On July 15, 2016, the Securities and Exchange Commission acquiesced to the issuance of unregistered securities in a cross-border merger between European Union jurisdictions. In response to a request by Troutman Sanders, the SEC issued a no-action letter confirming that it would not recommend enforcement action if the successor corporation in a redomestication merger issues unregistered securities to the public shareholders of the former public company. The proposed issuance of securities by the successor corporation will rely upon the exemption from registration provided under section 3(a)(10) of the Securities Act of 1933. This exemption requires that a court or governmental agency make a determination that the transaction is fair to the persons who will receive the unregistered securities.
The transaction covered by the SEC no-action letter was governed by EU Directive 56, which applies to cross-border mergers among states within the European Economic Area (EEA). Directive 56 was promulgated in 2005 by the European Parliament, and since then all member states have passed legislation enabling Directive 56 to be implemented locally. Under the Directive, a court designated by the member state in which the surviving entity is formed is solely empowered to make the key determinations as to the merger, including final approval and setting the date of its consummation.
In conformity with Directive 56, the court that will make the fairness determination is not established within the jurisdiction of the merging company. This allocation of judicial authority makes Directive 56 transactions distinctive. In other words, if a French corporation merges into an Irish corporation (i.e., the Irish corporation survives the merger and issues its securities to the former shareholders of the French corporation), it would be expected that, as between France and Ireland, the courts of France would have the stronger interest in ensuring that the transaction is fair to the shareholders of the French corporation. Yet, under Directive 56, the Irish High Court is empowered to give final approval to such a merger, and in that connection the Irish High Court will make a determination as to the fairness of the merger to the shareholders of the French corporation. This is a novel aspect of the SEC's July 15 no-action position: In prior section 3(a)(10) no-action requests the court jurisdiction and the merging company jurisdiction were the same. The SEC's no-action position validates EEA cross-border redomestication mergers under Directive 56 as appropriate contexts for the section 3(a)(10) exemption.
The SEC's no-action letter and our request letter and related materials may be viewed here.
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