THE ADMINISTRATIVE PENALTY FOR NON-NOTIFICATION OF MERGERS
All mergers which meet notification thresholds must be notified to the Competition and Tariff Commission (‘the Commission’) – a statutory body established in terms of the Competition Act [Chapter 14:28] (“the Act”), mandated to promote and maintain fair competition in all sectors of the economy of Zimbabwe through regulation of mergers, amongst other areas. This article provides a general overview of the administrative penalty for non-notification of mergers as provided for in the Act.
What are the Timelines for Merger Notification?
Section 34A (1) of the Act, provides that a party to a notifiable merger is required to notify the Commission in writing of a proposed merger within thirty days of the i) conclusion of the merger agreement between the merging parties; and/or ii acquisition by one of the parties to that merger of a controlling interest in another.
What Happens if Parties Fail To Notify Within Stipulated Timelines?
If the merging parties fail to fulfil the above requirement and proceed to consummate a merger without the Commission’s approval, the Commission is empowered to impose a penalty as provided for in terms of section 34A (3) of the Act. The Commission may impose a penalty if the parties to a merger i) fail to give notice of the merger as required; and ii)proceed to implement the merger without the approval of the Commission.
What is the Level of Penalty Imposed by the Commission?
Section 34(4) of the Act provides a penalty imposed in terms of subsection (3) may not exceed ten per centum of either or both merging parties’ annual turnover in Zimbabwe, as reflected in the accounts of any party concerned for the preceding financial year. The penalty imposed by the Commission serves as a deterrent against non-notification of mergers and promotes compliance by merging parties. The applicable penalty is calculated as a proportion of merging parties’ turnover on a scale from zero percent (0%) to 10 percent (10%).
What are the Factors Considered by the Commission in Calculating the Penalty?
The penalty level is based on an analysis of factors listed in section 34A (5) of the Act. In determining whether the proportion of the penalty will be at the higher or lower end of the scale (i.e. 0% to 10%), the Commission will be guided by the extent of violation of the following factors:-
- The nature, duration, gravity and extent of the contravention
The Commission looks at the nature of the conduct which gave rise to the failure to notify and/or prior implementation contravention. Failure to notify or prior implementation contravention can take different forms, and the Commission will consider how the failure to notify and/or prior implementation occurred. Further, the Commission considers the amount of time merging parties have violated the provisions of the Act. .E.g., the date on which the Agreement of Sale or Purchase/Subscription of shares was signed is one of the indicators used to determine the period in which parties have contravened the Act. The longer the time before notification, the higher the penalty percentage assigned.
- Any loss or damage suffered as a result of the contravention
The negative effects of the contravention on consumers, producers, suppliers, during the period of contravention are considered. Effects vary but may include loss of revenue, assets, contracts and customers, which may cause other market participants to suffer.
- The behaviour of the parties concerned
This speaks to the behaviour of parties in the market during the period of contravention in relation to customers, suppliers and competitors. E.g., whether the merged entity created artificial shortages to drive prices up or charge predatory prices to drive out competitors in the market. Such anti-competitive practices have a negative impact in the market.
- The level of profit derived from the contravention
This relates to profits derived from the contravention, including quantifiable monetary and non-quantifiable monetary benefits, i.e., actual profit derived and benefits of anti-competitive practices emanating from the merger.
- The market circumstances in which the contravention took place
This refers to the market structure in which the contravention took place. In a market where there are many buyers and sellers, the impact of anti-competitive practices is less likely compared to a market dominated by few large players. The presence of buyer/supplier power reduces the likely harm caused by the contravention.
- The degree to which the parties have co-operated with the Commission
This includes the extent to which the firm, inter alia, delayed, obstructed, and/or assisted in expediting the examination process. This includes payment of notification fees, submission of notification form, provision of additional information and many other engagements that may be necessary during the merger examination period.
- Whether the parties have previously been found in contravention of the Act
This factor relates to whether parties have previously been found in contravention of the Act. First-time offenders are treated differently from repeat offenders. Applicable weightage percentage is higher for repeat offenders compared to first-time offenders. The weightage sum total of these factors determines the penalty which parties to the merger should pay.
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