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Merger Control: The Third Pillar of Malaysian Competition Law

13 May 2022

On 26 April 2022, the Malaysia Competition Commission (‘MyCC’) issued a Consultation Paper on the Proposed Amendments to the Competition Act 2010 (Act 712) (‘Consultation Paper’) that was accompanied by a supplementary document, Salient Points of the Proposed Amendments to the Competition Act 2010 (Act 712) (‘Supplementary Document’).
 
As mentioned in the Consultation Paper, the MyCC proposes, among others, to amend 25 existing provisions of the Competition Act 2010 (‘the Act’) and more significantly, to introduce 40 new provisions, of which 20 will establish a merger control regime of general application into the Malaysian legal landscape.
 
This article will focus only on the proposed amendments outlined in the Consultation Paper and the Supplementary Document that will introduce a merger control regime in Malaysia.
 
Key features of the proposed merger control regime
 
The merger control regime will prohibit mergers or anticipated mergers (if consummated), within or outside of Malaysia, which may result in a substantial lessening of competition (‘SLC’) within any market for goods or services (‘section 10A prohibition’).
 
The merger control regime would be a hybrid regime instead of a pure voluntary regime whereby it: 
  1. makes it mandatory under section 10F to notify the MyCC of anticipated mergers which exceed the threshold to be prescribed by the MyCC (‘applicable threshold’); and 

  2. allows anticipated mergers or mergers which do not exceed the applicable threshold to be voluntarily notified to the MyCC under sections 10H and 10I respectively, whether before or after the mergers or anticipated mergers have been consummated. 
The proposed merger control regime would be suspensory in nature. This means that parties to any anticipated mergers which are notified to the MyCC are prohibited under section 10G from implementing all or any part of the merger before the MyCC’s clearance. A breach of this requirement will render the merger void.
 
Failure to notify mergers or anticipated mergers will result in a merger violation which attracts a financial penalty of up to 10% of the value of the merger transaction or anticipated merger transaction.
 
What is, and is not, a merger
 
For the purposes of the merger control regime, a merger occurs (and may be subject to the section 10A prohibition) in the four circumstances stipulated in section 10B: 
  1. two or more previously independent enterprises combine into one single enterprise and cease to exist as separate legal entities; 

  2. the acquisition of direct or indirect control of the whole or part of one or more enterprises; 

  3. the acquisition of assets of one enterprise by another enterprise results in the acquiring enterprise replacing or substantially replacing the enterprise whose assets are being acquired, in the business or the part concerned of the business, in which the acquired enterprise was engaged immediately before the acquisition; or 

  4. the creation of a joint venture to perform, on a lasting basis, all the functions of an autonomous economic entity. 
Having said that, section 10C sets out four circumstances in which a commercial or economic activity in a market will not amount to a merger for the purposes of the Act: 
  1. the control is acquired by a person acting in his capacity as a receiver or liquidator or an underwriter; 

  2. all of the enterprises involved in the merger are, directly or indirectly, under the control of the same enterprise; 

  3. the control is acquired solely as a result of a testamentary disposition, intestacy or the right of survivorship under a joint tenancy; or 

  4. the control is acquired by an enterprise whose normal activities include the carrying out of transactions and dealings in securities for its own account or for the account of others where: 
  • the securities are acquired on a temporary basis (i.e. twelve months from the date on which control of the other enterprise commences); and  

  • the acquiring enterprise must not exercise the voting rights with a view to determining the strategic commercial behaviour of the target enterprise or must exercise these rights only to prepare the total or partial disposal of the enterprise, its assets or securities. 
Relief of liability
 
Section 10D will provide an avenue for enterprises to relieve their liability from the section 10A prohibition on the grounds that the economic efficiencies of the merger or anticipated merger outweigh any adverse effect from the SLC caused by the merger or anticipated merger (‘section 10D relief’). The burden lies on the enterprise seeking the benefit of a section 10D relief to establish the existence of economic efficiencies.
 
Limitation on the merger control regime under the Act
 
The merger control regime under the Act will not apply to four categories of mergers that are set out in a revised First Schedule of the Act, namely: 
  1. mergers involving commercial or economic activities regulated under industry-specific legislation, namely the Communications and Multimedia Act 1998, Malaysian Aviation Commission Act 2015, Energy Commission Act 2001, Petroleum Development Act 1974 (for upstream activities), Gas Supply Act 1993 and Postal Services Act 2012; 

  2. mergers between enterprises licensed, approved, registered or prescribed by the relevant licensing or regulatory authority under the Financial Services Act 2013, Islamic Financial Services Act 2013, Development Financial Institutions Act 2002, Money Services Business Act 2011, Capital Markets and Services Act 2007, Securities Industry (Central Depositories) Act 1991, Labuan Financial Services and Securities Act 2010, Labuan Islamic Financial Services and Securities Act 2010 and Water Services Industry Act 2006; 

  3. mergers engaged in order to comply with a legislative requirement; and 

  4. mergers carried out in relation to an enterprise entrusted by the Federal or a State Government with the operation of services of general economic interest or having the character of a revenue-producing monopoly in so far as the section 10A prohibition would obstruct the performance of the task assigned to the enterprise. 
Review and decision making powers of the MyCC
 
Parts IIIA and IVA will confer on the MyCC various powers in relation to anticipated mergers or mergers. These include the power to review and issue decisions pertaining to anticipated mergers or mergers notified to the MyCC under sections 10F, 10H or 10I.
 
The types of decisions which the MyCC may issue in relation to an anticipated merger or a merger are set out in section 43C. They are as follows: 
  1. the section 10A prohibition will be infringed if the merger or anticipated merger is consummated; or 

  2. the section 10A prohibition has not been infringed due to: 
  • the effect of a section 10D relief; 

  • the acceptance of a commitment that addresses the SLC concerns which have been identified (see below); or 

  • the merger does not result, or anticipated merger, if consummated, may not be expected to result in a SLC within any market for goods or services. 
Clearance decision
 
Where the MyCC has determined that a merger or anticipated merger, if consummated, does not infringe the section 10A prohibition, the MyCC may issue a clearance decision under section 43F.
 
The MyCC may, if it thinks fit, specify a validity period for the clearance decision for an anticipated merger. In such event, the anticipated merger must be consummated within the specified validity period (or any extension thereof granted by the MyCC).
 
Prohibition decision
 
Where the MyCC has determined that a merger or anticipated merger, if consummated, infringes the section 10A prohibition, the MyCC may issue a prohibition decision under section 43G.
 
Upon the issuance of a prohibition decision, the MyCC may require any infringement to be ceased immediately, and specify steps to be taken by the enterprise to end the infringement. The MyCC may also impose a financial penalty not exceeding 10% of the worldwide turnover of an enterprise over the period during which the infringement occurred and give any other direction as the MyCC deems appropriate.
 
Interim decision
 
Where the MyCC proposes to make a decision that a merger or an anticipated merger, if consummated, will infringe the section 10A prohibition, the MyCC may give notice of a provisional decision under section 43D. The provisional decision must specify the reasons for the provisional finding, any remedial action that the MyCC proposes to apply, and the period within which the enterprise may make a written representation on matters specified in the provisional decision.
 
Review period
 
Section 10F requires the MyCC to issue its decision on the anticipated merger that was notified to it within 120 working days from the date when it accepts the notification as complete (‘merger review period’). An anticipated merger is deemed approved if the MyCC has not made any decision on the anticipated merger upon the expiry of the merger review period.
 
The MyCC may stop or suspend the merger review period in the following circumstances: 
  1. the MyCC requests further information from the enterprise pursuant to section 34C; 

  2. the enterprise seeks an extension of time to file their written representation under section 43D; 

  3. the enterprise requests to make an oral representation under section 43E; or 

  4. the enterprises submit a commitment offer under section 43H. 
The Consultation Paper suggests that an anticipated merger that is mandatorily notified can be cleared within 40 working days if the MyCC is satisfied that it does not result in a SLC in any market for goods or services. Where the MyCC has concerns that an anticipated merger which is mandatorily notified raises SLC concerns, the MyCC may take up to 120 working days to complete an in-depth assessment and arrive at a decision whether to clear or prohibit the anticipated merger.
 
Request for information and documents
 
Section 34C will confer power on the MyCC to request for additional information or documents while reviewing mergers or anticipated mergers notified under sections 10F, 10H or 10I. The issuance of such a request will suspend the merger review period until the additional information or documents are received by the MyCC.
 
The notification of a merger or anticipated merger will be deemed to be withdrawn (without affecting the right to file a fresh notification) if the additional information or documents are not provided to the MyCC within the time stipulated by the MyCC (or any extended period granted by the MyCC).
 
In addition, the MyCC may require any person or government entity to provide information and documents relating to any market that is the subject of the notification. A person who fails to comply with the MyCC’s request commits an offence. This provision has far-reaching effects as it may require a person who is not involved in the merger or anticipated merger to provide information or documents that are proprietary or confidential.
 
Commitment
 
Where a merger or anticipated merger may have the effect of SLC in any market, the enterprises involved may at any time before the MyCC makes its decision on the merger or anticipated merger, offer a commitment to the MyCC under section 43H to remedy, mitigate or prevent the SLC caused by the merger or anticipated merger so that the MyCC can give a clearance decision for the merger or anticipated merger.
 
The offer of a commitment results in a suspension of the merger review period for up to 60 working days to enable the MyCC to review the commitment offer.
 
Where a commitment offer has been accepted by the MyCC, it shall issue a clearance decision and make a finding that the anticipated merger or merger does not infringe the section 10A prohibition.
 
If the MyCC has reasonable grounds to suspect that a commitment which forms the basis of a clearance decision is based on information that is incomplete, false or misleading, or a party providing the commitment fails to implement or comply with the terms of the commitment, the MyCC may revoke the clearance decision.
 
Upon the request from the merging enterprise, the MyCC may accept a variation of a commitment or accept another commitment in place of an earlier commitment received by the MyCC.
 
Powers of investigation
 
The proposed amendments confer various powers of investigation onto the MyCC in relation to mergers and anticipated mergers, including: 
  1. whether or not an anticipated merger or merger exceeds the applicable threshold; 

  2. whether a merger has resulted, or anticipated merger may be expected to result, in a SLC within any market for goods or services; and 

  3. whether there has been a violation of the mandatory notification requirement under section 10F or the requirement to not consummate an anticipated merger under section 10G before receiving a clearance decision from the MyCC (‘merger violation’). 
An investigation may only be commenced by the MyCC upon receipt of a complaint from a person or a direction of the Minister of Domestic Trade and Consumer Affairs, and only after it has conducted an inquiry to determine the merits of the complaint or the Minister’s direction.
 
Penalty for merger violation
 
The MyCC is empowered under section 43L to impose a financial penalty of up to 10% of the value of the merger transaction or anticipated merger transaction on enterprises that have committed a merger violation.
 
Key dates
 
The consultation period ends on 27 May 2022. Submissions received by the MyCC (amendment@mycc.gov.my) or the Malaysia Productivity Corporation (Unified Public Consultation (UPC) Portal) after this date will not be entertained by the MyCC.
 
The proposed amendments are targeted to be tabled in Parliament in October 2022. If the proposed amendments are passed, a further consultation will be conducted in February 2023 with stakeholders on the applicable threshold, notification fee and notification procedures. Thereafter, the MyCC will issue the practice standard and merger-related guidelines in July 2023 and the merger control regime is expected to come into effect one year after the proposed amendments are passed by Parliament, i.e. in October 2023.
 
Comments
 
The major pieces of the Malaysian merger regime that remain to be unveiled are the applicable threshold, the practice standard and the merger-related guidelines. The indicative quantum of the applicable threshold will be disclosed when the next round of consultation begins in February 2023, whilst the standard and guidelines are targeted to be issued in July 2023.
 
The proposed amendments are timely as the Act has not been amended since it came into operation over a decade ago on 1 January 2012. As mentioned in the Consultation Paper, Malaysia is one of about 20 out of 140 countries that has a competition law framework without a merger control regime. We also have the dubious distinction of being the only country in the ASEAN region that does not have such a regime.
 
Hitherto, the Act only contained provisions that deal with anti-competitive conduct and abuse of dominant position. The introduction of the merger control regime, which establishes the third pillar of the competition law framework, will be a game changer for the mergers and acquisitions landscape in Malaysia.
 
Article by Tan Shi Wen (Partner), To’ Puan Janet Looi (Partner) and Angela Hii (Associate) of the Competition Law Practice.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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