On 1 April 2014, changes to the UK competition regime introduced by the Enterprise and Regulatory Reform Act 2013 ("ERRA") came into force.
The purpose of the changes is to improve the effectiveness of the UK competition regime. These changes lead to increased regulatory risk for businesses in their merger and acquisition activities, largely due to the introduction of enhanced powers of investigation and earlier intervention in potentially anti-competitive deals.
Key changes include the merger of the Office of Fair Trading ("OFT") and the Competition Commission ("CC") into the new Competition and Markets Authority ("CMA") and the introduction of a new statutory timetable and the strengthening of the ability to adopt interim measures in merger control proceedings. The ERRA also introduced significant changes to the UK cartel offence.
The introduction of a single national competition authority brings the UK system into line with most other world-wide merger regimes. The newly merged authority has greater investigatory powers and an enhanced ability to prevent the integration of purchasers and target companies.
The CMA operates a divided, two-stage, merger review procedure. The CMA Board has responsibility for the first-phase investigations. A CMA Panel is responsible for second-phase investigations and acts independently of the Board. The Panel comprises a pool of appropriately qualified individuals from which a smaller group of at least three individuals is to be formed by the Chair to examine each merger.
Under the new merger procedures, the CMA has the power to intervene earlier and more often to stop certain behaviour through the adoption of interim measures. The CMA has, for example, the ability to order a purchaser to suspend integration of the target pending the outcome of its investigation of both completed and anticipated mergers. Previously, the OFT had the power to require parties to a completed merger to provide "hold separate" undertakings or impose orders to that effect to prevent further integration steps that might have prejudiced a reference to the CC. The CMA also has the power to require that integration be reversed and to impose penalties of up to 5% of aggregate global turnover for breach of its orders.
Another reform to the UK merger regime is the introduction of a single notification procedure with a statutory timetable which replaces the current alternative notification procedures (i.e., notification using a merger notice or an "informal" submission). The CMA now has 40 working days from the receipt of complete information to reach a decision on first phase investigations and 24 weeks to reach a decision after the opening of second phase investigations, with a further 8 weeks in exceptional circumstances.
There is also greater transparency surrounding the offer of undertakings to avoid a second phase investigation. The old system required parties to offer undertakings before they had been allowed access to the OFT's first phase decision. This is replaced by a process that applies after the parties have been given access to the first phase decision.
The reforms to the merger regime do not alter the turnover and share of supply thresholds that establish whether a deal qualifies for review. Furthermore, there are no changes to the test used to decide whether or not to block a deal, which continues to depend on whether the deal will result in a substantial lessening of competition on the relevant market.
As regards antitrust investigations, the CMA has new powers to compel a wide range of individuals to answer questions about suspected infringements which extends to any individual employed by the business at the time of the suspected infringement, as well as current employees. This supplements existing powers to search premises and to request the production of documents and explanations of such documents.
Regarding the changes which have been introduced to the cartel offence, the criminal prosecution of individuals is no longer dependent on proving dishonesty. This broader offence had caused concern among business groups and provoked much debate in the UK Parliament. Despite this, the UK Government maintained the reforms but introduced a range of exclusions and defences to counteract the widening of the offence. No offence will be committed if customers or bidders are given "relevant information" (including the names of the undertakings concerned, the nature of the agreement and the product or service concerned) before entering into any agreement or if such "relevant information" is published. New defences which have been introduced, include the ability to argue that there was no intention to conceal the nature of arrangements from consumers or the CMA. It will also be a defence that the nature of the arrangements was disclosed to legal advisers prior to implementation.
While the new legislation introduces important statutory changes to the regime, much of the detail on how the law will be applied in practice is left to the CMA's discretion. The CMA has recently published a number of guidance and explanatory documents setting out its intended approach to the new regime.
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