Buying and Selling a Business

Many of our local business clients buy or sell businesses. Sometimes they own a limited company and sell its shares and sometimes its assets and in other cases they trade in partnership or as a sole trader and are selling assets to the buyer. John Guest says:
“We provide advice and guidance on business sales and purchases and can ensure you are properly protected legally in all contractual documents relating to the sale or purchase. In June, the Office of Fair Trading issued a consultation in revised guidance in merger cases. Some mergers, particularly in narrow local markets where the parties’ market shares are over 25%, may need to be cleared by the OFT.

Under the Enterprise Act 2002, the OFT has a duty to refer certain mergers to the Competition Commission. The exception allows the OFT to decide not to refer where the markets involved are not of sufficient importance to justify a reference. Existing guidance suggests that the OFT may consider a merger in a market worth as little as £400,000 per year to be of sufficient importance to justify a reference to the Competition Commission. The revised guidance raises the market size threshold to £10 million. Many other legal issues relating to a sale of a business arise, including protection for employees under regulations known as TUPE 2006.
Call John on 01329 822333 for further information.

Notes

1. Since real consumer harm can arise in cases below that threshold, it is subject to certain caveats. Specifically, the OFT is less likely to make use of the exception where:
   - market concentration is very high and entry prospects are low, making substantial consumer harm likely
   - there is evidence of coordination, such as price-fixing, between competitors in one or more of the markets in question
   - a reference would have important precedent value for business, or
   - a substantial proportion of the likely detriment is suffered by vulnerable consumers.
   
2. The OFT decided to review its guidance in this area because it was concerned that an unduly narrow interpretation of the exception might result in mergers being referred to the Competition Commission where the risk of consumer harm was low and any adverse effect would be small-scale. In such cases the costs involved potentially outweigh any benefit of intervention. This concern has been heightened by the impact of the Court of Appeal’s judgment in IBA Health.
   
3. The consultation paper is at http://www.oft.gov.uk/shared_oft/consultations/oft933con.pdf
   
4. The deadline for comments is 10 August 2007
   
5. Under current law, the OFT has a duty to make a reference to the CC if the OFT believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
   
6. In its February 2004 judgment in IBA Health v OFT [2004] EWCA Civ 142, the Court of Appeal criticised the OFT Guidance in force at that time, which described the threshold test for reference as whether there was a ‘significant prospect that a merger may be expected to lessen competition substantially’, as setting too high a threshold for reference.
   
   As a result, OFT guidance was revised, and it now states that the threshold for reference will be met if there is a 'realistic prospect that the merger will lessen competition substantially'.
   
   The effect of the judgment, and the change in OFT guidance, is widely regarded as having lowered the threshold for references and, consequently, having made reference in marginal cases more likely.
   
7. Under the Enterprise Act 2002, a relevant merger situation is created if two or more enterprises have ceased to be distinct enterprises; and the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £70 million or, as a result of the transaction in relation to the supply of goods or services of any description, a 25 per cent share of supply in the UK (or a substantial part thereof) is created or enhanced.
   
8. Reference should also be made to the existing 'Mergers: substantive assessment guidance' and 'Interim arrangements for informal advice and pre-notification contacts'. The latter sets out the OFT interim practice since April 2006 on the provision of informal advice for proposed mergers.