This item has been updated since initial publication.
By Debbie Woo
This session entitled “Corporate Exercises vs Competition Law — Running the Gauntlet” featured Dato’ Johari Razak, K Shanti Mogan, Ng Swee Kee and Anand Raj, all partners of Shearn Delamore & Co, as well as Dr R Ian McEwin, an economist who holds the Khazanah Nasional chair at University of Malaya Malaysian Centre of Regulatory Studies (“UMCoRS”).
Dato’ Johari began the session by giving an overview of Malaysian competition law and its effects and potential effects on corporate exercises, mergers and acquisitions. He explained that the purpose of the Malaysian Competition Act 2010 (“CA”) is to eliminate anti–competitive conduct and agreements.
Ms Mogan then explained the different types of restraints under the CA, including prohibitions against anti–competitive agreements under section 4 of the CA, and abuses of dominance under section 10 of the CA.
Speaking from her experience, Ms Mogan also said that there was no “one–size–fits–all” type of answer as to whether or not an agreement is anti–competitive. The reality of competition law is that there is no one–stage test, and competition law is also not an exact science. She added that an economic analysis may be required to determine if an arrangement has any effect on competition.
Another pointer given by Ms Mogan to determine if an arrangement is anti–competitive is to see if the restraint is necessary to enable the parties to achieve a legitimate commercial purpose. Ms Mogan then provided several examples of how certain arrangements, which at first glance appeared to be anti–competitive, were held by the courts to be not anti–competitive.
Mr Ng spoke about the effects of competition law on a due diligence exercise. Mr Ng pointed out that a competition law due diligence process should not be restricted to a review of written contracts but should also include a review of the conduct of employees.
One of the practical issues Mr Ng raised was how much sensitive data a target company should disclose to a potential purchaser (who may often be a competitor in the same market) and how to mitigate the risks of abuse.
One of the possibilities suggested by Mr Ng is for the parties to have a sufficiently wide confidentiality agreement in place and to ensure that any sensitive data is redacted until the parties reach an advanced stage of negotiations. He highlighted that one of the consequences of competition law infringements is that it is not only the entity which contravened the law that is penalised, but also its shareholders and parent company.
Mr Raj then addressed the delegates and started with the proposition that a radical rethink of the traditional approach to due diligence exercises may be required. A due diligence process must sufficiently identify the risks and potential “time bombs” in terms of anti–competitive behaviour by target companies (using the example of an acquisition).
Mr Raj then said that a traditional due diligence exercise would normally focus on written documents and formal arrangements of a target company. However, such reviews are unlikely to detect certain anti–competitive behaviour, for instance the exchange of price–related information or price fixing by executives in social or other settings such as in karaoke lounges, conferences or on golf courses. He emphasised that the traditional due diligence processes in Malaysia today may not be adequate to identify competition law risks.
Mr Raj then gave a quick overview of the competition law regimes in various jurisdictions, such as Australia, China, the European Union (“EU”), Singapore and India, and highlighted that Malaysia is one of the few countries that does not yet have merger control provisions.
Another interesting point raised by Mr Raj was that a number of jurisdictions have criminalised the involvement in cartels. These countries include Australia, some EU member states, Japan, Korea and the United States of America (“USA”).
Mr Raj pointed out that Malaysian enterprises may not realise that when they export products to the USA and the EU, they (and their management, executives, etc) may also be subject to the competition laws of the USA and the EU, including criminal provisions for cartel activity. In a number of recent cases, the senior management personnel, directors and executives of large manufacturing companies have been imprisoned in the USA for cartel activity conducted in Taiwan, Japan and other countries, as those companies had all exported their products to the USA market.
Dr McEwin, a well–respected economist and lawyer, then shared his views on the Malaysian competition regime. One of the questions posed to him was whether Malaysia should have merger control laws, to which he answered in the affirmative without any hesitation.
Dr McEwin was of the view that the Malaysian Government would eventually be pressured into enacting merger control provisions as the current provisions are too messy and complicated to address the competition issues in mergers. The process of determining whether or not a merger would have a significant impact on competition, would have to be simplified.
To a question from Mr Raj, Dr McEwin agreed that the lack of merger control provisions in Malaysia is unsatisfactory as, under the law as it stands, mergers may, in certain situations, be challenged under section 4 or section 10 of the CA.