Following the launch of the Government of Jersey’s consultation on proposed changes to the competition law, our experts explore what it means for supporting business innovation and growth, keeping prices down and looking after consumer interests.
CONSULTING ON CHANGES TO JERSEY’S COMPETITION LAW
The Government of Jersey launched a consultation on 21 February 2023 proposing changes to Jersey’s competition law. The changes are expressed to be with a view to supporting business innovation and growth, keeping prices down and looking after consumer interests. The Competition (Jersey) Law 2005 (the Law) was introduced to promote competition in the supply of goods and services in the Island. The consultation takes account of recommendations made in reviews undertaken in 2015, 2016 and 2018 and proposes changes in four different areas: market studies; mergers and acquisitions; appeals and compliance and other miscellaneous amendments.
For the purposes of this update, we have focussed only on the changes proposed by the consultation paper focussing upon mergers and acquisitions.
CONTROL OF MERGERS AND ACQUISITIONS: SHARE OF SUPPLY VERSUS LOCAL TURNOVER TESTS
We have previously commented upon competition laws in the Crown Dependencies relevant to mergers and acquisitions. The consultation paper specifically in relation to mergers and acquisitions (M&As) proposes a number of legislative amendments to improve the control of M&As in Jersey, with a view to reducing the administrative burden on businesses and enabling the Jersey Competition Regulatory Authority (JCRA) to better focus its resources on those transactions that could have the greatest negative impact on competition on the Island.
Jersey’s merger control regime currently requires mandatory notification to the JCRA of all transactions that trigger the relevant thresholds in the Competition (Mergers and Acquisitions) (Jersey) Order 2010 (the M&A Order). The test for notification is based on an undertaking’s ‘share of supply or purchase’ (so-called share of supply test), which is intended to be a flexible test. The applicable thresholds in the M&A Order depend on the type of merger at issue (i.e. horizontal, vertical or conglomerate). As a result, under current legislation, the JCRA must investigate mergers as soon as the thresholds in the M&A Order are met, even if the transaction is between international companies for which Jersey is a small part of their total business, and when the impact on the local economy is – in all likelihood – negligible.
Following a review of the current system in Jersey and noting that share of supply tests are more commonly used in systems that operate a voluntary merger filing system (for example, the UK), the JCRA considers that a narrower and more objective mandatory jurisdictional threshold test would provide greater confidence to businesses, reduce the need for informal guidance and reduce the number of notifications. This would also allow the JCRA to focus its limited resources on the most problematic cases. To improve the operation of Jersey’s M&A control regime, the JCRA has therefore recommended that the current jurisdictional test in the M&A Order is replaced by a new mandatory test for when JCRA approval is required based on the local turnover of the undertakings concerned.
Overall, the Government agrees with the JCRA and considers that the introduction of a mandatory local turnover test – replacing the current share of supply test in the M&A Order – is an appropriate approach for Jersey. The introduction of a local turnover test is considered to be consistent with international best practice and more appropriate for a mandatory filing regime such as Jersey’s.
ASSESSMENT OF LOCAL TURNOVER
It is proposed that for the purposes of the new test, the ‘applicable turnover’ of an undertaking concerned shall comprise the amounts derived by the undertaking in the preceding business year from the sale of products and the provision of services falling within the ordinary activities of the undertaking to businesses or consumers in the Channel Islands or Jersey (as the case may be), after deduction of sales rebates, goods and services tax and other taxes directly related to turnover. This would ensure that mergers only become notifiable to the extent that they have a local impact. For example, if a Jersey company makes a sale to a UK customer, the turnover generated through that sale would be deemed to be UK turnover rather than Jersey turnover.
The turnover of an undertaking shall be calculated by taking into account respective turnovers of undertakings in which the entity in question holds more than half of the capital or business assets; or has the power to exercise voting rights, appoint members to the board or to manage the undertakings affairs. Sales of goods or services between such undertakings, however, will not form part of the calculation of applicable turnover.
The calculation of applicable turnover of credit institutions, financial institutions and insurance undertakings will, as proposed in the consultation, be governed by specific rules in the M&A Order which will follow EU precedent based upon years of legal and economic assessment.
The consultation paper also acknowledges that there may be exceptional circumstances where transactions in small but concentrated markets which would not be caught by the turnover provisions, may still have the potential to negatively affect competition in Jersey. To enable the JCRA to review potentially harmful transactions below the turnover thresholds, it is proposed to introduce a discretionary power for the Authority in the M&A Order empowering it to demand notification of transactions irrespective of the undertakings’ turnovers. The additional test would be based on the parties’ share of supply and would complement the proposed new turnover test. As such, it would allow the JCRA to review cases which would not be captured by the turnover test, but which could be harmful to competition in Jersey in any event. It is important to note that this discretionary test would not impose a prior notification requirement such that the standstill under Article 20 of the Law would apply and so would not delay or call the validity of a transaction into question. The consultation paper also provides that on this basis, it is proposed that the JCRA would have a limited amount of time to require notification of a transaction below mandatory thresholds.
Finally, it is worth noting that the JCRA is alive to acquisitions being implemented in stages. In circumstances where an acquisition takes place in two or more stages within a two year period between the same undertakings, this shall be treated as one acquisition and if the relevant thresholds are met, shall be notifiable.
RESPONDING TO THE GOVERNMENT OF JERSEY’S CONSULTATION
Introduction of the local turnover test, if implemented, is likely to be welcome by those seeking to transact in Jersey and their advisers. Removing the need to undertake an assessment of the market before understanding whether a notification to the JCRA is even necessary will remove an administrative burden from a local M&A transaction. It will also avoid large international mergers that are likely to have little effect on the Jersey market from being within scope of the competition framework. Under the new threshold test, specific calculations would apply for “applicable turnover” in order to ensure that only M&A activity is notifiable to the extent that it has local impact.
The consultation closes on 21 April 2023 and industry responses are encouraged. Please do reach out to your usual Appleby contact should you wish to discuss.
For further information, please contact:
Andrew Weaver, Partner, Appleby
aweaver@applebyglobal.com
