According to the Competition Act, any “merger” that is of a value above certain monetary
thresholds, may not be implemented unless it has been approved by the Competition
Commission or Tribunal (collectively generally referred to as the “Competition Authorities”). A
“merger” is any transaction in which a “firm” (a catch-all phrase including any entity capable of
carrying on a business) establishes control over the business of another firm. The parties to a
merger are required to notify the Commission of their intention to implement the merger, to
enable the Commission to investigate the effect the merger will have on competition in the
market in which the parties are active.
The Act provides that “control” can be established (and therefore a merger accomplished) in
several ways, namely that the acquiring firm –
becomes the beneficial owner of more than half the issued share capital of the target firm;
becomes entitled to vote a majority of the votes at a general meeting of the target firm, or controls the voting of a majority of those votes, either directly or through a controlled entity;
becomes able to appoint or to veto the appointment of a majority of the directors of the target firm;
is a holding company, and the target firm is a subsidiary of that company as defined in the Companies Act;
in the case of a trust, becomes able to control the majority of the votes of the trustees, to appoint the majority of the trustees or to appoint or change the majority of the beneficiaries;
in the case of a close corporation, owns the majority of members’ interest or controls directly or has the right to control the majority of members’ votes in the close corporation; or
becomes able to materially influence the policy of the target firm in a comparable manner to a person who, in ordinary commercial practice, can exercise an element of control referred to in the preceding points.
Internal restructurings within a group of companies often involve a transaction that, strictly
speaking, results in one or more of the effects listed above and, on the face of it, requires the
Competition Authorities’ consent. This, despite the fact that the transaction has no impact on
competition in a market or on any party outside the group of companies to which the acquiring
and target firms belong.
Responding to this, the Competition Commission has issued guidelines on when the parties to
an internal restructuring will be required. In the guidelines, the Commission states that,
generally, it “will not require notification of a transaction that is ‘purely internal’ and has no
implications on the control rights of other shareholders who are not part of the group of firms but
may have an interest in one or more of the group of firms”. Where the parties are part of the
same group, the ultimate controlling company may not change, but “a merger notification may
still be required if a transaction results in a change in the control rights of minority shareholders
who have an interest in one or more firms with a group …”. This will usually be when the minority shareholder holds negative control rights (i.e. veto rights relating to strategic matters of the target firm, such as budgets, business plans, appointments and removal of managers and
directors). If there are no minority shareholders with negative control rights, the Commission will
view the transaction as purely internal, and notification will not be necessary.
According to the guidelines, the Commission will adopt the following approach when assessing
whether a transaction is an internal restructuring, whether it affects the negative control rights of
minority shareholders and whether notification is required –
Does the restructuring amount to a “merger” as defined by the Act?
Would the restructuring result in a loss or gain of any form of negative control by a shareholder that is not part of the group?
Is a there an external shareholder who has negative control/veto rights, whose control will be changed by the transaction?
If the restructure will not change the control rights of external minority shareholders, notification
will not be necessary. On the other hand, if the external minority control rights are affected
notification will likely be necessary.
In issuing the guidelines, the Commission stressed that, while parties should take them into
account for guidance, each transaction will be assessed on its particular facts and on a case-by-
case basis. Parties should therefore consider and seek advice on the competition law
implications of each transaction, even where it is a purely internal restructuring and the ultimate
holding company will not change.
