The Irish Competition and Consumer Protection Commission (CCPC) has for the first time secured a criminal conviction for gun-jumping.
Gun-jumping involves illegally putting into effect a merger without first obtaining the necessary regulatory approval, in this case from the CCPC.
What is the merger control regime in Ireland?
Ireland has a mandatory merger notification regime which requires businesses to notify mergers or acquisitions which meet certain turnover thresholds to the CCPC.
The Irish Competition Act, 2002, as amended (Competition Act), states that a merger or acquisition occurs if:
- two or more undertakings, previously independent of each other, merge;
- one or more individuals who already control one or more undertakings, or one or more undertakings, acquire direct or indirect control of the whole or part of one or more other undertakings; or
- acquisition of part of an undertaking involving the acquisition of assets (including goodwill) that constitute a business to which a turnover can be attributed.
The applicable turnover thresholds changed on 1 January 2019. Since then, mergers and acquisitions must be notified to the CCPC where, in the most recent financial year:
- the combined turnover in the Republic of Ireland of all of the undertakings involved is not less than €60 million; and
- the turnover in the Republic of Ireland of each of two or more undertakings involved is not less than €10 million.
These financial thresholds do not apply to media mergers, which are subject to a special regime.
What is gun jumping?
Under the Irish merger control rules, a notifiable merger or acquisition should not be put into effect until it has been approved by the CCPC. A transaction will be considered to be 'put into effect' when the purchaser can exercise decisive influence over the target.
Gun-jumping, ie integrating merging businesses prior to approval by the CCPC, is a criminal offence. Gun jumping is a criminal offence and the merger or acquisition is deemed void. The merging parties can also be subject to fines of up to €250,000.
Details of the case
Armalou Holdings Limited acquired Lillis O'Donnell Motor Company through its subsidiary Spirit Ford Limited without first notifying the CCPC. The deal was agreed in early 2014 but not completed until December 2015. In the intervening period, there was a change in the turnover thresholds triggering notification. Armalou reportedly claimed that there was a misunderstanding over which notification threshold applied.
According to reports, another motor dealer told the CCPC about the transaction which led to the CCPC's investigation. The companies notified the deal to the CCPC in 2018 and the CCPC ultimately cleared the transaction as it did not raise any competition issues.
However, the CCPC continued its investigation into gun jumping and referred a file to the Director of Public Prosecutions. Armalou pleaded guilty to six breaches of the merger control provisions in the Competition Act. The judge was satisfied that Armalou was unaware of its obligation and that it did not involve a wilful breach of the merger control laws. For these reasons, he applied the Probation Act, 1907 which allows a court to dismiss a charge, or discharge an offender conditionally, where there are extenuating circumstances. In this case, the judge imposed the condition that Armalou pay €2,000 to a Dublin charity.
Has gun-jumping happened before?
This is not the first time that a company has completed a merger without first notifying it to the CCPC. The CCPC has already investigated a number of gun jumping cases (eg Radio 2000/Newstalk). However, until now, the CCPC has been satisfied with the parties submitting a late notification and has not pursued criminal prosecutions.
We have previously reported on the European Commission's recent focus on gun jumping and other procedural breaches of the EU Merger Regulation, including the European Commission's decision to impose a fine of €125 million on Altice for gun jumping.
It looks as if the CCPC is following the European Commission's lead and taking a harder stance on gun jumping. The recent conviction once again emphasises the need for businesses involved in mergers or acquisitions to carefully assess whether a merger notification is required. If so, businesses must not take any steps to implement the transaction until approval has been obtained. While some preparation planning is allowed, the purchaser should not exert any decisive influence over the target, for example through the exercise of important veto rights or through the exchange of competitively sensitive information with the target.
Given the potentially severe consequences associated with gun jumping, it is prudent for businesses to have any proposed merger or acquisition examined by a competition lawyer at an early stage.