Share with your friends

Are UK to UK mergers now possible?

Are UK to UK mergers now possible?

A recent decision could have implications for UK groups wishing to rationalise their structures in an efficient and cost-effective manner.


Also on

The Court of Appeal, in a January 2018 judgment, has clarified the extent of the UK Court’s discretion to approve cross-border mergers making it possible for multiple UK companies to merge with just one dormant EEA entity. This decision paves the way for groups within the EEA to be rationalised in an efficient and cost-effective manner. There are no indications that the cross-border merger regime will be available to UK companies post-Brexit. Given the recent announcement of a transitional period (until 31 December 2020) companies may have additional time to utilise the cross-border merger regime to restructure their group entities within the EEA.

In 2016, Easynet Global Services Ltd applied to the High Court to undertake a cross-border merger pursuant to the Companies (Cross-Border Mergers) Regulations 2007 (the Regulations) which implement the Directive on Cross-Border Mergers of Limited Liability Companies (the Directive).

Easynet’s merger application involved 22 UK companies and one Dutch company merging into a UK parent. The Dutch entity was dormant, had never traded and had no appreciable assets (only inter-group receivables of €17,000).

In reaching a decision, the High Court concluded that the proposed terms of the merger literally satisfied all the express criteria in the Regulations but held that the introduction of the Dutch company was a ‘device’ to bring the reorganisation within the remit of the Regulations and was not the kind of transaction which the Regulations or the Directive were enacted to facilitate. Whilst the transaction could be said to be a (domestic) merger, it was not, in reality, a cross-border merger and that using the cross-border merger regime would be an abuse of rights purely to allow the applicant to take advantage of preferable tax consequences.

The High Court rejected the application and an appeal was commenced. Interestingly, the High Court asked the Secretary of State for Business, Energy and Industrial Strategy (as the Minister responsible for the Regulations and for ensuring that the Directive is properly implemented in domestic law) to appear and make representations on the case as an interested party. The Secretary of State appeared by counsel and made submissions in support of the appeal.

In allowing the appeal, the Court of Appeal concluded that:

  • To deny the merger would amount to a restriction on the EU objective of freedom of establishment which the regime was introduced to facilitate. It was not the Court’s role to imply additional restrictions on merging companies that they must have particular capital or trading levels (thereby rendering irrelevant the fact that the Dutch company was dormant);
  • The provisions of the Directive should ‘be given a straightforward interpretation according to their natural meaning’ in order to comply with the principle of legal certainty. The Court was obliged to approve a merger that meets all of the criteria set out in the Regulations; and
  • To approve the merger would not offend the EU law principle of abuse of rights (which restricts the exercise of legal rights for the purpose for which they exist) on the basis that the object of the regime was to enable the facilitation of cross-border mergers ‘for whatever purpose’. The applicant was therefore entitled to use the regime to take advantage of more favourable legislation than that available domestically, thereby obtaining a tax advantage. The Court confirmed that ‘EU law, like English law, treats parties as free to arrange or structure their relationship so as to maximise its commercial attraction, including the incidence of taxation’.

If you have any questions on what this judgment could mean for you or your business, then please get in touch with your usual KPMG contact, or Richard Lewis and Lisa Rasmusson, solicitors from our Legal Services team.

For further information please contact:

Richard Lewis

Lisa Rasmusson

Connect with us


Want to do business with KPMG?


loading image Request for proposal