UK: Brexit: The Birth (And Death) Of The "Reverse Cross-Border Merger"?

In the wake of the Brexit vote, companies (and their lawyers) have been dusting off a once overlooked piece of EU law to aid their Brexit restructuring plans.

Directive 2005/56/EC relating to cross border mergers of limited liability companies sets out the procedure by which a company incorporated in an EEA jurisdiction can be absorbed by another company within a different EEA jurisdiction.

In a recent High Court case involving a UK company and its Italian subsidiary, the court made an unprecedented ruling that a reverse cross border merger under such the directive was lawful. As a result of the ruling, the assets and liabilities of the UK parent company were merged into its Italian subsidiary and the shareholders of the UK parent became the shareholders of the Italian subsidiary. In essence, the subsidiary takes the place of the parent and the parent company ceases to exist – this is what makes it a "reverse" merger.

Of course, the ruling has piqued the interest of boards in companies headquartered in the UK but with group companies in the EEA as a way to base such companies within the EEA prior to Britain leaving the EU.

The ruling does increase the number of restructuring options open to companies looking to up-sticks and move to mainland Europe, however, it is unlikely that a reverse cross border merger of this type will end up being the preferred option for such companies. This is because the process in the UK involves a number of complexities – such as public advertisement in the London Gazette, at least one court hearing, a possible independent expert's report and the risk of creditors vetoing the transaction – which can push out the timeline and make it commercially unattractive.

It is also ironic that the state of affairs bringing this form of restructuring to life – Brexit – will also be the death of it, as the EU directive (and no doubt the UK's implementing legislation) will no longer be law once Britain leaves the EU.

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