Navigating Internal Restructuring: A Guide to SA's Competition Guidelines

The Competition Commission of South Africa has published new "Guidelines on Internal Restructuring" to clarify its policy on transactions within a group of companies. This is a crucial document for any firm or transaction professional to understand, as it defines when a seemingly internal transaction could be considered a notifiable merger.

Internal Restructuring Transactions may be notifiable to the Competition Commission

What's the Big Idea?

Typically, when a company restructures internally—for example, by moving assets or divisions between subsidiaries—it might seem like a non-event from a competition standpoint. However, the Competition Act has a broad definition of what constitutes a merger. A Competition Appeal Court ruling has confirmed that even if the "ultimate control" of the group doesn't change, these intra-group transactions could still fall under the Act's provisions.

Key Takeaways from the Guidelines

• Non-Notifiable by Default: In most cases, a "purely internal" restructuring doesn't require notification to the Commission. This applies when the transaction has no impact on the control rights of external minority shareholders.

• When to Notify: The guidelines identify specific, limited circumstances where notification is mandatory. This is required if the restructuring leads to:

  • A “change of control” as defined by Section 12(2) of the Competition Act.

  • An effect on the “negative control rights” of any external shareholders.

The guidelines acknowledge that while some jurisdictions, like the European Commission, typically view such internal transactions as non-notifiable, the South African Competition Appeal Court has taken a broader view. The court has affirmed that a merger can occur even if the ultimate control of the group remains unchanged.

A Practical Resource

Although these guidelines are not legally binding, they are an essential tool for interpreting Section 12 of the Act. Any person or firm applying this section is required to take the guidelines into account.

In short, the document serves as a vital resource for navigating the gray area of corporate restructuring. It helps companies avoid unnecessary notifications while ensuring compliance in specific, complex situations.

You can download a copy of the guideline here.

In conclusion

Merger analysis is highly fact-dependent, the Guideline aims to provide specific guidance on when an internal restructuring constitutes a notifiable merger and when it does not.