Out-Law / Your Daily Need-To-Know

Out-Law Legal Update 3 min. read

Court cannot deviate from six month limit for cross-border merger certificates

The High Court in England has ruled that the EU's cross-border merger regulations meant that a pre-merger certificate from an EU member state court cannot be more than six months old when hearing an application for sanction of the merger, even where obtaining a second pre-merger certificate would be difficult.
  • Pre-merger certificates must be no more than six months old
  • New certificate needed if it is older
  • Re Trade Holding PL-UK Ltd [2019] EWHC 2234 (Ch)

English real estate company Trade Holding PL-UL Ltd (Trade Holding) and Polish real estate company Centrum Handlowe HIT (Centrum) applied for sanction of a cross-boarder merger under regulation 16(1) of the Companies (Cross-Boarder Merger) Regulations 2007 (Regulations). The application was heard on 30 July 2019.   

Regulation 16(1)(d) of the Regulations requires an application for sanction to be made within six months of the date of a pre-merger certificate for both UK merging companies and EEA merging companies.

A pre-merger certificate had been granted for Trade Holding on 4 July 2019. A pre-merger certificate had been granted for Centrum on 30 July 2018, 12 months before the application for sanction was made.

The judge said that the jurisdictional requirement under the Regulations had not been satisfied and that he could not sanction the merger until a fresh certificate was issued by the Polish court.

Lawyers representing Trade Holding and Centrum requested the judge waive the requirement for Centrum's pre-merger certificate to be dated within six months of the sanction hearing but did not identify any part of the Regulations that allowed this. The judge noted that the judgment in Re MDNX Group Holdings Ltd emphasised the importance of strict compliance with the Regulations.

Centrum and Trade Holdings said that it was not possible to obtain a new certificate for Centrum from the Polish court because of the legal principal in Polish law that a decision of a court is final and cannot be adjudicated upon again if it has not been appealed. The judge reviewed two witness statements from practicing lawyers in Poland, supporting the view that it would not be possible to obtain a new certificate due to this principle, but was not satisfied that obtaining a new certificate for Centrum was impossible in the circumstances.

The judge considered the evidence relating to principle of a judgment being final, and determined that it did not address the question of whether the Polish court had the jurisdiction to make a second order when the original order was made too long ago to satisfy the requirements of the Regulations, particularly given the decision of the Polish court was not one to resolve a dispute, but to verify the pre-merger process under Polish law had been completed.

The judge said that the purpose of the time limit in the Regulations was to ensure that the court considering the application for sanction could be satisfied that that the pre-merger certificate from each EU member state was sufficiently current in confirming that the relevant steps had been taken. While Trade Holding and Centrum had produced an order from the Polish court dated 31 July 2019 determining that the certificate dated 30 July 2018 remained valid and enforceable having not been appealed, the judge dismissed this evidence as nothing more than a declaration that the original certificate was binding under the principle in Polish law that a decision cannot be revisited if not appealed. The judge also said that it was apparent that the Polish court had not been asked whether it would be possible to issue a further certificate.

While the judge failed to sanction the cross-border merger at the hearing, a fresh certificate from the Polish court was produced before the judgment was handed down, allowing the judge to sanction the merger. The certificate was not dated before the application for sanction was made, given it was dated after the hearing date, however the judge considered the application to be ongoing until the judgment was handed down and that there was no problem with the fresh certificate being dated after the hearing date.

The judgment clarifies and emphasises that the court has no discretion in the application of the time limits in the Regulations and will not accept evidence that does not categorically determine that it would be impossible to obtain a new certificate. The judge declined to deal with the unresolved issue as to whether the court's function in an application for sanction of a cross-border merger extends to considering the impact of the cross-border merger on the creditors of the two merging companies, as he was satisfied that creditors of both companies would not be prejudiced by the merger.

Samantha Poulton is an expert in restructuring law at Pinsent Masons, the law firm behind Out-Law.

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