In Re Portman Insurance plc, the High Court had to decide, in the context of a merger to form an SE, whether certification conclusively attesting to the completion of pre-merger acts and formalities under Article 25(2) of the SE Regulation should be refused where one company was a non-trading dormant company.

The claim concerned a proposed merger by absorption between PI plc and P SA, its wholly owned subsidiary incorporated in France, and the simultaneous formation of an SE. It was intended that the SE would relocate to France and merge with its parent, C SA. They were all members of a large insurance group and the steps were part of the rationalisation of its European operations. P SA was a non-trading, dormant company.

The court held that the merger could not be considered a device in the sense defined and identified by the court in Re Easynet Global Services Limited [2016] EWHC 2681, in which the court had held that the inclusion of a dormant company which had never traded and held no appreciable assets into a proposed cross-border merger of 22 companies was a device to bring the merger within the scope of the Cross-Border Mergers Regulations, and that the proposed transaction was not the kind which those Regulations and the Cross-Border Mergers Directive were enacted to facilitate.

While the instant decision was concerned with a different and distinct regulation, the court considered it would be bound to follow the approach of the court in Easynet if such a device were relied on and that it would be contrary to the purpose of the SE Regulation. However, this was not a case where the dormant company would have nothing to do with the merger except to enable the companies who wish to merge to be able to do so using the SE Regulation. The whole point of the transaction was that both companies wanted to merge in order to form an SE and this was being done as part of a reorganisation of the European structure. The use of P SA was not a ruse to achieve a merger of and designed for other companies. P SA and PI plc wished to merge together. That distinction provided the answer to the issue, provided the SE Regulation did not prohibit a merger when one company was a shell company.

The argument for prohibition had to rely upon a purposive construction of the SE Regulation because there was no express provision within the articles requiring the companies forming the SE to have traded or to be trading.

The recitals envisaged the SE Regulation being applied to achieve more open trade between member states. The new framework offered by an SE was intended to be consistent with the removal of economic trade barriers. It would create companies with a European dimension formed and carrying on business under Community law which could operate alongside those governed by a particular national law. At no stage did the recitals refer to a trading requirement. The absence of any such express requirement was therefore entirely consistent with the articles. It could not be concluded from the recitals that the companies concerned must be actively trading before an SE could be formed in accordance with Article 2. It was also notable that when the articles introduced restrictions to the circumstances of merger, there was no additional reference to active trading.

It followed that active trading was not a requirement of the SE Regulation. There was no such express provision and a purposive construction did not produce that result. Certification should not be refused because P SA was a non-trading, dormant company and in effect a shell.

For further information on European Companies under the European Company Statute, see Practice note, European Companies (Societas Europaea), and for Re Easynet Global Services Limited, see Legal update, Cross-border mergers: whether transaction within jurisdiction of the court (High Court).

Case: Re Portman Insurance plc [2016] EWHC 2994 (Ch) (23 November 2016), Registrar Jones, (Bailli).