With the credit crunch beginning to bite, the obligations imposed by competition law may seem overbearing to companies struggling to stay afloat. After all, companies have many vital matters to attend to in order to ensure their survival. There is considerable pressure to maintain margins and win customers in any way possible. Businesses may be tempted, for example, to agree with competitors not to sell their goods below a certain price or to try to buy out rivals, just to stay in business. This pressure to keep going may seem to outweigh the risks of being caught breaching competition laws. In such troubled times, it is important to consider whether competition law really does matter. And can competition law actually help companies struggling to cope with the effects of the credit crunch? Perhaps surprisingly, it can. In a recession competition law has an important part to play in keeping markets ticking over, even leaving aside the economic arguments supporting effective competition. The competition regime can offer a number of opportunities that might not otherwise be available. For example, an acquisition or the establishment of a joint venture that, in better economic times may have been prohibited or required alteration because of competition concerns, might now have a better chance of being permitted. So now may be the time to consider that dream deal that has always been too risky from a competition law point of view.
It has become clear that competition authorities will take into account the effects of the economic downturn when investigating mergers and acquisitions and have been urged to adopt a pragmatic approach by recognising the difficulties faced by many companies. Peter Freeman, Chairman of the UK's Competition Commission, recently commented that "economic circumstances and the difficulties that are currently being experienced will affect what is the right thing to do in particular cases" and that competition authorities should be flexible and exercise common sense. The most high profile recent example of this was the acquisition of HBOS by Lloyds TSB, which the Government permitted to go ahead in order to maintain the stability of the UK's financial system despite competition concerns highlighted by the UK's Office of Fair Trading ("OFT"). The OFT has recently published a restatement of its position regarding the failing firm defence in merger situations. The failing firm defence may apply where, in the absence of the merger in question, one of the parties would cease to exist and the potential purchaser is the only available buyer. The OFT has indicated that it is willing to offer informal advice in appropriate cases as to whether particular businesses meet the failing firm criteria.
Subject to compliance with EU State Aid rules, the Government might also be able to grant aid to support businesses or sectors in danger of collapsing as a result of the economic downturn. Examples of this type of rescue package have been seen recently with the UK Government giving help to a number of financial institutions and the car manufacturing industry. The European Commission is being proactive in assisting EU Member States to design financial aid schemes in ways that comply with the State Aid rules and Neelie Kroes, the EU Commissioner for Competition, has said that any State Aid proposed by Member States should be an investment in Europe's future and not an attempt at protectionism. This mirrors the call by the Secretary General of the OECD for governments to resist protectionism.
From the enforcement point of view, the dangers of breaching competition law should not be forgotten, even in hard times. Competition regulators will be no less vigilant and will continue to apply a coherent approach to investigating competition law infringements. Senior officials at leading competition authorities have made it clear that there must not be a retreat from the principles of competition and that the benefits of a free and competitive market economy should not be lost despite the economic downturn. Also, as ever, there is the risk that companies may look to improve their position vis-à-vis competitors by blowing the whistle and bringing anti-competitive practices to the attention of regulators. So businesses looking, for example, to maintain margins through fixing prices with their competitors or to secure a flow of work through underhand agreements to allocate tenders between them should remember the possible consequences. There is no "recession defence" available to those accused of anti-competitive behaviour.
Fines of up to 10% of worldwide turnover may be imposed by competition authorities and the perpetrators may face damages claims from third parties who suffer loss as a result of their anti-competitive behaviour. The increasing level of fines being imposed by competition authorities shows no sign of abating. In November 2008, the European Commission imposed a fine of €1.384 billion on four companies that had participated in a cartel in the car glass industry. This is the largest ever cartel fine imposed by the European Commission. In the UK, individuals implicated in such arrangements may face jail terms of up to five years and directors may be disqualified from acting as such. Last year saw the first criminal convictions and imprisonments in the UK under the cartel offence and the trial of four current and former British Airways managers charged with the cartel offence is due to take place next year. For these reasons, businesses would do well to implement a competition compliance programme to help avoid the potential pitfalls.
Outlook
Competition law is still relevant in times of economic downturn. Whilst it is as important as ever to comply with the requirements of competition law, the competition regime offers potential opportunities during the credit crunch that may not be available at other times. As long as businesses are flexible in the way that projects are structured, there are plenty of opportunities to get the most out of the competition regime and enjoy significant benefits along the way. As Neelie Kroes recently said, "competition policy is ready to deliver and develop ways out of this recession".
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