Legal And Tax Aspects Of Corporate Investment In Ireland 4. Regulatory Matters

4.1

EXCHANGE CONTROL ACTS, 1954 to 1990

Since January 1, 1993, exchange control has almost been abolished in its entirety save that the Minister for Finance under the Financial Transfers Act, 1992 may impose restrictions on movements of capital or payments in conformity with European Law. Such restrictions have to date been imposed on financial transfers with Iraq and the Federal Republic of Yugoslavia (Serbia and Montenegro).

4.2

MERGERS, TAKE-OVERS AND MONOPOLIES (CONTROL) ACT, 1978 (AS AMENDED) ("MERGERS ACT")

The Mergers Act is designed to control mergers, take-overs and monopolies which may directly or indirectly relate to Irish businesses.

A merger or take-over is deemed to occur where two or more enterprises, at least one of which carries on business in Ireland, come under common control. Common control will exist where, for example, there is a direct acquisition of more than 25% of the share capital of the target company or, in the case of an indirect acquisition, where there is no change in shareholding of the Irish company but a change of control within the group pyramid structure, for example by virtue of the acquisition of shares in a foreign parent company.

The Mergers Act does not apply to all mergers or take-overs but only to those mergers or take-overs where, in their most recent financial year, the value of the gross assets of each of two or more of the enterprises involved in the proposal is not less than IR£10 million or the turnover of each of those two or more enterprises is not less than IR£20 million. It is not necessary that the Irish entity involved in the merger or take-over exceed these thresholds. All that is required is that any two enterprises involved exceed the thresholds.

Where the Mergers Act applies to a merger or take-over, a detailed notification is required to be made to the Minister for Enterprise and Employment for permission to effect such merger or take-over. Failure to obtain ministerial approval for such a merger or take-over may render void the transfer of assets or shares and may render the enterprises involved and their officers liable to criminal prosecution.

4.3

THE IRISH TAKEOVER PANEL ACT, 1997

This Act provides for the monitoring and supervision of, among other things, mergers and takeovers in respect of public limited companies or other bodies corporate trading in securities authorised by the stock exchange under the rules of which they operate.

The Minister for Enterprise and Employment will designate a panel for the purpose of carrying out this supervision and the panel is empowered by Section 8 of the Act to establish rules for the regulation of relevant mergers, takeovers and certain other transactions, and by section 10 to advise, admonish or censure any of the parties to such activities.

4.4

THE COMPETITION ACT, 1991 as amended by the Competition (Amendment) Act, 1996

The Competition Act was introduced in 1991 to prohibit the prevention, restriction or distortion of, or the abuse of a dominant position in, trade in goods or services in Ireland. The Act is modelled on Articles 85 and 86 of the Treaty of Rome by which the European Union was established.

Section 4(1) of the Act provides that, subject to the other provisions of Section 4, all agreements, decisions and concerted practises between "undertakings" which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in Ireland or any part thereof are prohibited and void. An "undertaking" is defined by the Act to mean a person engaged for gain in the production, supply or distribution of goods or the provision of a service.

The Act established the Competition Authority. The Competition Authority may, in accordance with the provisions of the Act, grant a licence in respect of a matter which although on the face of it is anti-competitive, nonetheless, in the opinion of the Authority, contributes to improving the production or distribution of goods, the provision of services or which promotes technical or economic progress, while still allowing consumers a fair share of the resulting benefit and which does not impose on the undertakings concerned terms which are dispensable to the attainment of these objectives or allows undertakings the possibility of eliminating competition in respect of a substantial part of the products or services in question. Alternatively the Competition Authority may issue a certificate that in the opinion of the Authority on the basis of the facts notified to it the matter does not amount to a prevention, restriction or distortion of competition.

It is important to understand the distinction between a licence and a certificate. A licence while in existence and while its terms are complied with permits the doing of things which would otherwise be impermissible as anti-competitive. A certificate on the other hand is only a statement of the opinion of the Authority as to whether a matter notified is anti-competitive and which is given on the basis of the facts as known to the Authority at the time. It could well happen that a matter in respect of which a certificate is granted would subsequently be held by the Court to be anti-competitive and therefore void under Section 4.

As a licence is not granted until after the matter has been notified to the Competition Authority, the Act provides that a licence may be granted retrospective to the date of notification.

Section 5 of the Act prohibits an abuse by one or more undertakings of a dominant position in trade for any goods or services in Ireland or any substantial part thereof. The Act does not seek to define an abuse of a dominant position but it does indicate that the following matters may be regarded as an abuse, namely:-

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;

(b) limiting production, markets or technical development to the prejudice of consumers;

(c) applying dissimilar conditions to equivalent transactions with other trading parties thereby placing them at a competitive disadvantage;

(d) making the conclusion of contracts subject to the acceptance by other parties of supplementary obligations which by their nature or according to commercial usage have no connection with the subject of such contract.

Any person who is aggrieved as a result of any agreement, decision, concerted practise or abuse which is prohibited under either Section 4 or Section 5 of the Act has a right of action for relief against any undertaking which is, or has at a material time been, a party to the matter complained of. If the Court should find for the aggrieved person it may grant either an injunction restraining the continuance of the matter complained of or a declaration. It may also grant damages including exemplary damages.

As mentioned above, once a licence in respect of some matter has been granted by the Competition Authority such matter is, from the date of notification, no longer prohibited by Section 4 of the Act and there is no right of action in respect thereof during the period in which the licence is in force and its terms are complied with. The same provision does not apply in respect of a matter which the Competition Authority has certified that, in its opinion, it is not anti-competitive. However, in such a case and assuming that the certificate has not be revoked, the aggrieved party is not entitled to damages in any proceedings which are commenced after the certificate has been issued where a claim is made in respect of loss suffered in respect of the period during which the certificate is or has been in force.

Section 9 of the Competition (Amendment) Act, 1996 provides that the Minister for Enterprise and Employment may designate to one member of the Competition Authority the title of Director of Competition Enforcement and this person will be empowered to investigate as to whether there has been contravention of any of the terms upon which a licence was granted. An investigation might be initiated by a complaint from an aggrieved person or otherwise.

Under section 2 of the Competition (Amendment) Act, 1996 any undertaking which enters or implements an agreement or makes or implements a decision or engages in a concerted practice which is prohibited by section 4 shall be guilty of an offence and shall be liable on conviction to a heavy fine or imprisonment in the case of an individual.

The provisions of the Competition Acts co-exist with the provisions of the Mergers Act. However, unlike the provisions of the Mergers Act, there is no threshold below which the provisions of the Competition Acts cease to apply. The Competition Acts have to be regarded as possibly being applicable in a case of an acquisition of one undertaking by one or more other undertakings. In the case of an acquisition of an existing Irish business therefore one must consider whether approval for the same needs to be obtained under the Competition Acts as well as under the Mergers Act.

This article is intended to provide general guidelines. Specialist advice should be sought about specific facts.