On 1 April 2014, major changes to the UK’s competition regime take effect. A new single competition authority – the Competition and Markets Authority (CMA) – has been created with a suite of enhanced powers across its toolkit of merger control, antitrust, criminal cartels, market investigations and consumer protection.
Below are the key changes which are likely to have the greatest immediate impact on business, and which you should be aware of.
A greater risk for purchasers signing unconditional deals
The UK merger regime remains ‘voluntary’, so there is no obligation to pre-notify for clearance before closing. That said, the CMA is now able to intervene and stop business integration at a very early stage, as well as order the unwinding of integration that has already taken place.
In limited cases, it can even prevent completion of anticipated deals, and restrict the exchange of commercially sensitive information in due diligence.
Parties should engage with the CMA early where such intervention is possible, and manage the impact on completion risk and timing in deal documentation.
More certainty over timing, but a higher upfront information burden
Where a deal is notified for clearance, parties are now required to use the CMA’s Merger Notice form and to engage in (potentially extensive) pre-notification discussions. Additional time (and internal business resource) for compiling information and engaging with the CMA on the draft filing will need to be built into deal planning.
Once the filing is accepted as complete, the CMA has 40 working days to reach its decision. This provides greater certainty for deal timing, but is likely to result in a more lengthy process overall.
A new process for agreeing phase 1 remedies
There are a number of improvements to the process for offering and agreeing undertakings with the CMA to avoid a second phase review, which should make the process more efficient.
However, in cases where the CMA requires the purchaser to find a ‘buyer upfront’ for any divestments, the process of identifying a buyer and signing conditional sale agreements will need to be done in a relatively short period. This will inevitably affect the dynamics of the on-sale negotiation.
Again, early discussions and contingency planning, if such an outcome appears likely, are highly recommended.
- Antitrust investigations: impact of enhanced powers on compliance and dawn raid policies
A significant new tool for the CMA is its ability to compel a wide class of individuals to answer questions about suspected corporate infringements. This power extends to individuals who are currently connected to the business under investigation (eg current employees), as well as to those who were previously connected.
The use of these interview powers is not limited to dawn raids – they can be used at any stage during an investigation.
Companies will need to consider the impact of such oral evidence on corporate defence strategies, as well as how to provide appropriate support for individuals concerned (see further below). Dawn raid procedures also need to reflect the fact that individuals may be served notice and interviewed immediately, possibly without company representatives being present.
3. Criminal cartels
The CMA’s focus in prosecuting individuals remains on ‘hardcore’ cartel behaviour (price fixing, market sharing, bid-rigging or limiting output). However, the CMA no longer needs proof that an individual acted dishonestly.
The CMA has also made clear that it will commit the necessary resources to prosecute the offence effectively, so more criminal investigations into individual behaviour should be expected.
The offence is subject to certain exclusions and defences, that may either exempt an individual from prosecution or make a successful prosecution less likely. These relate to ensuring the arrangements are sufficiently transparent (either through early publication or notification to customers), or the parties having sought appropriate legal advice.
Companies should assess how any individuals involved in otherwise legitimate, but high-risk, commercial arrangements could benefit from these exclusions and defences. This is likely to involve updating internal compliance and approval procedures, as well as identifying arrangements and individuals at risk and providing targeted compliance training.
- HR policies and procedures
New powers to question individuals, and the broader scope of the criminal offence, mean that companies should consider whether they need policies on how employees who may be questioned under civil powers, or be under suspicion of committing an offence, should be treated and whether any specific guidance for such employees should be prepared in advance.
Legal representation for individuals
The CMA has made it clear that lawyers (whether in house or external) acting solely for the company under investigation do not have an automatic right to be present in interviews conducted as part of civil investigations. However, individuals are likely to request that a lawyer be present, so companies need to review their policies on when they would pay for separate legal advice, and who should provide it. Early planning is essential as the CMA will only wait a ‘reasonable time’ for the individual’s lawyer to arrive.
Although the CMA must give notice to the company when questioning current employees, it is not required to do so when questioning former employees. Companies should therefore consider the appropriate scope and enforceability of any contractual obligations which may require employees to alert the company if they are contacted by regulators after employment ends.
Duties to co-operate
Heavy sanctions can be imposed on parties obstructing investigations, or failing to comply with demands. A company’s defence case, or leniency application, may also suffer if certain individuals are not co-operating. The full implications of any HR policies and contracts which may apply in these cases must be carefully assessed – under both employment and competition laws – in each case.
- Implications for internal resourcing
The CMA has enhanced powers to impose fines for failure to comply with information requests across all areas of its work. This applies both where the recipient is a ‘main party’ such as the acquirer in a merger context, and where they are a third party (for example a competitor to the merging parties).
Companies should therefore review internal processes to ensure that any requests are promptly dealt with and escalated appropriately. In this way, problems in providing the information requested and/or complying with the CMA’s timescales will be identified early and can be raised with the CMA.
Market investigations by the CMA will now be conducted in a significantly shorter timescale (18 months rather than 24) so this time pressure is likely to be reflected in shorter timescales for parties to provide information. Again, this will place a greater burden on internal resources.