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Notifiable Transactions under the Competition Act: Commentary on the Regulations

CAUTION: This document does not include recent changes to the Regulations (scroll to p. 62) which came into force on December 27, 1999

The Notifiable Transactions Regulations Under Part IX of the Competition Act which specify the method of, and the time or annual period for, calculation of aggregate value of assets and gross revenues from sales for the purposes of the various thresholds set out in sections 109 and 110 of the Act came into force on July 15, 1987. Specifically, these include:

1. subsection 109 (1) - party size
2. subsection 110 (2) - purchase of assets
3. subsection 110 (3) - purchase of shares
4. subsection 110 (4) - amalgamation
5. subsection 110 (5) - combination

Unless otherwise indicated, all references are to sections of the regulations.

General principle

Valuation of assets

Under sections 4, 6, 8, 10 and 12, the book value of assets is the standard for determining "aggregate value" for the purpose of sections 109 and 110 of the Act. This approach allows the use of readily available information on the valuation of assets from which aggregate value can be determined. Section 4 specifies the amounts to be deducted from the gross asset values to arrive at the aggregate value. Note that the liabilities of the pertinent entities may not be set off against the asset values to arrive at the aggregate value. Note that the liabilities of the pertinent entities may not be set off against the values for the purpose of the Act and Regulations. This is appropriate, given that competition policy is concerned with control or influence over assets, not the method of financing such assets.

Determination of gross revenues from sales

The calculation of gross revenues from sales is necessary with respect to the thresholds for party size, assets, amalgamations and combinations. In most cases, the determination of gross revenues from sales will be made from the most recent audited financial statements of the entities in question (see subsection 9 (2) and section 11). It is expected that such numbers are readily available, current and accurately reflect actual value of sales.

Comments on specific sections

Audited financial statements (section 3)

Paragraph 3 (a) is intended to be broad enough to cover situations where the financial statements are prepared in accordance with generally accepted accounting principles used in a foreign country or as prescribed by statue (as in the case of banking and insurance).

Paragraph 3 (b) allows the use of working papers and other documents which support the information reported in financial statements to calculate the required assets on revenue determinations. For example, a balance sheet will not differentiate between assets in Canada and those which are not in Canada, but such information may well be available from the underlying working papers.

Aggregate value of assets (section 4)

Paragraphs 4 (1) and (b) permit the use of consolidated financial statements with respect to corporate groups and eliminate double counting which may arise when combining amounts from the financial statements of various entities.

Timing considerations (sections 6 and 7)

Where information form financial statements forms the basis for the determination of aggregate value of assets of gross revenues from sales, sections 6 and 7 provide that the determination shall be made as at a date, or for a period ended, not more than 15 months prior to the reference date. This takes into account the 90-day following the close of the fiscal year, within which companies normally produce audited financial statements.

Provisions with respect to parties to the transaction (section 8 and 9)

It should be noted that, with respect to the determination of the party size limit, sections 8 and 9 permit the aggregating of financial results from various entities having different fiscal years with out adjustment for the timing differences. This approach recognizes that parties to a proposed transaction who are not related will often have different fiscal years and that it is difficult to restate the results for a common time of period.

Specific circumstances (sections 12 and 13)

To the extent that the calculations cannot reasonably be made in individual cases on the basis referred to previously, it is necessary to include a general provision in the Regulations with respect to the determination of aggregate value in such circumstances. The approach taken is to allow the calculation to be made based on the data contained in the books of the entities concerned, with the relevant time for such determination being the most recent date, or the most recent annual period ended, not more than three months prior to the transaction at which such determination can reasonably be made.

Subsequent material change in circumstances (section 14)

Section 14 is designed to allow for the adjustment of the aggregate value of assets or the gross revenues from sales when a material event or transaction has occurred after the close of the fiscal period for which audited financial statements are available. A material event is one which affects the determination of whether notification is required. To a lesser extent similar adjustments may be necessary to obtain the pertinent threshold values under the procedures set out in sections 12 and 13. The calculated values may either increase or decrease to reflect such subsequent material changes in circumstances.