199. One of those authorities is re RMCA Reinsurance Limited [1994] BCC 378 which concerned the somewhat analogous jurisdiction under what is now Part 26 of the Companies Act 2006 to sanction schemes of arrangement. Morritt J held that where one class of members or creditors comprised only one member or creditor a meeting attended by the member or creditor would satisfy the statutory requirements for a meeting. Regulation 13 is likewise a provision where the circumstances may require the meeting to be construed as including a meeting attended by one member.
18. Secondly, Mr. Boeddinghaus, who appears as counsel for the company, relied on what I said in my judgment in Re Attitude Scaffolding Limited at paragraph 12 after I had referred to re RMCA Reinsurance Limited and to the New South Wales case of Re Hastings Deering Pty Ltd (1985) 3 ACLC 474. I then said that it is inevitable from the need where appropriate to divide members or creditors into different classes for the purpose of a scheme that a class may in some cases comprise only one person. It may be noted in passing that in such a case it is not essential to convene a meeting of that class because it is well established that a member or creditor may by his individual consent agree to be bound by a scheme.
19. Mr. Boeddinghaus relied on the second of these sentences for a submission that the court may sanction a scheme of arrangement without its prior approval at any meeting of members or creditors and that therefore by analogy the court should have jurisdiction under the Regulations to approve or certify the pre-merger steps where there has been no meeting summoned under the Regulations but where there has been the formally given consent of the sole member.
20. However, as the first of the sentences from the passage quoted makes clear, the individual consent of a particular member or creditor in the context of a scheme of arrangement is permissible only where there is at least one class of members or creditors of which a meeting has been held. At least one meeting is a necessary prerequisite to the sanction of a scheme of arrangement under Part 26.
21. Thirdly, Mr. Boeddinghaus relied on the discretion conferred by Regulation 11 on the court as to whether to order a meeting to be summoned as showing that whether compliance with Regulation 13 is required depends on the decision of the court to order a meeting. If the court considers a meeting to be unnecessary, for example because the company has a sole member, the court can dispense with the requirement for a meeting under Regulation 13. In my judgment the court possesses no such dispensing power. If it did it would be clearly set out, as are the exceptions in Regulations 13(3) and (4). The reason for the discretion conferred by Regulation 11 is different. For a wide variety of reasons, the circumstances may be such that the process towards a merger should not be started at all and in such a case the court is not obliged to order a meeting to be summoned.
22. Fourthly, Mr. Boeddinghaus relied on the provisions of what are now sections 288 and 300 of the Companies Act 2006 which enable a private company to use a written resolution of members where otherwise a resolution is required of the company in general meeting. Section 288(4) and (5) provide:

"(4) References in enactments passed or made before this Chapter comes into force to —

(a) a resolution of a company in general meeting, or

(b) a resolution of a meeting of a class of members of the company, have effect as if they included references to a written resolution of the members, or of a class of members, of a private company (as appropriate).

(5) A written resolution of a private company has effect as if passed (as the case may be) —

(a) by the company in general meeting, or

(b) by a meeting of a class of members of the company,
and references in enactments passed or made before this section comes into force to a meeting at which a resolution is passed or to members voting in favour of a resolution shall be construed accordingly."

These provisions are not applicable in the present case on the short ground that the Regulations were made after section 288 came into force.

23. Fifthly, reliance might be placed on the general principle of English company law that the members acting unanimously may agree to anything which would otherwise require a resolution of the company in general meeting, see re Duomatic Limited [1969] 2 Ch. 365 and the authorities there cited. This applies even where the Companies Act requires a special resolution, which is itself defined in terms which require a meeting: see Cane v. Jones [1980] 1 WLR 1451 and re Barry Artists Ltd [1985] BCLC 283. This principle is recognized and preserved by section 281(4) of the Companies Act 2006.
24. As a common law principle it must, however, give way to any statutory provision to the contrary and, as it seems to me, the mandatory terms of Regulation 13(1), particularly when read with the exception in Regulation 13(3), leave no room for the application of the Duomatic principle.
25. Mr. Boeddinghaus relies on the provisions of the Articles of Association of the company. Article 9 provides that so long as the company has only a sole member any decisions or actions made or taken by that member which are ordinarily required to be made or taken in general meeting of the company or by means of a written resolution, shall be as valid and effectual as if agreed by the company in general meeting, save for an exception which is not material.
26. Mr. Boeddinghaus relied on article 9 as a basis for submitting that although the Regulations on their face require a meeting a written resolution made in accordance with the articles is treated, at any rate internally within the company, as equivalent to a resolution of a meeting. I agree that so far as the internal workings of the company are concerned a written resolution of the single member is effective but the question remains, as it does in relation to the Duomatic principle, whether the express terms of the Regulations none the less require a meeting. As it seems to me it is not open to the articles of a company to override the express terms of an enactment. Accordingly reliance cannot be placed for these purposes on the provisions of the company's articles.
27. Mr. Boeddinghaus was not able to point to any principle of community law or any decision of the European Court of Justice which might assist in this case.
28. I reach the conclusion that the terms of Regulation 13 mean what they say and require a meeting of members to be summoned and held to consider and, if thought fit, approve the merger terms, save in those cases expressly provided in Regulations 13(3) and (4). It is also necessary to comply with the requirements for documents to be delivered or made available and for notices to be published either one or two months before the meeting as set out in Regulations 10 and 12.
29. A further issue was raised as to whether it is necessary for there to be a meeting of creditors. As I have mentioned this is not to be found in the Directive. Regulation 14 provides:

"14. If a meeting of creditors or a class of creditors is summoned under regulation 11 (power of court to summon meeting of members or creditors), the draft terms of merger must be approved by a majority in number, representing 75% in value, of the creditors or class of creditors (as the case may be), present and voting either in person or by proxy at the meeting."

This may be contrasted with the terms of Regulation 13 that a merger must be approved at a meeting of members. Mr. Boeddinghaus submitted and I agree that the requirement for a meeting of creditors arises only where the court sees fit to summon a meeting of creditors under Regulation 11. I see no reason why the court should do so if the only creditor or all the creditors consent to the merger. There may well be many other circumstances in which the court does not require a meeting of creditors but that does not arise for consideration on the present application.

30. Accordingly, I cannot accede to the application made by the company that the matter should proceed on the basis that there need not be a meeting of the member or members of the company in this case.