In depth
The Competition Commission of South Africa ("Commission") published draft guidelines on internal restructuring in January 2025 for public comment, which aim to provide clarity on what constitutes an internal restructure and when a merger notification is required.
The Commission will assess internal restructuring transactions by examining the control structure before and after the transaction to determine if a merger has occurred. The guidelines specify the various ways control can be acquired, as set out in section 12(2) of the Competition Act. Generally, the Commission does not require notification for purely internal transactions that do not affect the control rights of external minority shareholders. However, if a transaction changes these control rights, it may necessitate notification.
The Commission adopts a detailed approach for assessing such transactions, focusing on changes in control rights and the impact on minority shareholders. In particular, an intra-group reorganisation must not alter the control rights of external minority shareholders to avoid triggering a merger notification. The guidelines provide specific criteria for determining when a transaction constitutes an internal restructuring and when it might require notification under the Act.
For instance, the Commission will require notification if the restructure results in a change or acquisition of control that affects the control rights of external minority shareholders. This includes situations where there is a gain or loss of any form of negative control by a shareholder not part of the group of companies or where an external shareholder with minority rights conferring control, such as veto rights over strategic matters, experiences a change in their control rights.
The Commission's concern lies primarily with the control rights of minority shareholders in intra-group transactions. Ordinary minority investment protections, such as decisions on the nature of the business or share capital alterations, generally do not trigger a merger notification. However, transactions that change the control rights of external minority shareholders will likely require merger notification. The Commission has the discretion to assess each transaction on a case-by-case basis.
The guidelines, while not binding, must be considered when interpreting or applying the Act. Stakeholders are encouraged to review and provide comments on the guidelines by 21 February 2025. In summary, these guidelines reflect the Commission's general view on the notification of internal restructurings. They provide valuable guidance on how such transactions are viewed and handled. Consequently, the guidelines enhance the understanding of the regulatory framework for internal restructurings.
