Businesses have to be adaptable when navigating the business and legal impact of the COVID-19 pandemic. Our Resilience, Recovery & Renewal model supports organizations as they go through one of the key stages – shifting focus from crisis management to reopening mode.

To aid you in this process, we have developed a series of Reopening for Business checklists, which provide easy access to the key strategic issues that you need to consider as you look towards reopening. Navigate to the relevant area of law to find solutions on how to tackle the commercial challenges brought about by the pandemic, as well as potential opportunities to strengthen your business. Given the high-level nature of the resource, we would be happy to discuss issues further with you and contact details have been included in each section.

The content picks up on specific UK legislation, but also provides useful pointers that are applicable to multiple jurisdictions.

 

Competitor Collaboration

Key Issues

      • Many antitrust agencies have demonstrated flexibility, granting exemptions from antitrust laws to allow competitors in certain industry sectors to collaborate closely in order to operate more effectively and better serve consumers. However, such exemptions apply only in very limited circumstances, and are temporary.
      • Competitors united by a common threat – whether it be reducing demand or increasing costs – may find themselves having more contact with each other. Capacity reductions agreed at industry level, often referred to as ‘crisis cartels’, may seem like a rational response to ensure that the pain is shared until normality resumes. However, absent any specific antitrust exemptions, the current economic climate will not result in less cartel enforcement or any tolerance of collusion.
      • Businesses will soon have to take difficult decisions around their workforce, such as reducing/freezing salaries, and retaining staff. However, businesses that agree to fix wages or other aspects of financial compensation are at risk of breaking antitrust laws. This is true even if they do not sell competing products, but compete for employees. Simply exchanging information on compensation with other employers can be enough to break antitrust laws.
      • Industry-wide initiatives: trade associations, joint lobbying activities and joint purchasing arrangements can help generate efficiencies and save costs.

Recommendations

      • Consider whether and how to unwind specific Covid-19-related collaboration: what needs to end and how to manage that properly. If you have relied on Covid-19 antitrust exemptions/other concessions by regulators to coordinate with competitors during the pandemic, assess whether such collaboration can legitimately continue in the medium-long term.
      • Competition law allows competitors to co-operate where, for example, jointly undertaken projects generate efficiencies which benefit customers, e.g. in the form of lower prices. Although the competition rules apply to this sort of collaboration, there are certain ‘safe harbours’ if the companies’ combined market share is below a certain level and the cooperation does not go too far. To rebut potential allegations that measures taken today to reduce costs have facilitated collusion or have weakened competition, ensure that any restructuring is carefully managed and that the parties are seen to be compliance aware.
      • Consider conducting health checks /competition law audits to ensure that your business complied with the competition rules during the pandemic when people may have become de-sensitised to the antitrust risk.
      • Ensure that your HR function receives antitrust compliance training so that they are able to spot the relevant risks.
      • Continue to approach trade association and other industry groupings with caution. There is a risk that legitimate debates can stray into illegal areas and there are numerous examples of the strict enforcement of competition law despite the fact that the restrictive arrangements were carried out against a backdrop of genuinely difficult economic circumstances.
      • Joint purchasing arrangements with competitors, when properly structured, can be a legitimate activity lowering prices for businesses and end consumers alike. However, antitrust authorities around the world are increasingly taking enforcement action against buyer cartels. The risk of antitrust fines is as significant for collusion on purchase prices as it is for a cartel on sales prices. Any joint purchasing arrangement should be carefully assessed and companies should ensure that their procurement teams and purchase managers receive adequate and tailored compliance training.

 

Supply Chains

Key Issues

      • Supply chains made need to be restructured to try to boost business in certain regions, or to minimise dependence on single supplier in one region.

Recommendations

      • Consider whether restrictions in your distribution systems raise antitrust concerns, such as export bans, exclusive dealing, and resale restrictions.
      • The lockdown has forced many retail stores to close their doors for months, leading to surplus stock. Many retailers may want to offer discounts when they re-open to entice consumers back. Remember that it is illegal for suppliers and retailers to agree on fixed minimum resale prices or maximum levels of discount.

 

Merger Control and Foreign Investment Review

Key Issues

      • Divestitures of underperforming or non-strategic parts of the business are a way to reduce costs and raise cash (and offer potentially rich pickings for those buyers and investors with access to capital). The establishment of joint ventures may also be a way of achieving synergies and reducing costs.
      • Acquiring assets, or even assuming control or ownership by enforcing security upon default, may well be a triggering event for foreign investment regulatory authorities where the new owner is ultimately foreign owned.

Recommendations

      • The usual merger control rules will apply, but the economic climate may allow some flexibility in terms of having deals approved that would otherwise be a hard sell. A potential avenue to explore is the “failing firm defence” whereby a merger may be approved where one firm would be forced out of the market in the near future because of its financial difficulties if not taken over (though the bar for succeeding in this defence is high).
      • Merging parties’ high market shares are usually a red flag but it may be arguable today that they are a poor proxy of market power if small competitors have the ability and incentive to increase output in response to any attempt by the merged entity to raise prices due to overcapacity. Note that the UK Competition & Markets Authority’s (CMA) starting point in its merger assessment will be to look at the prevailing conditions of competition. However, this assessment can be difficult when looking at dynamic markets (where the CMA has recently become more interventionist), due to rapidly changing market conditions. The CMA will consider what actions the acquirer would have taken absent the transaction and also whether the target would have become a stronger competitor over time. It will also consider loss of potential competition, and whether one of the firms which is not a current competitor has the capabilities to become a competitor in the future.
      • Consider competition issues which may arise when acquiring key suppliers or key customers (‘vertical mergers’).
      • Remember to factor foreign investment review in your deal strategy. Many jurisdictions are increasing scrutiny of foreign takeovers of key strategic assets, some directly in response to the pandemic. While most cross-border transactions have a high likelihood of being approved, those in strategic sectors may encounter more scrutiny and face a prolonged approval process. Taking the time to identify a regulatory strategy early in the deal process can minimize the risk of delays, last-minute changes to the deal structure, or even failed transactions.

 

Unfair Pricing

Key Issues

      • Businesses selling scarce products may seek to capitalise on the tight supply-demand balance by increasing prices, or by imposing the purchase of non-essential products together with high demand products (so-called “bundling”). Due to a surge in demand or the failure of competitors, companies may suddenly find that they are ‘dominant’ meaning that extra competition law rules apply to them. Charging excessive prices is an abuse of dominance in many jurisdictions.
      • Some jurisdictions prohibit price gouging, or increasing prices to a level higher than what is considered reasonable, regardless of market power.

Recommendations

      • The circumstances in which price increases and bundling may be legitimate requires a careful assessment of the specific market and company circumstances.

 

State Aid

Key Issues

      • Many organisations have faced severe business disruption and/or liquidity problems as a result of the pandemic and will have reached out to governments for support, either as part of generic/horizontal support available or to agree a tailor-made support package. In the EU, such financial support is prohibited unless it has been approved by the European Commission or exempt from notification.
      • EU Member States have notified to the Commission several support schemes providing State guarantees or public loans at subsidized interest rates under the EU Temporary Framework, which were approved. In addition, EU Member States have adopted a myriad of measures applicable to all companies (e.g. deferment of tax and social contribution payments).

Recommendations

      • Where such aid is not approved or exempt, it remains prohibited and businesses must understand that it may be recovered with compounded interest, for example, if challenged in national courts or as a result of a complaint to the Commission by a competitor whose Member State does not provide comparable crisis measures. Therefore, businesses should confirm in each instance that any form of support is appropriately structured and lawful under state aid rules.