The Competition Commission of South Africa has published proposed guidelines under section 79(1) of the Competition Act 89 of 1998 (as amended), addressing when internal reorganisations within corporate groups may be classified as mergers requiring notification or approval (“the Guidelines”). These Draft Guidelines are intended to demystify the Commission’s stance on intra-group transactions and to help businesses align with the merger control regime set out in the Competition Act.
What Qualifies as Internal Restructuring?
The Draft Guidelines focus on transactions that occur within a group of related or affiliated entities. Ordinarily, these restructurings are not subject to notification requirements. However, if such a transaction results in a shift in control, defined broadly under section 12(2) of the Act, it may still qualify as a notifiable merger.
The Act’s definition of “control” includes, but is not limited to:
- Holding over 50% of a company’s issued shares;
- Controlling the majority of voting rights at shareholders’ meetings;
- The authority to appoint or block the appointment of most directors; or
- Having substantial influence over strategic decisions akin to ownership.
The Commission treats this list as illustrative, not exhaustive. Thus, control can be asserted in many nuanced ways not explicitly enumerated in the Act.
International vs Local Perspectives
While the European Commission generally excludes intra-group restructurings from merger scrutiny, South African jurisprudence has taken a stricter view. Domestic courts have confirmed that internal reorganisations are not automatically exempt and may still be subject to notification under certain conditions. This divergence has caused legal uncertainty for South African entities navigating internal restructures.
Key Takeaways from the Guidelines
The Commission aims to resolve this ambiguity. According to the Draft Guidelines:
- Internal restructurings are generally exempt from notification unless they give rise to a change in control.
- A critical consideration is whether the rights of external (non-group) minority shareholders are affected.
- If such shareholders lose veto power or negative control, the transaction may need to be notified.
- If the ultimate control structure remains the same and external rights are unaffected, notification is typically not required.
Moreover, the Commission has reserved the right to assess restructurings individually, especially in complex or borderline cases, reinforcing the need for careful legal analysis.
Practical Implications for Corporate Groups
The new guidance offers a more predictable framework, allowing businesses to better assess whether their restructuring efforts fall within merger control parameters. Nevertheless, caution is advised. Organisations contemplating internal reorganisations should:
- Assess whether there is a transfer of control under section 12;
- Determine whether the rights of any third-party shareholders are affected; and
- Engage proactively with the Commission in cases of uncertainty, particularly where complex ownership structures exist.
By providing these guiding principles, the Draft Guidelines bring welcome clarity to a previously murky area of competition law, though they also reiterate that each case will turn on its specific facts.
Advisory Support
Businesses are encouraged to consult with legal advisors to interpret and apply the Guidelines correctly. Expert advice can ensure compliance, prevent unnecessary delays, and avoid the risk of failing to notify a qualifying transaction.
Our team at Mayet & Associates are equipped to guide clients through the regulatory landscape of internal restructurings. From evaluating merger thresholds to handling notifications, we provide strategic legal solutions to manage compliance and mitigate competition law risks.
