Cross-Border Mergers and the Impact of Brexit
A legal framework to permit cross-border mergers between limited liability companies from member states in the European Economic Area (“EEA”) was brought into European law by Directive 2005/56/EC ( the “Directive”). The Directive was implemented in Ireland by the European Communities (Cross-Border Mergers) Regulations 2008 (the “Regulations”). The Regulations have provided a legal framework over the past 10 years for cross-border mergers into and out of Ireland. By way of re-cap, in a cross-border merger all the assets and liabilities of one or more companies (a “Transferor”) are automatically transferred to another company (a “Successor”) and the Transferor is dissolved without going into liquidation. For the Regulations to apply, the merger must involve at least one Irish limited liability company and at least one EEA company. The question which currently presents itself in the context of Brexit is, what is the possibility of an Irish company undertaking a cross-border merger into the UK in the event of a Hard Brexit (and indeed, the possibility of a UK company merging into an Irish company in such a scenario).
Part of the prescribed procedure as set out in the Regulations and the relevant UK regulations, the Companies (Cross-Border Mergers) Regulations 2007 (the “UK Regulations”), involves obtaining a pre-merger certificate from both the High Court in Ireland and the High Court in the UK. Subsequently the merging entities apply to the High Court in the jurisdiction of the Successor for an order confirming the merger and its effective date (the “Court Order”).For merging companies with no employees the full process of an Ireland/UK cross-border merger is likely to take in the region of 4 to 6 months.
As things currently stand, in the event of a Hard Brexit on 29 March 2019, Irish companies will not be able to complete a cross-border merger into the UK that has not been finally sanctioned by the High Court in the UK pursuant to a Court Order prior to that date. The UK government has proposed draft legislation that would revoke the UK Regulations if the UK leaves the European Union without a withdrawal agreement, meaning that there would be no legal framework in the UK to facilitate cross-border mergers post 29 March 2019. In addition, as the Regulations do not permit a merger into a non EEA jurisdiction, the relevant legal framework would also not exist to enable the High Court in Ireland to sanction a merger of a UK company into an Irish company in the event of a Hard Brexit.
From a practical perspective, if an Ireland/UK cross-border merger transaction was to commence now or any time before the final outcome of the Brexit negotiations are confirmed, then it would need to be established that both the Irish and UK High Courts would agree to start the process, through the issuance of a pre-merger certificate, without certainty as to its outcome. We are not aware of this point having been tested in Ireland or the UK yet, but our initial view, and that of some UK based lawyers whom we have spoken to on this point, is that the respective High Courts would be minded to allow the process to begin provided the significant uncertainty regarding whether or not the process would be able to complete was made clear in the relevant documents.
We will keep you informed of any further developments in this area and in the meantime if you have any queries please do not hesitate to contact Padraic Roche or your usual Matheson contact.