The High Court has held that the shareholders of an Austrian company that proposed to merge into a UK company did not suffer a “material detriment” because their participation rights were preserved. It therefore allowed the merger.
Under the EU cross-border mergers regime, a cross-border merger (CBM) is not effective until the appropriate authority gives a final order to this effect. The appropriate authority is the authority in the country in which the “transferee” company is registered. In the UK, this is the High Court.
Before the High Court can give final approval for a CBM, it must ask itself whether the stakeholders in the merging companies would suffer a “material detriment” if the CBM were to proceed (Re Diamond Resorts (Europe) Ltd).
In Re CT Infrastructure Holding Ltd, the High Court readily found that the merging companies’ employees and creditors would suffer no detriment. However, the shareholder of the Austrian company enjoyed participation rights of a kind that do not exist in English law. The concern was that it would lose these rights if the CBM proceeded.
To address this, the UK company had created a new class of B ordinary share which attempted to replicate the Austrian participation rights as closely as possible. The High Court was satisfied that the rights that the Austrian company’s shareholders would receive in the UK company were not merely equivalent to the Austrian participation rights, but in fact better.
It therefore found there was no material detriment to the shareholders either. The position was helped by the fact that both companies shared a single, common shareholder.