A number of these transactions involve considering the thresholds under the Competition Laws in the Crown Dependencies, and whether the approval of competition authorities is required in order to proceed.
Further to our series of three recent articles dealing with navigating the M&A landscape, this article focusses on the Competition Laws in the Crown Dependencies relevant to M&A transactions, with a particular focus on the merger control regimes under such Competition Laws. Other aspects of these Competition Laws may also be relevant to M&A transactions in the Crown Dependencies (for instance, consideration of whether, say, the target company abuses a dominant position in the market) but are beyond the scope of this article.
Jersey Competition Laws
The Jersey Competition Regulatory Authority (“JCRA”) is responsible for the administration and enforcement of competition law in Jersey, and the main laws are the Competition (Jersey) Law 2005 (the “Jersey Competition Law”) and its associated regulations. JCRA also regulates certain utility service providers.
The Competition Law seeks to protect free, open and fair competition in Jersey by:
- regulating mergers and acquisitions (M&A); and
- governing the way in which businesses conduct themselves in Jersey by prohibiting anti-competitive arrangements and the abuse of a dominant position.
The types of M&A transactions potentially affected by the Jersey Competition Law provisions are (in summary):
- share sales involving a change of control of the target;
- business sales involving the transfer of the whole or a substantial part of the assets of the target; and
- joint ventures.
These M&A transactions only require the prior approval of the JCRA if any of the following thresholds are met or exceeded:
- Horizontal merger: where parties operate at the same level in a supply chain, if the transaction results in the combined undertaking acquiring or enhancing a share of 25% or more of that market in Jersey;
- Vertical merger: where parties operate at different levels in the same supply chain in Jersey or elsewhere, and one party has an existing 25% or more market share in Jersey; or
- Conglomerate merger: where one or more of the parties has an existing share of 40% or more of the supply or purchase of goods or services of any description in Jersey – unless either (a) the target has no existing market share or assets in Jersey, or (b) (i) the seller has a 40% share of supply which is not subject to the proposed transaction and(ii) any non-competition, non-solicitation or confidentially clauses in the M&A documentation do not exceed 3 years and are limited to the products and services supplied by the
If the JCRA’s approval is required, the parties will typically apply for such approval jointly. JCRA’s Guideline 8 – Mergers & Acquisitions – has recently been updated in July 2022 and sets out the various stages of the application process and the timeframe targets for each stage. The JCRA approval process generally takes approximately 6 – 8 weeks from submission of the draft application form to JCRA approval, albeit this can depend on whether issues arise which may lead to a refusal of approval for the merger/acquisition or otherwise an approval with conditions (in which case the JCRA will undertake a second more detailed review). If a “second detailed review” is required, the JCRA’s administrative target is to reach a final decision within 6 months of the date of the date of registration of the application. It should be noted that there are no statutory deadlines by which the JCRA must conclude a first or second detailed review.
It is often advisable for the parties to engage with pre-notification discussions with the JCRA, so that potential issues can be addressed prior to the submission of a draft application form.
It is worth noting that in addition to JCRA’s powers to issue behavioural, structural and financial remedies, notifiable transactions relating the change in ownership of a Jersey company are rendered void as a matter of law if the JCRA has not approved the transaction prior to completion.
Guernsey Competition Laws
The Guernsey Competition & Regulatory Authority (“GCRA”) is the relevant body in Guernsey responsible for the administration and enforcement of competition law in Guernsey. The principal applicable law is the Competition (Guernsey) Ordinance, 2012 (“Ordinance”) and associated regulations, in particular the Competition (Prescribed Mergers and Acquisitions) (Guernsey) Regulations, 2012 (“Regulations”). The Ordinance and Regulations are together referred to as the “Guernsey Competition Law”.
Recognising that open and vigorous competition is good for consumers and businesses alike, the aim of the Guernsey Competition Law is to prohibit anti-competitive behaviour by:
- prohibiting the abuse of a dominant position within any market in Guernsey;
- prohibiting agreements between undertakings which seek to prevent competition within any market in Guernsey; and
- prohibiting certain mergers or acquisitions which have not obtained the approval of the GCRA.
Whilst a consultation process has resulted in draft legislation to amend certain provisions of the Guernsey Competition Law, discussions and recommendations are currently ongoing with a view to implementing further adjustments to occasion healthy competition and clarity.
For the purposes of the Guernsey Competition Law a merger or acquisition occurs when:
- a transferor transfers its business to another;
- an undertaking directly or indirectly acquires or establishes control of another undertaking or the business of another undertaking (where control means decisive influence which is capable of being exercised);
- one undertaking effectively replaces or substantially replaces another undertaking by acquiring the whole or a substantial part of the assets of another undertaking; or
- a joint venture.
In essence, the GCRA generally implements the spirit of EU Merger Regulation 139/2004 in that the Guernsey merger regime will only regulate a joint venture which performs on a lasting basis all the functions of an autonomous economic entity or where a party is, directly or indirectly, acquiring control.
Pursuant to the Regulations, a merger or acquisition is prescribed for the purposes of the Ordinance if: (i) the combined applicable turnover of the undertakings involved in the merger or acquisition in the Channel Islands exceeds £5 million; and (ii) two or more of the undertakings involved in the merger or acquisition each have an applicable turnover arising in Guernsey which exceeds £2 million. In respect of financial services businesses applicable turnover will usually be calculated only in respect of customers and clients in the Channels Islands, so, for instance, in the instance of trust business with non-Guernsey beneficiaries the relevant turnover will usually be excluded from the calculation.
Under draft amendment legislation it is proposed that multiple transactions within a two-year period between the same parties will be considered together for the purposes of the relevant merger tests.
Notifiable mergers must obtain the approval of the GCRA prior to their implementation and following the announcement of a public bid or the acquisition of a controlling interest. The acquiring undertaking is responsible for submitting the application, although it is usually appropriate for a joint application to be made by all of the parties.
Upon an application for the approval of a merger, the GCRA will publish details of the application and specify a reasonable period in which representations may be made in relation to the application.
Typically, the GCRA approval process takes around 4 – 6 weeks. If issues arise during the investigation of the application which lead to a refusal of approval or an approval with conditions, the GCRA will move to a second detailed review but will still aim to reach a final decision within 6 months from the date of the initial application
IOM Merger Control Laws
The Competition Act 2021 introduced a merger control regime into Isle of Man law for the first time. However, at the time of writing, the relevant provisions are yet to be brought into force. We expect draft secondary legislation to be published at some point in the near future setting out the proposed financial thresholds or other economic criteria that will determine whether a transaction needs to be notified to the Isle of Man Office of Fair Trading for review.
The types of M&A transactions that will potentially be affected by the Isle of Man merger control provisions when they come into force are broadly the same as for Jersey, as summarised above, but the thresholds for notification are yet to be determined.
Parties to M&A transactions that involve Isle of Man parties should speak to a member of our Isle of Man M&A team to see if the position has changed after the date of this article.
Appleby’s M&A team is well-positioned to advise clients on a wide range of M&A activities in the Crown Dependencies and other offshore jurisdictions. Its unique jurisdictional reach means that Appleby is able to advise clients on complex, cross-border transactions involving the offshore jurisdictions that are most often encountered. The team regularly work with FTSE 100 and Fortune 500 companies around the globe and those with financial interests in them, as well as leading private equity and venture capital firms, to help them deploy strategic growth and restructuring initiatives, whether involving single jurisdictions or complex multi-jurisdictional, multi-disciplinary transactions.