Judicial Supervision of Cross-Border Mergers Is No Rubber Stamp

Cross-border corporate mergers are subject to close judicial scrutiny so as to ensure that the interests of staff, shareholders and creditors are fully respected. One case concerning an English company’s absorption of a German company showed that that supervisory role is anything but a rubber stamp.

Both companies provided information and communication technology services and were wholly owned subsidiaries of the same parent company. Both had only one director and no employees. It was proposed that the English company would wholly absorb the business of the German one and that, following the merger, the latter would be dissolved. The parent company would receive new shares in the English company in exchange for its shareholding in the German company.

High Court approval for the transaction was required by virtue of the Companies (Cross-Border Mergers) Regulations 2007. The Court was satisfied that the merger had been properly advertised in the London Gazette and that all other procedural requirements had been met. However, it expressed concern as to the position of creditors of the English company and asked searching questions in respect of the financial position of both companies.

They had each made operating losses in the recent past. In approving the merger, however, the Court was satisfied on the information provided that both companies were solvent. The net assets of the German company were appreciably more valuable than those of the English company and, if anything, the latter’s creditors stood to benefit, rather than lose out, as a result of the merger.