15 August, 2018
What you need to know
Amendments to the Independent Consumer and Competition Act 2002 of Papua New Guinea on 25 July 2018 introduced a mandatory notification regime for clearance of proposed acquisitions of shares or assets in PNG.
Notice must be given to the ICCC for a proposed transaction (prior to completion) if it has a value that exceeds PGK 50 million or is likely to or would likely result in a market share increase of 50% or more of the acquirer.
The ICCC will have the power to impose a substantial fine of PGK 750,000 for non-compliance with the mandatory pre-merger notification process.
What you need to do
Parties contemplating transactions involving markets in PNG should consider the applicability of the new mandatory notification regime, and the impact notifying a transaction may have on contemplated transaction documents and timetables.
Amendments to the Independent Consumer and Competition Act 2002 of Papua New Guinea
The Independent Consumer and Competition Commission Act 2002 (ICCC Act) of Papua New Guinea (PNG) was amended by the National Parliament on 25 July 2018 to introduce a mandatory notification regime for clearance of proposed acquisitions of shares or assets in PNG. The amendments to the ICCC Act will take effect in accordance with a notice published in the National Gazette on advice from the Minister of Treasury. This has not yet occurred and there is no date fixed for commencement, but it is anticipated to occur within the coming months.
The ICCC Act prohibits acquisitions of assets of a business, or shares, that would have, or be likely to have, the effect of substantially lessening competition in a market in PNG. Currently, notification of a proposed transaction to the Independent Competition and Consumer Commission (ICCC) is voluntary.
That is, it depends on an acquirer's self-assessment of the perceived risk of contravening the prohibition on anti-competitive acquisitions and the risk that the ICCC may challenge a transaction that has already been completed.
The ICCC has recently observed a concerning and growing trend of acquisitions that have been completed without seeking clearance or authorisation from the ICCC. It has expressed the view that businesses are exploiting the voluntary notification process and this has compromised its ability to effectively monitor, regulate and enforce the ICCC Act.
The amendments seek to address this issue by abolishing the voluntary pre-merger notification process and introducing a mandatory pre-merger notification process, requiring a person to give notice of a proposed transaction to the ICCC, prior to completion, if the proposed transaction:
- has a value that exceeds PGK 50 million; or
- is likely to or would likely result in a market share increase of 50% or more of the acquirer.
The rationale for the above thresholds is that transactions with high values will likely involve corporations with larger market shares and notification of acquisitions involving high increases in market share will put the ICCC in a position to consider any abuse of market power post-transaction. While there is some attraction in the simplicity of the thresholds, there are also some potentially unorthodox results from their application. For example:
- a substantial transaction of, say, PGK 49.5 million which results in a very material aggregation of market share (say, an acquirer with a 50% market share acquires its closest competitor that has a 35% market share), would not be notifiable under the new mandatory regime; but
- a transaction of similar size but below the PGK value threshold, would be notifiable where an acquirer with no current business in the market (ie, 0% market share) buys a party with greater than 50% market share – because this presumably results in a "market share increase of 50% or more" – even though this is simply a replacement of one owner with another and there is no concentration of market share.
It also appears that there are other, presumably unintended, consequences of the amendments including:
- removal of the statutory mechanism by which a party can seek clearance for a proposed transaction that falls below the mandatory notification thresholds, but that could nevertheless potentially contravene the prohibition on anti-competitive acquisitions. Transactions of this kind will apparently no longer be capable of being cleared under the ICCC Act; and
- removing the statutory mechanism by which a party can voluntarily seek authorisation of a proposed transaction – that appears now to be a process that follows only from a direction by the ICCC.
It therefore remains to be seen how the thresholds will be applied in practice.
The ICCC will also have the power to impose a substantial fine of PGK 750,000 for non-compliance with the mandatory pre-merger notification process.
Pending commencement of the amendments, parties contemplating transactions involving markets in PNG should consider the applicability of the new mandatory notification regime, and the impact notifying a transaction may have on contemplated transaction documents and timetables. We will keep you updated when the amendments to the ICCC Act commence.
For further information, please contact:
Richard Flynn, Partner, Ashurst
richard.flynn@ashurst.com
