On 15 May 2018 Arnold J. approved the merger of Reed Global Limited, a company incorporated in Malta into Reed Global (UK) Limited, its English subsidiary under the Companies (Cross-border Merger) Regulations 2007. Save for one point, the merger was uncontroversial, with all three employees of the Maltese company having consented to the transaction, both companies being solvent and the transation being intra-group.
As referred to in my earlier article, where a cross-border merger involves a parent being absorbed into its subsidiary, a concern arises as to whether the acquisition by the surviving subsidiary company breaches the prohibition on a company acquiring its own shares under Part 18 of the Companies Act 2006 ("CA 2006"). In order to address this issue, it is usual (as here) to undertake a reduction of capital to cancel the shares held by the parent in the subsidiay at the same time the merger takes effect.
The approach of cancelling shares and then immediately reissuing new shares is not new. Where a "reduction" scheme of arrangement is undertaken pursuant to Part 26 CA 2006, the capital is reduced to zero (or a single share) with the reserve arising on the reduction subsequently being applied in paying up new shares issued immediately following the reduction taking effect. Although that transaction can involve the company being without a share capital for a short period of time, the gap is in substance a technical one (often referred to as a "scintilla of time").
The position is messier on a merger. A crosss-border merger takes effect at a time fixed by the Court. In this case, the time was 00.01 am on 29 June 2018. However, a reduction of capital confirmed by the Court takes effect when it is registered by the Registrar of Companies (s 649(3)(b) CA 2006). This means that, even if the reduction takes effect at close of business on 28 June 2018, there will be a period of several hours when the company will not have a share capital.
Arnold J. was satisfied that he could approve the merger and reduction notwithstanding that gap given, in particular, the fact that the merger would inevitably follow the reduction, the proceeds of the reduction itself were not being paid away from the company and the net result of the reduction and merger taken together was a significant increase in the issued share capital and net assets of the suriving English company.
Accordingly, Arnold J. granted approval for the final completion of the cross-border merger and confirmed the reduction of capital.