The Competition Commission of South Africa (“Commission”) has recently issued draft guidelines under the authority of section 79(1) of the Competition Act No. 89 of 1998 (as amended) (“Competition Act”) in relation to instances when an internal restructure would constitute a merger and require notification to, or approval from, the Commission (“Draft Guidelines”). The Draft Guidelines aim to provide clarity on the circumstances under which an internal restructuring may be deemed a notifiable merger and outline the Commission’s approach to assessing such transactions, ensuring compliance with the Competition Act’s merger control provisions.

Defining Internal Restructuring:

Internal restructuring, as contemplated in the Draft Guidelines, refer to transactions occurring within a group of companies. The Draft Guidelines clarify that such transactions generally do not require notification to the Commission unless they specifically result in a change of control.

Control, as outlined in section 12(2) of the Competition Act, includes, amongst other things:

1. ownership of more than half of a company’s shares;
2. the ability to control the majority of votes at a general meeting;
3. the power to appoint or veto the appointment of the majority of directors; or
4. the ability to materially influence a company’s policy in a manner comparable to ownership control.

The Commission views section 12(2) as a non-exhaustive list of instances constituting control, recognising that control can be exercised in various forms beyond those explicitly stated in the Competition Act.

The Commission, in adopting this approach, consulted the European Commission’s approach to internal restructuring, which entails that purely internal transactions within a corporate group do not typically constitute notifiable mergers. However, in contrast to the approach of the European Commission, the South African courts have established that intra-group transactions are not automatically exempt from scrutiny under section 12 of the Competition Act. This has resulted in widespread uncertainty regarding the requirement to notify the Commission or seek the Commission’s approval for intra-group transactions.

Clarity Provided by the Draft Guidelines:

The Draft Guidelines clarify that purely intra-group restructurings within a group of companies generally do not require notification unless they result in a change of control. The Commission primarily assesses whether external minority shareholders’ control rights are affected by the restructuring. If external shareholders have veto rights or other forms of negative control that are altered, notification will be necessary. However, if ultimate control within the corporate group remains unchanged and external shareholders’ rights are not impacted, the transaction will not require notification.

Additionally, the Commission retains the discretion to evaluate transactions on a case-by-case basis, considering the specific circumstances of each restructuring. This approach ensures that companies have a clearer framework for determining whether their transactions require notification, while allowing the Commission flexibility to assess complex corporate structures where necessary.

Implications for Businesses:

The Draft Guidelines provide much-needed clarity on internal restructuring transactions but also underscore the importance of a thorough control assessment, as mentioned above. Businesses considering internal restructurings should:

1. evaluate whether the transaction alters control within the meaning of section 12 of the Competition Act;
2. assess whether any external minority shareholders’ control rights are affected; and
3. seek guidance from the Commission in uncertain cases to mitigate the risk of failing to notify a notifiable transaction.

By explicitly defining the circumstances in which notification is required, the Draft Guidelines eliminate much of the uncertainty that previously surrounded intra-group transactions. Businesses can now rely on these principles to assess whether their restructuring efforts fall within the ambit of merger control provisions. The Commission’s case-by-case discretion remains, ensuring flexibility in unique or complex cases, but the overarching framework provided by the Draft Guidelines offers a structured approach to compliance.

VDMA’s team of experts is at your disposal to assist in navigating the complexities of internal restructurings and ensuring compliance with the Competition Act. Our team provides tailored legal advice, guiding clients through regulatory assessments and merger notifications to mitigate any competition law risks.

Published 27 March 2025