On 11 February 2019, the Competition Appeal Tribunal (“CAT”) dismissed an appeal brought by Electro Rent against a £100,000 penalty imposed by the Competition and Markets Authority (“CMA”) on 11 June 2018 for the company’s failure to comply with an order requiring it to keep its operations separate from those of its target (“hold separate order”) in the context of a merger investigation.

This fine was the first ever imposed by the CMA for failure to abide by the terms of a hold separate order and was followed later in 2018 by another penalty imposed on European Metal Recycling and its parent company Ausurus Group for similar breaches (£300,000). The day after the CAT’s judgment, on 12 February 2019, Electro Rent was also hit by another fine from the CMA for having breached the hold separate order a second time (£200,000).

The CMA’s hard-line stance is part of a broader trend among competition authorities globally to more aggressively enforce breaches of procedural rules.


The CMA imposes a hold separate order as a matter of course in all completed deals (in the UK, parties can complete their deals without CMA clearance). The CMA’s hold separate order imposes obligations on parties to continue to operate the acquirer and target on an independent “business as usual” basis and includes strict obligations to ensure compliance and notify the CMA promptly of any breaches or suspected breaches of that order.

The CMA investigated the completed merger between Electro Rent and Microlease and referred it for an in-depth Phase II investigation. Hold separate obligations were in place throughout the CMA’s review, which in particular provided that none of the assets of Electro Rent and Microlease could be disposed of, without the prior consent of the CMA, except in the “ordinary course of business”.

During the CMA’s Phase II investigation, Electro Rent served a break notice terminating the lease of its sole premises in the UK. This was despite the fact that Electro Rent had already attended a meeting with the CMA during which it was made clear that the proposed divestment package (to address the CMA’s concerns about the impact of the merger on competition) was intended to include the transfer of Electro Rent’s lease. Electro Rent did not seek the CMA’s permission to terminate the lease in advance, but had contacted the Monitoring Trustee (“MT”) appointed to clarify compliance with the CMA’s hold separate order, who via a “quick chat” had given a favourable steer. Neither Electro Rent nor the MT informed the CMA or (it appears) Electro Rent’s antitrust advisers.

The CMA’s decision

The CMA concluded that Electro Rent’s early termination of its lease amounted to the disposal of an asset, potentially impeded the company’s ability to compete independently and risked prejudicing the effectiveness of the remedy. From the CMA’s perspective, the fact that the lease was the subject of a potential remedy ought to have given rise to a suspicion that the hold separate order might have been breached, and that both the CMA and the MT should have been notified.

The CMA rejected the various grounds put forward by Electro Rent as reasonable excuses for its failure to comply. In particular:

  • Electro Rent argued that it had, on more than one occasion, raised its intention to terminate the lease with the MT, and received oral confirmation that it could proceed. Whilst accepting that the MT should have raised the issue with the CMA, the CMA countered that it had never told Electro Rent that its obligations under the order were affected by such discussions with the MT, and the MT had no delegated authority to give consent on behalf of the CMA to any action not in compliance with the order.
  • The CMA considered that raising the proposed termination of the lease with the MT implied that the company had formed the view that this was a matter which might have roused the CMA’s concern. The CMA pointed to the fact that Electro Rent had sought formal derogation consent directly from the CMA before engaging in other activities which were potentially in breach of the hold separate order as evidence that the company understood the requirement to seek prior consent.

In assessing the appropriate level of the penalty, the CMA took the view that Electro Rent’s conduct had a potentially adverse effect on the merger investigation, including that the company had to enter into a new lease which was not on equivalent terms. The CMA said in its decision that Electro Rent’s failure to comply had been a “significant” and “flagrant” breach, and merited a “material” penalty to ensure appropriate deterrence, concluding that a fine of £100,000 was appropriate in the circumstances. The CMA noted that this was “substantially below the statutory maximum of 5% of the parties’ combined global turnover” (£11.7 million).

While not excusing the conduct, the CMA concluded that the fact that Electro Rent had discussed its plans regarding the lease with the MT (and received a favourable steer) was reflected in the level of the penalty, which would otherwise have been “very significantly higher”.

The appeal to the CAT

Electro Rent brought an appeal to the CAT claiming that the CMA: (i) was wrong in finding that Electro Rent did not have a reasonable excuse for any breach; and (ii) had imposed an excessive penalty.

The CAT did not consider that Electro Rent had a reasonable excuse in the circumstances, on the basis that:

  • A reasonable person would not have considered that issuing a break notice in relation to the business’ only UK premises could fall within the ordinary course of the business against the backdrop of a merger inquiry, in particular where such premises formed part of the divestment package. Electro Rent therefore ought to have suspected that the termination of the lease would constitute a breach of the hold separate order.
  • The alleged commercial reasons put forward by Electro Rent for terminating the lease were irrelevant. The CAT stated that the “whole point” of the hold separate order is to seek CMA consent before making significant changes to the business, and held that it was not for Electro Rent to unilaterally decide whether terminating the lease would make the divestment more attractive to potential purchasers.
  • Following the procedures set out in the hold separate order by notifying the MT was not sufficient to constitute a reasonable excuse. Contacting the MT was not a substitute for seeking direct consent from the CMA or, at least, obtaining legal advice as to whether the CMA’s consent was required. Although not determinative for the outcome, the CAT further noted that the MT had not been properly briefed during its “quick chat” with Electro Rent’s CEO.

As to the amount of the penalty, the CAT emphasised that it is a matter of public importance that the merger control process is strictly observed, and therefore considered it appropriate for the CMA to have set the penalty at a deterrent level by impressing - both upon Electro Rent and other businesses more widely - the importance of complying with hold separate obligations and the seriousness of a failure to comply without a reasonable excuse.

To add insult to injury, the day after the CAT upheld the CMA’s decision, Electro Rent was fined an additional £200,000 by the CMA for having appointed Electro Rent’s CFO as director of Microlease UK without CMA consent. The CMA considered the appointment raised a material risk of potential integration / exchange of confidential information, without finding that it resulted in any actual adverse effect on competition.


Although the CMA’s strict approach should be read in light of the specific factual circumstances of the breach of the hold separate order (including the lease being part of the CMA remedy package), this case highlights the CMA’s increasingly strict approach to breaches of the procedural rules governing its review of mergers, and the importance of taking an extremely cautious approach to ensuring compliance with the very onerous conditions imposed on parties in completed UK mergers. Furthermore, it clarifies that the threshold for demonstrating a reasonable excuse for a breach of a hold separate order is high. Promptly seeking legal advice on these issues is key to not falling foul of the rules, as even apparently unintended breaches can lead to severe penalties.

As mentioned above, whilst these fines are some of the first ever imposed by the CMA for breach of a hold separate obligation, they follow the recent fine imposed by the CMA on Hungryhouse (£20,000) for failing to comply with an order to provide documents in relation to its takeover by Just Eat.

This forms part of a broader trend among competition authorities globally, and at EU level, the fines are even more significant – in April 2018, the European Commission imposed a record €124.5 million gun-jumping fine on Dutch cable and telco company Altice for implementing its acquisition of PT Portugal before merger control notification and approval (see here). Further developments in this area are expected very soon - we will keep you updated as to their implications for your business.