Improvements to the Competition Act...Mergers: Notifiable Transactions

March 18, 1999

Background

The notifiable transactions provisions of the Competition Act require parties to certain proposed transactions, which exceed two thresholds (in terms of the size of the parties and the size of the proposed transaction) to notify the Competition Bureau (the Commissioner) and provide specified information, before the transaction is completed.

This process, commonly referred to as "merger prenotification", is intended to allow the Bureau to assess the competitive impact of these transactions and take appropriate action if the transactions are likely to prevent or reduce competition substantially.

Parties to a proposed transaction have the option of applying for an advance ruling certificate instead of filing a notice to the Commissioner. This process, appropriate in cases where the transaction is unlikely to raise concerns as to its effect on competition, expedites the examination process, if all the relevant information is supplied .

The Act also provides that the Commissioner may apply to the Competition Tribunal for an interim order to delay the completion or the implementation of a proposed merger.

Key points

The amendments address a number of concerns with the former provisions of the Competition Act respecting notifiable transactions and interim orders, and will improve the efficiency and adaptability of the prenotification process.

Under the former provisions, it was not clear how certain categories of transaction were to be treated or which parties to a transaction were obliged to notify.

To conduct a full review of the transaction, the Bureau must receive information from all parties to the proposed transaction. Under the former legislation, only the persons proposing the transaction were required to give notice and provide information. The new provisions clarify that all parties to the proposed transaction (both the acquirer and acquiree) must notify the Bureau and supply information. The provisions further specify the applicable thresholds for an acquisition of an interest in a combination.

Information required in the short and long form was not always sufficient or relevant.

The requirements concerning the information to be supplied to the Bureau are taken out of the Competition Act and moved into the Notifiable Transaction Regulations. This will make it easier to amend the requirements as required to keep up with changes in the marketplace. The revised requirements will ensure the Bureau is provided with information needed to assess the effect a proposed transaction may have on competition.

Waiting periods were often too short to allow the Bureau to conduct a full examination of a transaction within the allotted time.

The applicable waiting periods have been doubled. A transaction subject to notification may not be completed:

• for fourteen days, where information has been filed in ?short form' and the Bureau does not, within that time, require "long form" information;
  
  
• for forty-two days, where the "long form" information is supplied.

However, if at any time within the waiting period, the Bureau finds that it does not intend to contest the transaction before the Competition Tribunal, it may notify the parties and waive the remainder of the waiting period.

Under the former provisions, when an interim order was issued, the Bureau had to contest the merger before the Tribunal expeditiously. If the Bureau's inquiry had not reached the point where it could meet this condition, there was no mechanism for delaying a proposed merger that raised serious concerns.

The conditions the Bureau must meet to obtain an interim order are slightly less stringent. Under the new provisions, the Tribunal must find that in the absence of an order, it would be difficult to reverse the effect on competition. The Bureau need only certify that:

• an inquiry has been initiated, and
  
  
• more time is required to complete the inquiry.
  
  
• Under the former provisions, the maximum fine for failure to notify was $5,000 with a possibility of up to two years in prison. The fine was too low to provide a strong incentive to comply, and imprisonment was inappropriate for this type of offence.

Failure to notify is no longer punishable by imprisonment, but the fine has been raised to a maximum of $50,000.

Certain requirements caused duplication and imposed an administrative burden of limited use on businesses.

Under the new provisions:

• when businesses have already submitted the required information in the context of a previous transaction, they will not have to submit it again; and
  
  
• when a request for an advance ruling certificate has been denied, the Bureau may exempt parties from the obligation to notify and wait the required period.

Impact of the amendments

Both consumers and businesses stand to benefit from the amendments because they provide better mechanisms to protect against mergers that might be detrimental to competition.

By making the merger review process more flexible and efficient, the Bureau will be able to use its resources more effectively and channel them to where they are most needed.

The administrative burden on business will be reduced through:

• greater flexibility in the law to waive prenotification requirements and,
  
  
• a new exemption proposed in the Notifiable Transactions Regulations which reduces by about 15% the number of transactions subject to notification.

Notifiable Transactions Regulations

The amendments to the Competition Act necessitate revision of the Notifiable Transactions Regulations. It is also an opportunity to address omissions. The proposed changes to the Regulations can be summarized as follows:

1. The short and long form information, which are expected to be transferred to the Regulations instead of the Act, has been updated to include basic information needed to assess the impact of a proposed transaction on competition. The information required is more relevant and this will, in turn, make the process more predictable and will expedite the rendering of a decision.
   
   
2. New provisions exempt from the application of Part IX of the Act asset securitization transactions, a category of transaction that often meets the thresholds for notification, but does not generally raise any competition issues.
   
   
3. New provisions specify the basis for converting assets and revenues reported in foreign currency into Canadian dollars.
   
   
4. A reference to subsection 110(6) of the Act will be added to sections 10 and 11 of the Regulations to take into account the new provision of the Bill relating to the acquisition of an interest in a combination.

The proposed amendments to the Regulations have been subject of extensive preliminary consultation. Stakeholders will soon have another opportunity to comment on the proposed regulations when they are published in Part I of the Canada Gazette.

The new notifiable transactions provisions of the Act will come into force at a later date, at the same time as the amendments to the Regulations.

For more information

Please call the Bureau's Information Centre at: 1-800-348-5338 or 819-997-4282.