On 10 April 2015, the Competition Commission published a practitioner update relating to the application of the merger provisions of the Competition Act, No 89 of 1998 (Act) to risk mitigation transactions (Update).
Though the Update is non-binding on the Commission and other competition authorities, it gives insight and clarity into the Commission's likely approach on policy issues.
The Update provides that state-owned finance institutions authorised to provide finance in the ordinary course of business may now qualify for exemption from merger notification requirements. Previously only registered banks qualified for exemption.
The Commission recognises that banks (and now also state-owned finance institutions) play an important role in the economy and that they may make use of risk mitigation techniques which are aimed principally at protecting their interests in the event of default (by implication they are not aimed at the acquisition of control over a business for the long term).
The Commission's Update states that it does not wish to burden itself or the parties involved in bona fide risk mitigation transactions and by way of the Update expands the exemption of specific forms of these transactions from the Act's merger provisions. In recognising that these transactions are intended to be temporary in nature, the Update provides that where a bank or state-owned finance institution fails to dispose of the assets or controlling interest, which would otherwise have given rise to a requirement to notify, within a period of 24 months, a merger notification will be required. As stated above - in addition to widening the exemption to include state-owned financial institutions - the Update also extended the leniency period for disposing the assets from the previous 12 months to 24 months.