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This week’s edition of Corporate highlights includes details of an FRC consultation on revisions to the Standards for Investment Reporting, which set requirements and provide guidance for reporting accountants carrying out engagements in UK investment circulars and a Companies Court case concerning applications for the sanction of two linked cross-border mergers of companies under the Companies (Cross-Border Mergers) Regulations 2007, SI 2007/2974.
Equity capital markets
Private M&A (intra-group reorganisation)
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The Financial Reporting Council (FRC) has launched a consultation on revisions to the Standards for Investment Reporting (SIRs), which set requirements and provide guidance for reporting accountants carrying out engagements in UK investment circulars. Period for comment ends on 26 July 2019.
The SIRs set the requirements and provide guidance for reporting accountants for all engagements in connection with an investment circular prepared in connection with a securities transaction governed wholly or partly by the laws and regulations of the UK. The FRC is conducting a review of SIRs principally because the majority of the SIRs have not been updated since 2006–2008 and therefore amendments to the SIRs are required, both retrospectively and prospectively, to reflect changes in the UK regulatory landscape, including the establishment of the Financial Conduct Authority in place of the Financial Services Authority and changes to the Listing Rules and the City Code on Takeovers and Mergers.
For further information, see LNB News 01/05/2019 78.
The proceedings concerned two applications for the sanction, under the Companies (Cross-Border Mergers) Regulations 2007, SI 2007/2974, reg 16 (Cross-Border Mergers Regulations), of two linked cross-border mergers of companies.
The mergers involved 13 companies, all within a single group, the Interoute group of companies. Each merger was a merger by absorption under Cross-Border Mergers Regulations, SI 2007/2974, reg 2(2). The first merger involved eight companies, six of which were English, one Scottish and one Dutch (Merger 1). There was one surviving transferee, MDNX Group Holding Ltd (MDNX), which was an English company. All of the transferor companies were wholly owned subsidiaries of MDNX.
Immediately after Merger 1 completed, it was intended that the second merger of six companies would complete (Merger 2). MDNX, the transferee under Merger 1, was involved as transferor under Merger 2. MDNX would merge into its direct sister subsidiary, Interoute Networks Ltd (Interoute Networks). Interoute Networks was also an English company and was the transferee and sole surviving entity under Merger 2. There were four other transferor companies involved in Merger 2: three were English and one was Dutch. They were all direct sister subsidiaries of Interoute Networks.
The reason two mergers were being contemplated, rather than a single merger, was that if there was a single cross-border merger, the Dutch regulations would otherwise require an expensive and time-consuming audited report because the Merger 1 companies were not direct sister companies of Interoute Networks, even though they were wholly owned within the same group. Under each merger, all of the assets and liabilities of each transferred company would be transferred to the transferee MDNX or Interoute Networks. Each of the transferor companies would be dissolved without going into liquidation as required under the Cross-Border Mergers Regulations, SI 2007/2974, reg 2(2)(e). The purpose of the two mergers was to reduce the number of subsidiaries within the group in an economical and efficient manner.
The Companies Court decided that: (i) the formal requirements under reg 16(1) had been met; and (ii) the court did have discretion to approve the merger. In considering whether it had discretion to approve the merger, the court applied the test set out in Re Diamond Resorts (Europe) Ltd  EWHC 3576 (Ch), namely whether the court was satisfied that the proposed merger did not adversely affect any stakeholder in any of the merging companies (whether shareholder, employee or creditor) in any material way, and, further, that there was no other good reason why approval of the proposed merger should be refused. Applying that test, in the case of the two mergers, the potential for objection to the mergers was very difficult to see. Those were essentially intra-group mergers intended to render more efficient the corporate structure of the group. There was absolutely no prejudice to anyone in the mergers going ahead. Accordingly, the Diamond Resorts test had been satisfied.
For further information, see Re Interoute Networks Ltd  EWHC 1030 (Ch).
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Lexis®PSL has released a complete redesign of the Brexit toolkit, which includes a refreshed homepage, revised Practice Area sections and a link to our new SI summaries page.
Our Brexit toolkit provides easy access to a wide range of Brexit content, making it quicker and easier for you to find the information you need.
The Brexit toolkit can be accessed here or from your Practice Area home page.
To track key legislative and regulatory developments, see our Trackers:
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New Q&As added this week:
How can a partner be removed from a general partnership?
Is an unquoted holding company required to disclose its corporate governance arrangements if it has no customers or suppliers?
To view analysis of the latest deals in the market and the underlying transaction documents, use our Market Tracker deal analysis tool.
To read about the latest corporate announcements, see our Market Tracker round-up—26 April 2019.
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