Regulatory Framework and Legal Issues in Business Module 3 PDF

MODULE III Philippine Competition Act *(Republic Act No. 10667)* ===================================================== Accountancy Department College of Business Administration and Accountancy De La Salle University -- Dasmariñas **COURSE LEARNING OUTCOMES:** By the end of this course, student...

MODULE III Philippine Competition Act *(Republic Act No. 10667)* ===================================================== Accountancy Department College of Business Administration and Accountancy De La Salle University -- Dasmariñas **COURSE LEARNING OUTCOMES:** By the end of this course, students are expected to: **CLO1**. Discuss the applicable Philippine laws covering various business transactions, specifically on consumer protection, financial rehabilitation, competition, government procurement, banking, insurance, and labor or employment. **CLO2.** Resolve the problems and conflicts arising from business transactions through the application of pertinent Philippine laws. **CLO3**. Explain the rights, duties, and obligations of the stakeholders as well as the role of the government in handling the issues on business regulations. **CLO4. **Identify the procedural requirements observed by the government regulatory bodies in resolving conflicts or cases involving business transactions. **CLO5.** Correlate the Philippine regulatory laws on business transactions with the work-related areas of the accountancy profession.  **Philippine Competition Act** ***Declaration of Policy*** The efficiency of [market competition] as a mechanism for allocating goods and services is a generally accepted precept. The State recognizes that past measures undertaken to liberalize key sectors in the economy need to be reinforced by measures that safeguard competitive conditions. The State also recognizes that the provision of equal opportunities to all promotes entrepreneurial spirit, encourages private investments, facilitates technology development and transfer and enhances resource productivity. Unencumbered market competition also serves the interest of consumers by allowing them to exercise their right of choice over goods and services offered in the market. Pursuant to the constitutional goals for the national economy to attain a more equitable distribution of opportunities, income, and wealth; a sustained increase in the amount of goods and services produced by the nation for the benefit of the people; and an expanding productivity as the key to raising the quality of life for all, especially the underprivileged and the constitutional mandate that the State shall regulate or prohibit monopolies when the public interest so requires and that no combinations in restraint of trade or unfair competition shall be allowed, the State shall: ***Scope and Application*** This Act shall be enforceable against: **What are the acts not covered by the law?** This Act shall [not apply] to the combinations or activities of workers or employees nor to agreements or arrangements with their employers when such combinations, activities, agreements, or arrangements are designed [solely to facilitate collective bargaining in respect of conditions of employment.] ***Definition of Important Terms*** *Acquisition* refers to the purchase of securities or assets, through contract or other means, for the purpose of [obtaining control by]: *Commission* refers to the Philippine Competition Commission created under this Act; *Confidential business information* refers to information which concerns or relates to the operations, production, sales, shipments, purchases, transfers, identification of customers, inventories, or amount or source of any income, profits, losses, expenditures; *Control* refers to the ability to substantially influence or direct the actions or decisions of an entity, whether by contract, agency or otherwise; *Dominant position* refers to a position of economic strength that an entity or entities hold which makes it capable of controlling the relevant market independently from any or a combination of the following: competitors, customers, suppliers, or consumers; *Entity* refers to any person, natural or juridical, sole proprietorship, partnership, combination or association in any form, whether incorporated or not, domestic or foreign, including those owned or controlled by the government, engaged directly or indirectly in any economic activity; *Market* refers to the group of goods or services that are sufficiently interchangeable or substitutable and the object of competition, and the geographic area where said goods or services are offered; *Merger* refers to the joining of two (2) or more entities into an existing entity or to form a new entity; *Relevant market* refers to the market in which a particular good or service is sold and which is a combination of the relevant product market and the relevant geographic market, defined as follows: ***What is Philippine Competition Commission* (PCC)?** An independent quasi-judicial body which is created **to implement the national competition policy** and attain the objectives and purposes of the law. ***Composition of the Commission.* ** **Chairperson and four (4) Commissioners.** **Qualifications.** Chairperson and the Commissioners shall be: **Who appoints the Chairperson and the Commissioners?** The President of the Republic of the Philippines. ***What are the Powers and Functions of the Philippine Competition Commission?*** The Commission shall have **original and primary jurisdiction over the enforcement and implementation** of the provisions of this Act, and its implementing rules and regulations. The Commission [shall exercise the following powers and functions:] ***Office for Competition (OFC)*** The OFC under the Department of Justice (DOJ-OFC) shall only **conduct preliminary investigation** and **undertake prosecution of all criminal offenses** arising under this Act and other competition-related laws. **What are the ACTS PROHIBITED BY THE LAW?** ***1. Anti-Competitive Agreements.* --** An [entity that controls, is controlled by, or is under common control with another entity or entities,] have common economic interests, [and are not otherwise able to decide or act independently of each other,] shall not be considered competitors for purposes of this section. **2. *Abuse of Dominant Position.*** It shall be prohibited for one or more entities [to abuse their dominant position by engaging in conduct that would substantially prevent, restrict or lessen competition]: *Provided,* That nothing in this Act shall be construed or interpreted as a prohibition on having a dominant position in a relevant market or on acquiring, maintaining and increasing market share through legitimate means that do not substantially prevent, restrict or lessen competition: *Provided, further,* That any conduct which contributes to improving production or distribution of goods or services within the relevant market, or promoting technical and economic progress while allowing consumers a fair share of the resulting benefit may not necessarily be considered an abuse of dominant position: *Provided, finally,* That the foregoing shall not constrain the Commission or the relevant regulator from pursuing measures that would promote fair competition or more competition as provided in this Act. **MERGERS AND ACQUISITIONS** *Acquisition* refers to the purchase of securities or assets, through contract or other means, for the purpose of obtaining control by: *Merger* refers to the joining of two (2) or more entities into an existing entity or to form a new entity; ***Power to* *Review of Mergers and Acquisitions.*** The Commission, *motu proprio* or upon notification as provided under these Rules, shall have the power to review mergers and acquisitions [having a **direct, substantial and reasonably foreseeable effect on trade**, industry, or commerce in the Philippines, **based on factors deemed relevant by the Commission.**] ***What are the factors that the commission may look into when reviewing mergers or acquisitions?*** *(a) In conducting this review, the Commission shall:* *(b) I[n evaluating the competitive effects of a merger or acquisition], the* *(1) the [structure] of the relevant markets concerned;* *(2) the [market position] of the entities concerned;* *(3) the actual or potential [competition] from entities within or outside* *of the relevant market;* *(4) the [alternatives available to suppliers and users], and their access to* *supplies or markets;* *(5[) any legal or other barriers to entry].* ***When notification of merger or acquisition compulsory?*** **Parties to the merger or acquisition agreement** wherein the value of the transaction **exceeds one billion pesos (P1,000,000,000.00)** are prohibited from consummating their agreement **until thirty (30) days after providing notification** to the Commission in the form and containing the information specified in the regulations issued by the Commission: ***Provided**,* That the Commission shall promulgate other criteria, such as [increased market share in the relevant market in excess of minimum thresholds], that may be applied specifically to a sector, or across some or all sectors, in determining whether parties to a merger or acquisition shall notify the Commission under this Chapter. **IMPORTANT NOTE:** An **agreement** consummated in **violation of this requirement to notify** the Commission shall be considered **void** and **subject the parties to an administrative fine of one percent (1%) to five percent (5%) of the value of the transaction.** Should the [Commission] deem it necessary, it [may request **further information that are reasonably necessary and directly relevant** to the prohibition] under Section 20 hereof from the parties to the agreement [before the expiration of the thirty (30)-day period referred]. The issuance of such a request [has the effect of extending the period within which the agreement may not be consummated for **an additional sixty (60) days**, beginning on the **day after** the **request for information is received by the parties**]: *Provided,* That, in no case shall the total period for review by the Commission of the subject agreement exceed ninety (90) days from initial notification by the parties. **When the above periods have expired and no decision has been promulgated for whatever reason, the merger or acquisition shall be deemed approved and the parties may proceed to implement or consummate it.** All notices, documents and information provided to or emanating from the Commission under this section shall be subject to ***[confidentiality rule]*** under Section 34 of this Act ***except** when the release of information contained therein is **with the consent of the notifying entity or is mandatorily required to be disclosed by law** or by a valid order of a court of competent jurisdiction, or of a government or regulatory agency, including an exchange*. In the case of the merger or acquisition of banks, banking institutions, building and loan associations, trust companies, insurance companies, public utilities, educational institutions and other special corporations governed by special laws, [a favorable or no-objection ruling by the Commission shall not be construed as dispensing of the requirement for a favorable recommendation by the appropriate government agency] under Section 79 of the Corporation Code of the Philippines. A favorable recommendation by a governmental agency with a competition mandate shall give rise to a disputable presumption that the proposed merger or acquisition is not violative of this Act. ***Notification Threshold.* ** The **Commission** shall, from time to time, **adopt and publish regulations stipulating:** ***The implementing rules and regulations in of the Philippine Competition Act detail provides:*** **IMPORTANT NOTE:** ***Parties to a merger or acquisition are** **required to provide notification when:*** *and* *(b) The value of the transaction exceeds One Billion Pesos* *(e) **A merger or acquisition consisting of [successive transactions], or*** *(f) For purposes of calculating notification thresholds:* *(g) A transaction that meets the thresholds and does not comply with the* *(h) In the case of a merger or acquisition of banks, banking institutions,* *building and loan associations, trust companies, insurance companies,* *public utilities, educational institutions, and other special corporations* *governed by special laws, [a favorable or no-objection ruling by the]* *under Section 79 of the Corporation Code of the Philippines.* *(i) A favorable recommendation by a governmental agency with a* *competition mandate shall give rise to a disputable presumption that the* *proposed merger or acquisition is not violative of the Act or these Rules,* *proposed merger or acquisition.* ***When is Mergers or Acquisitions prohibited?*** Merger or acquisition agreements that substantially prevent, restrict or lessen competition in the relevant market or in the market for goods or services as may be determined by the Commission shall be prohibited. **Are there any exceptions to prohibited *Mergers or Acquisitions? (Section 21)*** Prohibited merger or acquisition agreement may, nonetheless, be exempt from prohibition by the Commission when the parties establish either of the following: *Provided,* That an entity shall not be prohibited from continuing to own and hold the stock or other share capital or assets of another corporation which it acquired prior to the approval of this Act or acquiring or maintaining its market share in a relevant market through such means without violating the provisions of this Act: *Provided, further,* That the acquisition of the stock or other share capital of one or more corporations solely for investment and not used for voting or exercising control and not to otherwise bring about, or attempt to bring about the prevention, restriction, or lessening of competition in the relevant market shall not be prohibited. **Who has the burden to prove exemption from the coverage of the law?** The burden of proof under Section 21 lies [with the parties seeking the exemption. ] But a party seeking to rely on the exemption specified in Section 21(a) must demonstrate that [if the agreement were not implemented, significant efficiency gains would not be realized]. **What is the effect if merger of acquisition is prohibited?** The Commission may: ***Finality of Ridings on Mergers and Acquisitions.*** Merger or acquisition agreements that have received a favorable ruling from the Commission, except when such ruling was obtained on the basis of fraud or false material information, may not be challenged under this Act.