Coming Into Force of the Changes to the Notifiable Transactions Provisions

Backgrounder

December 17, 1999

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Changes in the Regulations improve merger review process

The changes to the Competition Act relating to the notifiable transactions provisions (Part IX) and the amendments to the Notifiable Transactions Regulations will come into force on December 27, 1999.

Burden on businesses is reduced through a new exemption for a category of transaction which does not raise competition issues, the asset securitization transaction. These transactions account for approximately 15% of the total number of transactions examined by the Competition Bureau annually.

Changes to the Act and the Regulations will improve and speed up the merger review process by making sure the Competition Bureau gets key information it needs to assess the effect proposed mergers will have on competition.

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 Commissioner of Competition and provide specified information before the transaction is completed.

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

The Notifiable Transactions Regulations, in force since 1987, specify how to calculate the aggregate value of assets and gross revenue from sales for the purpose of determining whether the thresholds are exceeded.

Key Points

Passage by Parliament of amendments to Part IX of the Competition Act contained in An Act to Amend the Competition Act and to make consequential and related amendments to other Acts, S.C. 1999, c. 2, have necessitated revision of the Notifiable Transactions Regulations. Other amendments to the Regulations respond to suggestions expressed by stakeholders. These changes can be summarized as follows:

• Revised information required for prenotification will ensure that the Bureau is provided with better information to assess the effect that a proposed transaction may have on competition.

The requirements concerning the information to be supplied to the Bureau have been removed from the Competition Act and placed in the Notifiable Transaction Regulations. This will make it easier in the future to amend the requirements in order to keep up with changes in the marketplace. The short and long form information has been updated to include basic information needed to assess the impact of a proposed transaction on competition. The information required is more relevant, which will make the process more predictable and will expedite the rendering of a decision. The long form information will be required only for the more complex or problematic transactions.

• A new exemption for asset securitization transactions contributes to the overall effort to reduce the regulatory burden on business.

This category of transaction often meets the thresholds for notification, but does not generally raise any competition concerns. Asset securitization transactions account for approximately 15% of the notifications received annually. The exemption is intended to cover acquisitions of financial assets, such as mortgages, trade or credit card receivables, automobile leases and consumer loans which, in most cases are acquired by a trust which, in turn, finances the acquisition by issuing securities to investors. Following consultation, the definition of asset securitization transactions has been broadened to accommodate the various structures used to carry out these transactions. The test for determining whether an asset securitization transactions is exempt from prenotification has been modified to provide greater certainty to stakeholders.

• New provisions specify the basis for converting assets and revenues reported in foreign currency into Canadian dollars.

The exchange rate to be used is the noon exchange rate quoted by the Bank of Canada, resulting in consistent and easily accessible information for all users. This clarification will assist in the calculation of the aggregate value of assets and gross revenue from sales.

• Changes have been made to reflect the amendments to the Competition Act passed earlier this year.

The Regulations have been modified to reflect the change of the name of the statutory decision-maker from the Director of Investigation and Research to the Commissioner of Competition.

A reference to subsection 110(6) of the Act has been added to account for the new provision in the Act for the acquisition of an interest in a combination.

Impact of the Amended Regulations

Both consumers and businesses will benefit from the amendments because they provide improved methods for detecting mergers which 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.

A significant number of transactions (approximately 15% of all transactions examined annually) will benefit from the new exemption for asset securitization transactions, resulting in reduced costs for the business community and better use of Bureau resources.

The revised lists of information will allow the Bureau to undertake more quickly and efficiently the review of proposed transactions. The long form will only be required for a small number of more complex or problematic transactions.

The prenotification process is made more transparent by clarifying the method of conversion into Canadian dollars of assets or revenues reported in foreign currency.

The New Notifiable Transactions Provisions Under The Act

• The new provisions clarify that all parties to a proposed transaction (both the acquirer and acquiree) must notify the Bureau and supply information. The provisions further set out the applicable thresholds for an acquisition of an interest in a combination.
  
  
• The Commissioner has the authority to exempt from prenotification a transaction where the parties have previously supplied adequate information when requesting an Advance Ruling Certificate ("ARC").
  
  
• Under subsection 114(3) the target of a share acquisition will be required to provide information within the time periods after receiving notice from the Commissioner.
  
  
• Subsection 116(2.1) allows parties to a proposed transaction to not supply information previously supplied, if they inform the Commissioner as to which specific information was provided and when.
  
  
• The applicable waiting periods for completing a transaction have been doubled. A transaction subject to notification may not be completed:
  
  
  • for 14 days, where information has been filed in 'short form' and the Bureau does not, within that time, require 'long form' information; and
  • for 42 days, where the 'long form' information is supplied.

Transitional Measures

• Where a prenotification filing has been made prior to December 27 (date of the coming into force of the new provisions), and the applicable waiting period has not expired by that date:
  
  
  • It is expected that the "old" provisions will continue to apply.
    
    
• Where an ARC has been requested prior to December 27 and is still under review when the new provisions come into force:
  
  
  • It is expected that the request will be treated under the "old" regime. If the request is denied, the transaction will likely be subject to notification under the "old" provisions, where applicable.
    
    
• Any other issues which may arise during the transitional period will be dealt with on a case-by-case basis. However, where the Bureau believes that it is absolutely necessary to prevent a problematic transaction from proceeding until its review has been completed, the Bureau reserves the right to apply the new provisions.

Amendments to the Regulations PDF; 481 KB; 11 Pages

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