The Enterprise Act 2002 (Mergers and Market Investigations) (Determination of Control and Turnover for Penalties) Regulations 2024
On 29th November 2024, the Enterprise Act 2002 (Mergers and Market Investigations) (Determination of Control and Turnover for Penalties) Regulations 2024 was published, introducing changes to the way control and turnover are determined for the purposes of calculating penalties under the Enterprise Act 2002.
The key changes introduced by the Regulations are:
- The definition of “control” has been amended to include situations where a person has the ability to exercise decisive influence over the commercial decisions of an enterprise, even if that person does not have the majority of the voting rights in that enterprise.
- The definition of “turnover” has been amended to include the turnover of all enterprises that are controlled by the infringing enterprise, regardless of whether those enterprises are located in the UK.
- The Regulations also introduce a new method for calculating the turnover of an enterprise that is part of a group of connected enterprises.
These changes bring the Enterprise Act 2002 into line with the latest European Union guidance on the application of competition law to mergers and acquisitions. They will also make it easier for the Competition and Markets Authority (CMA) to impose penalties on businesses that breach the Enterprise Act 2002.
The Regulations came into force on 29th November 2024. Businesses should be aware of the changes introduced by the Regulations and should take steps to ensure that they are compliant with the Enterprise Act 2002.
Background
The Enterprise Act 2002 is the primary legislation governing competition law in the UK. The Act prohibits businesses from engaging in anti-competitive conduct, such as mergers that create or enhance a dominant market position. The CMA is responsible for enforcing the Enterprise Act 2002.
The Regulations were introduced in response to a number of concerns raised by the CMA about the way that control and turnover were being determined for the purposes of calculating penalties under the Enterprise Act 2002. The CMA considered that the existing definitions of control and turnover were too narrow and did not reflect the realities of modern business practices.
The Regulations were also introduced to bring the Enterprise Act 2002 into line with the latest European Union guidance on the application of competition law to mergers and acquisitions. The European Commission has issued a number of guidelines on this topic, including the Merger Regulation and the Horizontal Merger Guidelines.
Key Changes
The key changes introduced by the Regulations are:
- Definition of “control”
The definition of “control” has been amended to include situations where a person has the ability to exercise decisive influence over the commercial decisions of an enterprise, even if that person does not have the majority of the voting rights in that enterprise.
The amendment brings the definition of control in the Enterprise Act 2002 into line with the definition of control in the Merger Regulation. The Merger Regulation defines control as “the possibility of exercising decisive influence on an undertaking”.
The CMA has stated that it will consider a number of factors when determining whether a person has the ability to exercise decisive influence over the commercial decisions of an enterprise, including:
- The person’s shareholding in the enterprise
- The person’s position in the enterprise
- The person’s influence over the management of the enterprise
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The person’s ability to veto or block decisions made by the management of the enterprise
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Definition of “turnover”
The definition of “turnover” has been amended to include the turnover of all enterprises that are controlled by the infringing enterprise, regardless of whether those enterprises are located in the UK.
The amendment brings the definition of turnover in the Enterprise Act 2002 into line with the definition of turnover in the Horizontal Merger Guidelines. The Horizontal Merger Guidelines define turnover as “the annual value of sales of products and services, net of discounts and value added tax (VAT), by a firm, including its subsidiaries”.
The CMA has stated that it will include the turnover of all controlled enterprises in its calculations of turnover, even if those enterprises are located in different countries. This is because the CMA considers that turnover is a useful indicator of the size and market power of a business.
- Calculation of turnover of connected enterprises
The Regulations also introduce a new method for calculating the turnover of an enterprise that is part of a group of connected enterprises.
The new method involves calculating the aggregate turnover of all the connected enterprises. Connected enterprises are defined as enterprises that are under common control.
The CMA has stated that it will use the new method to calculate the turnover of connected enterprises in all cases, regardless of whether the enterprises are located in the UK.
Impact of the Regulations
The Regulations will have a significant impact on businesses that are contemplating mergers or acquisitions. Businesses should be aware of the changes introduced by the Regulations and should take steps to ensure that they are compliant with the Enterprise Act 2002.
The Regulations will make it easier for the CMA to impose penalties on businesses that breach the Enterprise Act 2002. Businesses should therefore take steps to ensure that they do not engage in anti-competitive conduct.
Next Steps
Businesses should review the Regulations and take steps to ensure that they are compliant with the Enterprise Act 2002. Businesses should also seek legal advice if they are contemplating a merger or acquisition.
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