Pre-Merger Notification Interpretation Guideline Number 1: Definition of "Operating Business" (Section 108 of the Act)

Enforcement guidelines

June 20, 2011

Notice

This publication replaces the following Competition Bureau publication:

Enforcement Guidelines — Notifiable Transactions under Part IX of the Competition Act — Interpretation Guidelines, April 25, 2000

This Interpretation Guideline is issued by the Commissioner of Competition ("Commissioner"), who is responsible for the administration and enforcement of the Competition Act ("Act"). The purpose of this Guideline is to assist parties and their counsel in interpreting and applying the provisions of the Act relating to notifiable transactions. This Guideline sets out the general approach taken by the Competition Bureau ("Bureau") and supersedes all previous statements made by the Commissioner or other Bureau officials. This Guideline is not intended to be a binding statement of how discretion will be exercised in a particular situation and should not be taken as such, nor is it intended to substitute for the advice of legal counsel to the parties, or to restate the law. Guidance regarding a specific proposed transaction may be requested from the Merger Notification UnitFootnote 1.


Table of contents

Definition

Subsection 108(1) of the Act states:

108(1) "Operating business" means a business undertaking in Canada to which employees employed in connection with the undertaking ordinarily report for work.

Background

The definition of "operating business" is relevant to the determination of whether a proposed transaction is subject to notification because the transaction types in section 110 of the Act each make reference to an operating business.

Policy

"Business undertaking" is not defined in the Act. The term "business" is defined in section 2 of the Act. "Business undertaking" is broadly interpreted to capture all arrangements through which business may be carried on, including non‑profit or charitable undertakings.

Whether a business undertaking is "operating" depends on the nature of the undertaking under consideration in each case. A company that is engaged in the business of holding investments, whether passive or otherwise, may be an operating business if it satisfies the remainder of the definition of that term.

The term "in Canada" requires that there be present in Canada an office or business location of a business undertaking. A business undertaking which is partly or predominantly in another jurisdiction may be considered to satisfy the "business undertaking in Canada" requirement if it has some component or presence in Canada.

"Employees employed in connection with the undertaking" are not limited to those persons employed by the operating business itself, but may also include persons employed in connection with the operating business. Thus, employees of a third party with a contract for services in connection with a business undertaking would satisfy this requirement.

"Ordinarily report for work" does not require that an employee reporting be a full‑time employee. The frequency of an employee's reporting to work in connection with a particular undertaking and whether the reporting is ordinary may depend on the nature of the undertaking. For example, if a business undertaking consists of leasing property and an employee is only required to collect the rent once per month, that would satisfy the "ordinarily report for work" requirement.

Assets of an operating business

Assets of an operating business include all the assets of the operating business. Accordingly, dormant assets of an operating business, such as a closed (mothballed) plant of a corporation which owns several other operating plants, are considered assets of the "operating business".

Defunct businesses

A defunct business is not an "operating business" under section 108 of the Act. A business is considered defunct where the business has permanently closed. A business which has temporarily closed or suspended its operations is considered an "operating business". A business is not considered defunct by reason only that its assets have vested in a trustee in bankruptcy pursuant to the Bankruptcy and Insolvency Act, or that its assets have been placed in receivership. If a trustee or receiver is carrying on a business undertaking with a view to disposing of the business as a going concern or to reorganizing its affairs, the business undertaking may still be considered an "operating business";. Where the operating business cannot be either carried on or sold as a going concern, and the trustee or receiver takes steps to liquidate the assets on a piecemeal basis, the undertaking may no longer be an "operating business".

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