Competition Act new draft rules for company divestiture recommendations

29 May 2023 194
The Minister of Trade, Industry and Competition has recently published new draft rules for comment relating to divestiture recommendations made by the Competition Commission. In this article, we take a look at these new rules.

The proposed new rules prescribe how and when the Competition Commission may submit a recommendation to the Competition Tribunal regarding a divestiture. A divestiture is the sale or disposal of an asset by a company and the Competition Commission wishes to ensure that such divestiture does not cause any uncompetitive results to arise such as the creation of a monopoly where a company, seeking to sell a part of its business, sells it to another competitor causing the competitor to have an unfair monopoly. 

The Competition Act 89 of 1998 (“Act”) allows the Competition Commission to take action to remedy, mitigate or prevent the adverse effect on competition. This includes making a recommendation to the Competition Tribunal following which the Competition Tribunal may make an order about such a recommendation.

The published draft rules relate to section 43D(2) recommendations and prescribe the procedure and ancillary aspects thereto. In essence, the rules provide how and when the Competition Commission may make a section 43D(2) recommendation to the Competition Tribunal, what must be contained in the recommendation and how the respondents to such recommendation must react. 

The rules provide the Competition Commission may within 90 business days after the Commission has published a report (referred to in section 43B(6) of the Act), make a recommendation to the Competition Tribunal for an order in terms of section 60(2)(c) of the Act.

Such a recommendation must be made by filing a notice of motion along with a supporting affidavit setting out the facts upon which the Competition Commission has based its recommendation. The notice of motion should also indicate the order recommended by the Competition Commission. 

Copies of the Notice together with the supporting affidavit must also be served on each of the named respondents within 5 business days of filing the notice and affidavit, and any such respondent who wishes to oppose the recommendation must serve a copy of their answer by the prescribed requirements set out in the rules.

Importantly, the rules state that any allegation of fact set out in the recommendation which is not specifically denied or admitted is assumed to have been admitted. This requires any respondent to qualify or explain a denial of an allegation where necessary.

The Competition Commission must thereafter within 15 business days of being served with an answer that raises issues not addressed in the recommendation, other than a point of law, serve a replying affidavit setting out an admission or denial of each new ground or material fact raised in the answer as well as the position of the Competition Commission on any point of law raised in the answer.

Should the Competition Commission not provide a further reply, the rules state that it will then be deemed that the Competition Commission has denied each of the new issues raised in the answer and each allegation of the fact of law raised.

The proposed rules prescribe how and when the Commission may submit a recommendation to the Tribunal as well as what the procedural requirements are for dealing with such a submitted recommendation. It is not immediately expected that these rules will create additional obstacles to company divestiture, although the deeming provisions and process for opposing recommendations should be carefully noted by companies.

As always, companies should work closely with their corporate team when considering any divestiture and ensure that where applicable they are prepared to comply with the rules of the Act relating to company divestiture as well as any procedural requirements that need to be complied with. 

Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy have been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s). 

Related Expertise: Corporate
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