by Ken Casey , Pauline Foster June-07-2019 in Corporate

In a potentially significant change in Irish competition law enforcement policy, two car dealers have been prosecuted for effecting a business merger without first obtaining Competition and Consumer Protection Commission (“CCPC”) approval.  Both were fined €2,000 following their guilty pleas in the District Court on 8 April and 10 May 2019.  These were the first criminal prosecutions of what is known as ‘gun-jumping’ in Ireland (putting a merger into effect before obtaining the approval needed to do so).  Observers suggest that this may herald an end to the CCPC’s former reluctance to have recourse to the criminal system to enforce these laws.

 

When is CCPC approval required for a business merger?

Where the businesses operating in Ireland involved in a proposed merger or acquisition meet particular turnover thresholds, it is mandatory under Irish competition law to notify it to the CCPC and obtain CCPC clearance in order to proceed with the transaction.  From January 2019, the financial thresholds triggering an involuntary CCPC notification have been revised upwards so that a merger or acquisition is notifiable if, in the most recent financial year of each undertaking involved, in Ireland: 

  • the combined turnover of all the undertakings involved is €60 million or more; and
  • the turnover of each of two or more of the undertakings involved is €10 million or more. 

 

What is gun-jumping?

Gun-jumping occurs where a party fails to notify and obtain clearance for a notifiable transaction under the Competition Act 2002, as amended (the “Act”) but implements the transaction.  This is a criminal offence under the Act and may be prosecuted with the imposition of a fine of up to €3,000 (on summary conviction) and €250,000 (on conviction on indictment, i.e. before a jury).  In addition, a maximum daily fine of €300 (on summary conviction) and €25,000 (on conviction on indictment) arises for each subsequent day of non-compliance.  Such a transaction will also be rendered void under the Act.

 

Armalou and Airfield Villas – The facts

The CCPC charged Armalou Holdings Limited (“Armalou”) and Airfield Villas Limited (“Airfield Villas”) after a comprehensive investigation into the car dealers’ suspected failure to notify them of Armalou’s acquisition in December 2015 of a rival car dealership from Airfield Villas.  The parties argued that as a result of the substantial reduction in the notification thresholds during the course of the deal, there was a misunderstanding between their professional advisors over the thresholds applicable to them.

Once the notification was eventually made in February 2018, the outcome of the CCPC’s investigation and analysis was to unconditionally approve the acquisition on the basis that it would not result in a substantial lessening of competition in any market for goods and services within the State.  Nevertheless, the parties’ initial failure to notify the transaction rendered them liable to criminal sanctions. 

Following guilty pleas in the District Court, Judge Anthony Halpin imposed the Probation Act 1907 on both Armalou and Airfield Villas in exchange for each agreeing to pay a €2,000 fine to charity.  The Probation Act permits a court to dismiss a charge or make a conditional discharge where mitigating circumstances are present.  The parties were also ordered to contribute €2,000 each to the DPP’s costs and witness expenses.  These figures represent amounts significantly below the maximum penalties that the CCPC have at their disposal for contraventions of the prohibition against gun-jumping.

The fact that both Armalou and Airfield Villas managed to avoid criminal convictions and escaped with light penalties may be attributed to the fact that:

  • the parties were unaware that they came within the qualifying turnover threshold for mandatory notifications to the CCPC and therefore did not commit a wilful breach of the applicable law;
  • they both pleaded guilty to six counts under section 18 of the Act which arose from their omission to make the notification rather than denying the charges;
  • they fully cooperated with the CCPC investigation and promptly made the necessary notification once they became aware of their obligations under the Act; and
  • the transaction, once notified, was found not to create any distortion in this particular market nor to have any adverse impacts upon consumers.  

 

EU trends

These prosecutions reflect the developing trend in other European jurisdictions towards taking a firm stance with respect to gun-jumping.  

In recent years substantial fines have been imposed by the European Commission (the “Commission”) for omitting to obtain merger clearances.  For example, in April 2018 it fined Dutch multi-national cable and telecommunications company Altice €125 million for implementing its acquisition of PT Portugal prior to obtaining the Commission’s clearance.  Although it is not a criminal offence under EU law, the Commission has the power to level fines of up to 10% of a company’s turnover for gun-jumping.  Another notable instance was the imposition in 2016 by the French Competition Authority of an €80 million fine on Altice and SFR (with respect to two distinct transactions).

 

Key takeaways

The criminal prosecutions taken against Armalou and Airfield Villas by the CCPC show a greater stringency in their approach to gun-jumping, in line with the practice of the competition authorities in other EU and comparable jurisdictions.  It may also signal more proactive intervention by the CCPC – that the days when the CCPC was content with merging parties submitting a late notification are over.    

However, the leniency demonstrated by the nominal penalties indicates that discretion may be exercised in prosecuting omissions to notify qualifying transactions based on mitigating circumstances.  A contravention of the Act due to a mere oversight is not likely to attract the same penalties as an intentional breach of the law.  In the case of Armalou and Airfield Villas, the contrition displayed by their guilty pleas was also a mitigating factor for the Judge.

Nonetheless, parties proposing to enter into a merger or acquisition should undertake a thorough merger control analysis to determine whether their forthcoming transaction reaches the notification thresholds and, if so, ensure that they obtain regulatory approval before proceeding.  It is also essential that the purchaser’s due diligence satisfies them that any compulsory merger clearances in relation to prior acquisitions by the target company have been obtained. 

In this way, the parties will be able to avoid unnecessary criminal prosecution, penalties and damage to reputation and will lower the risk of their transaction being invalidated.

For further information, please contact Ken Casey kcasey@hayes-solicitors.ie or Pauline Foster pfoster@hayes-solicitors.ie at Hayes solicitors.

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