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20 June, 2016
On 31 May 2016, the Philippine Competition Commission (“PCC”) approved the Rules and Regulations to Implement the Provisions of Republic Act No. 10667 (Philippine Competition Act), known as the Implementing Rules and Regulations (the “IRR”). This occurred almost one year after the Philippine Competition Act (the “Act”) was signed into law by President Benigno Aquino III in July 2015. As stated in its preamble, the purpose of the IRR is to 'effectively carry out the provisions' of the Act, and it is therefore reassuring to see a high level of consistency between the IRR provisions and the Act itself. The IRR will come into force on 18 June 2016.
While consistency between the IRR and the Act should not come as a great surprise, the newly enacted provisions provide clarification which is much needed for commercial parties both within the Philippines and abroad, especially with respect to the jurisdiction's merger control regime.
Prior to the IRR coming into effect, the PCC had adopted a set of transitory rules and regulations to regulate mergers and acquisitions executed and implemented after the Act took effect, but before the enactment of the IRR (Memorandum Circular No. 16-001) (the “Memorandum Circular”), which provided only scant guidance on the scope of any notification obligations. Paragraph 2 of the Memorandum Circular merely specified that a notification to the PCC must be made by 'parties to a merger or acquisition agreement wherein the value of the transaction exceeds One Billion Pesos'. This implied that any merger or acquisition effected in the relevant period would have been notifiable to the PCC as long as it surpassed the value threshold, thus imposing a broad and burdensome obligation
on companies around the world.
By contrast, the IRR impose the notification obligation only on transactions that have a local nexus, which turns on whether the aggregate value of assets owned and/or gross revenues generated by parties involved in or into the Philippines exceed the 'One Billion Pesos' (approximately USD 21.5 million) threshold. In setting out the criteria which trigger a local nexus, the IRR have at the same time shed light on the different types of acquisitions that are potentially reviewable by the PCC. For example, it is now clear that acquisitions of interests in non-corporate entities with a local nexus are reviewable if the acquiring entity is entitled to receive a certain percentage of profits upon dissolution of the acquired non-corporate entity. As for acquisitions of voting securities of a corporation, a transaction will be notifiable if as a result, the acquiring entity would gain, in aggregate, more than 35% of the votes attached to all outstanding voting shares; where the acquiring entity already possesses 35% of such votes, an acquisition of more than 50% of the outstanding voting shares will be notifiable. The IRR also explicitly state that joint venture transactions that are determined to have a local nexus are also notifiable to the PCC.
Another key revelation is the identity of parties who bear the responsibility of notifying the PCC of a relevant transaction. Indeed, it appears that where a notification is required, it is incumbent upon all acquiring and acquired pre-acquisition ultimate parent entities, (or appropriately authorised entities) to each submit a notification form (section 2(b) of the IRR). The term 'entity' is used extensively throughout the IRR, and has a broad definition that includes both natural and judicial persons, sole proprietorships, partnerships, as well as any form of domestic or foreign combination or association, including those owned or controlled by the government, as long as they are engaged in any economic activity (directly or indirectly).
Finally, the IRR also contain provisions concerning anti-competitive agreements and the abuse of dominance. As with its rules and regulations on the merger control regime, the IRR provide helpful clarification as to how the PCC intends to regulate and enforce anti-trust behaviour in the Philippines.
For further information, please contact:
Mark Jephcott, Partner, Herbert Smith Freehills
mark.jephcott@hsf.com
