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Content last updated: 10-12-2019

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  • Merger Control Regime
  • Merger Screening
  • Merger Filing

1. Overall description of merger control regime

1.1 Supranationality

1.1.1 Is the jurisdiction a member of/party to a supranational jurisdiction?

No.

1.1.2 Is the jurisdiction itself a supranational jurisdiction?

No.

1.1.3 If the answer to Section 1.1.1 and/or 1.1.2 above is in the affirmative, what are the implications hereof?

Not applicable.

2. Nature of merger control regime

2.1 Mandatory or voluntary

2.1.1 Is filing mandatory or voluntary?

Sri Lanka has no merger regime. The present Takeovers and Mergers Code 1995 (as amended in 2003) (“the Code”) does not regulate mergers.

However, listed companies must comply with the Listing Rules of the Colombo Stock Exchange (CSE), which requires that immediate disclosure be made to the CSE with regard to all mergers, acquisitions and takeovers involving listed entities.

2.2 Suspensory effect

2.2.1 Must completion of the transaction await clearance by the relevant authorities?

Generally, no.

However, in industries specified in Section 2.4.1 under the Merger Screening Schedule, restrictions placed on the mergers/acquisition of companies require prior approval from the regulator.

1. What type of transactions are caught by the merger control regime?

1.1 Concentrations

1.1.1 Type of transactions that are caught by the merger control rules?

Apart from the industries mentioned in Section 2.4.1 below, the Consumer Affairs Council is empowered to investigate “anti-competitive practices” which is defined in the Consumer Affairs Authority Act, No.9 of 2003 (CAAA) in Section 35 as

a practice where a person in the course of business, pursues a course of conduct which of itself or when taken together with a course of conduct pursued by persons associated with him has or is intended to have or is likely to have the effect of restricting, distorting or preventing competition in connection with the production, supply or acquisition of goods in Sri Lanka or the supply or securing of services in Sri Lanka.

In this manner, it is the business/activity carried out post transaction that is subject to scrutiny and not the transaction itself that will be scrutinized. As such any transaction could be subject to investigation.

In the general anti-competitive law upon the Consumer Affairs Council being satisfied that an anti-competitive practice exists and that it operates against the public interest, the Consumer Affairs Council is empowered to make an order providing: (a) for the termination of such anti-competitive practice; and (b) for such other action as the Consumer Affairs Council may consider necessary for the purpose of remedying or preventing the adverse effect of the anti-competitive practice.

1.2 Joint ventures

1.2.1 What types of joint ventures are caught by the merger control rules?

Not applicable.

1.3 Definition of "control"

1.3.1 How are the concepts of "control" and "change of control" defined?

The concepts of “control” and “change of control” are not defined in general merger control law in Sri Lanka. While the term arises within legislation that regulates specific industries, it is not clearly defined.

1.4 Minority shareholdings

1.4.1 Are minority and other interests less than control caught by the merger control rules?

Please see Section 1.1.1 above.

2. Establishing jurisdiction for notification of mergers

2.1 Merging parties/undertakings concerned

2.1.1 Which undertakings are considered parties to the merger ("undertakings concerned") in the various types of transactions identified under Section 1.1.1 and 1.2.1.

Not applicable.

2.2 Date for establishing jurisdiction

2.2.1 Which date is relevant for concluding whether the transaction is notifiable?

Not applicable.

2.3 General thresholds

2.3.1 Threshold(s) for when a concentration must be notified under the general merger control regime?

Not applicable.

2.3.2 For each threshold, can the threshold be triggered by only one party having local turnover?

Not applicable.

2.3.3 For each threshold, can the threshold be triggered without any party having local turnover?

Not applicable.

2.3.4 Are there any circumstances where transactions falling below these thresholds may be still investigated?

Not applicable.

2.4 Other national thresholds for ex ante merger control (e.g. sector-specific rules)

2.4.1 Relevant thresholds for sector-specific or other ex ante merger control rules?

Mergers within certain industries are regulated as follows:

Banking:

S. 12 (1C) (a) of the Banking Act No. 30 of 1988 (“Banking Act”) states that no individual, partnership or corporate body, either directly or indirectly or through a nominee or acting in concert with any other, can acquire over 10% of the issued capital of a licensed commercial bank carrying voting rights without the prior written approval of the Monetary Board (together with the minister).

Finance Business:

As per the regulations issued under the Finance Business Act No. 42 of 2011 (the “Finance Business Act”), every company licensed in terms of the Finance Business Act requires the prior approval in writing of the Monetary Board in order to, inter alia: sell whole or part of its business; acquire whole or part of the business of any institution or company; and/or amalgamate, consolidate or merge with any institution or company. Failure to comply with a rule/direction made by the Monetary Board under the Finance Business Act by any director, secretary, chief executive officer, manager, officer, employee or auditor of a finance company, can lead to conviction after trial before a Magistrate to a fine not exceeding LKR 3,000,000 or to either imprisonment for a term not exceeding three years or to both such fines and imprisonment.

Finance Leasing:

In terms of the regulations issued under the Finance Leasing Act No. 56 of 2000 (the “Finance Leasing Act”), namely the finance leasing (structure changes) Direction No. 3 of 2011, every registered finance leasing establishment which is a public company referred  to in paragraph (c) of section 3 of the Finance Leasing Act requires the prior approval in writing of the Director of the Department of Supervision of Non-Bank Financial Institutions, in order to inter alia: acquire whole or part of the business of any other leasing company, finance company or any other company and/or amalgamate, consolidate or merge the company with any other leasing company or any other institutions. Failure to comply may result in an individual being subject to conviction after summary trial by a Magistrate, to imprisonment of either description for a term not exceeding two years or to a fine not less than LKR 10,000 and not exceeding LKR 250,000 or to both such imprisonment and fine.

Insurance:

Pursuant to section 102 (1) of the Regulation of Insurance Industry Act No. 43 of 2000 (as amended) (the “Insurance Act”) all transactions relating to the amalgamation of insurance businesses must be approved by a District Court, which shall in making its decision take into consideration a report submitted by the Insurance Board of Sri Lanka (the “Board”) in relation to such amalgamation. All insurers are also required to notify the Board in writing of a proposed change in ownership or control of such insurer (either directly or indirectly or through nominees or by persons acting in concert, etc.) immediately upon any of the Directors or the Company Secretary of the insurer becoming aware of the same; and obtain the written approval of the board prior to such change in ownership or control taking place. A change in ownership or control referred to herein may take place as a result of a new issue of shares of the insurer to a person or a transfer of shares by an insurer, of its subsidiary/associate insurance company(ies) to a person. 

Energy:

The Public Utilities Commission Act No. 35 of 2002, (“PUCSL” or the “Act”), applies to the public utility industries set out in the schedule to the Act. Under S. 22 of the PUCSL, the Commission is empowered to regulate and inquire into anti-competitive practices, monopolies, acquisitions and abuses of a dominant position, and merger situations concerning the public utilizes industries set out in the schedule of the Act. The Commission may carry out investigations, either of its own initiative or following a complaint or request made regarding, i) the existence or suspected existence of any anti-competitive practices, ii) the acquisition, existence or suspected existence of abuse of a dominant position which may affect domestic trade or economic development in one or more markets in which a regulated entity operates, or iii) the creation or suspected creation of a merger situation. S. 23(1) (e) PUCSL, prescribes that a “merger situation” shall be taken to exist if a person, including a corporation, acquires or proposes to acquire, directly or indirectly, any shares or assets of any other person which results or would result in a change of control of that other person, where either: i) the effect is that the merging parties taken together are, or are likely to be, in a dominant position in a market in any public utility industry, or ii) both parties are engaged in a position within the same utility network, or utility service in a public utility industry, in the same or different geographical areas.

Telecommunications:

The Telecommunications Regulatory Commission regulates and monitors mergers, acquisitions and anti-competitive practices in the telecommunications industry through the imposition of conditions in their licenses.

2.4.2 Are any such schemes mandatory or voluntary?

Mandatory.

2.5 Foreign-to-foreign mergers

2.5.1 Do any exemptions, special thresholds etc. apply to foreign-to-foreign mergers, i.e. where none of the undertakings concerned is domiciled in the jurisdiction?

No.

3. Calculation and allocation of turnover, asset value, transaction value etc.

3.1 Relevant turnover

3.1.1 How is turnover defined (e.g. is income from other sources than "ordinary activities to be included, and how are rebates, taxes, internal turnover etc. treated)?

Not applicable.

3.1.2 Identification and link to any official rules, guidance etc. on how to calculate turnover?

Not applicable.

3.2 Relevant period for calculation of turnover

3.2.1 Which financial year(s) is relevant for the calculation of turnover?

Not applicable.

3.2.2 Should adjustments be made for e.g. divestitures, acquisitions, closings and other changes of the economic reality of the undertaking concerned made after or during the relevant financial year?

Not applicable.

3.3 Relevant undertakings for the calculation of turnover

3.3.1 The "undertakings concerned", i.e. which parties?

Not applicable.

3.3.2 The undertakings whose turnover is taken into account?

Not applicable.

3.3.3 Shall the turnover of the existing seller be included in the target's group turnover?

Not applicable.

3.4 Geographical allocation of turnover

3.4.1 The principles for the geographical allocation of turnover?

Not applicable.

3.5 Valuation and allocation of assets

3.5.1 The principles for valuation and allocation of assets?

Not applicable.

3.6 Calculation of other thresholds

3.6.1 The principles for calculation of metrics for other thresholds (e.g. transaction value, market share, share of supply etc.)?

Not applicable.

3.7 Special rules

3.7.1 Do any special rules or principles apply to the calculation, allocation etc. of turnover, assets etc. for specific undertakings (e.g. State-owned undertakings, investment funds, credit and financial institutions, insurance companies, financial holding companies, others)?

Not applicable.

3.7.2 Does any exemptions apply?

Not applicable.

1. Practical information

1.1 Responsibility for filing

1.1.1 The parties responsible for filing?

In transactions within industries specified in Section 2.4.1 under the Merger Screening Schedule, a party responsible for filing is not designated by law. However, it is assumed that the Boards of Directors of the acquirer and the target are responsible for the prior approval from the relevant Minister or authority before the completion of the transaction.

The Public Utilities Commission of Sri Lanka Act and the general competition law do not require an application and will only investigate a takeover or merger on its own motion or on a complaint or request made to it by a third party.

1.2 Deadlines for filing

1.2.1 Are there any mandatory deadlines for filing, and, if so, how these are calculated?

There are no mandatory deadlines for filing within the regulated industries mentioned in Section 2.4.1 under the Merger Screening Schedule.

However, it is assumed that sector specific approval would be obtained soon after the Boards of Directors decide in principle to carry out a transaction.

1.2.2 Are there any sanctions for not filing within the deadlines?

Sanctions for the failure to obtain sector-specific approval will depend upon the individual industry. Please see Section 2.4.1 under the Merger Screening Schedule.

Though the Banking Act does not specify an offence for noncompliance of amalgamation, in the general offences set out in the Act a director can be liable on conviction after summary trial before a Magistrate to a fine not exceeding LKR 500,000 and/or to imprisonment of a term not exceeding 18 months.

Under the Finance Business Act, anyone being a director or an officer of a finance company who fails to comply with any direction made under the provisions of the Act can be liable on a conviction after a trial before a Magistrate to a fine not exceeding LKR 3,000,000 or to imprisonment of either description for a term not exceeding 3 years or to both such fine and imprisonment. 

A failure to comply with a relevant obligation under the Public Utilities Commission of Sri Lanka Act, where such person is a body corporate, shall be guilty of an offence and upon a conviction after a summary trial before a Magistrate be liable to a fine of not less than LKR 10,000,000 and not more than LKR 100,000,000.

Though the Regulation of Insurance Industry Act does not provide for an offence for the failure to comply with the laws relating to amalgamation, an offence of a company which carries on a business of insurance without being duly registered shall be guilty of an offence upon a conviction after a trial before a Magistrate and will be liable to a fine not less than LKR 50,000 and/or imprisonment for a term not less than 1 year.

In the general anti-competitive law upon the Consumer Affairs Council being satisfied that an anti-competitive practice exists and operates against the public interest, the Consumer Affairs Council is empowered to make an order providing: (a) for the termination of such anti-competitive practice; and (b) for such other action as the Consumer Affairs Council may consider necessary for the purpose of remedying or preventing the adverse effect of the anti-competitive practice.

Any person who fails or refuses to comply with an order of the Consumer Affairs Council or acts in contravention of such order is guilty of an offence under the Act and, upon conviction after a trial before a Magistrate, the Magistrates’ court can impose a fine and/or a sentence of imprisonment. Fines can vary from LKR 5,000 to LKR 50,000 in the case of a natural person and up to LKR 1,000,000 in the case of a corporate entity and imprisonment in the case only of a natural person up to a period of 1 year.

1.3 Early filing

1.3.1 Is it possible to file before the signing of merger agreement?

No.

1.4 Filing fees

1.4.1 Are there any fees for filing, and, if so, please describe how such fees are calculated?

There are no fees for the filing of takeovers and mergers in the industries specified in Section 2.4.1 under the Merger Screening Schedule. However, the standard fee for registration/licensing as well as annual fees may apply where applicable when the company is amalgamated and registered as a new company.

1.4.2 When must the filing fee must be paid?

Not specified.

1.5 Publicity

1.5.1 When and in which format will the authority publish receiving a notification?

Not applicable.

1.5.2 How will the authority in general handle the case publicly, e.g. will it usually comment in the media, send out press releases etc.?

The authorities are not required to make a statement to the public in any of the cases mentioned in Section 2.4.1 under the Merger Screening Schedule and will not do so.

However, if the target is a listed company, the board of directors of the acquirer and the target, or the two merging entities, as the cases may be, are obliged to publicly announce the transaction.

1.5.3 Will third parties be able to review the notification?

Legal provisions do not enable third parties to review take-over and merger notifications. However, an application through the Right to Information Act (s3) may compel the regulator to divulge such information which is in the possession, custody or control of a public authority.

2. Procedure and timing

2.1 Normal and simplified procedures

2.1.1. Does the regime allow for a simplified (fast track) procedure, and, if so, what are the criteria for using the simplified procedure?

As per the procedures set out in the Companies Act, two or more companies each of which is directly or indirectly wholly owned by the same company, amalgamate and continue as one company following a short procedure set out within the Act.

2.2 Procedural stages

2.2.1 The various stages of (i) a simplified procedure and (ii) a normal procedure?

Generally not applicable and varies with each industry specified in Section 2.4.1 under the Merger Screening Schedule.

2.2.2 Is pre-notification contact with the relevant authorities customary/obligatory/encouraged/etc.?

Not applicable.

2.2.3 Are there any sanctions for not filing within the deadlines?

Not applicable.

2.3 Timetable

2.3.1 The statutory timetable/deadlines for review of a notification?

Not applicable.

2.3.2 Can the statutory timetable/deadlines be suspended ("stop-the-clock"), and if so under which conditions?

Not applicable.

2.3.3 If pre-notification with the relevant authorities contact is possible/customary, how long will the duration of such contact usually be?

Not applicable.

3. Format and content of notification

3.1 Notification forms

3.1.1 Must the notifying parties use any mandatory notification forms, e.g. for simplified and normal procedures, and, if relevant, add a link to the relevant forms?

Not applicable.

3.2 Supporting documentation

3.2.1 List of the supporting documentation which must as a minimum be submitted along with the notification?

Not applicable.

3.3 Originals, legalization and apostillation

3.3.1 List of all documents which must be submitted in original/legalized versions and whether any documents must be apostilled?

Not applicable.

3.3.2 If the merger regime has a mandatory filing deadline, must all the documents identified under Section 3.3.1 be submitted within this deadline?

Not applicable.

3.4 Language

3.4.1 Which languages may be used for drafting and filing a notification?

Not applicable.

3.4.2 Does translations have to be certified/legalized and apostilled?

Not applicable.

This content was delivered
and last updated on 10-12-2019 by
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Anjali Fernando, Partner

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