Jurisdiction - Hong Kong
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Hong Kong – Competition Law Aspects Of Corporate Transactions.

29 September, 2014


In the past, Hong Kong’s only competition regimes were sector-specific. The Competition Ordinance (Cap 619) passed on 14 June 2012 introduces Hong Kong’s first economy-wide prohibitions of anti-competitive agreements and abusive conduct. In this Practice Note written by Simon Luk, partner at Winston & Strawn, we consider the relevant legislation and their implications on certain corporate transactions in the mergers and acquisitions arena.


Sector-Specific Competition Regime In The Telecommunications And Broadcasting Sectors


The Telecommunications Ordinance (Cap 106) (TO) and Broadcasting Ordinance (Cap 562) (BO) prohibit licensees from engaging in conduct that has the purpose or effect of preventing, distorting or substantially restricting competition in the relevant markets. Both outlaw anti-competitive practices and allow civil remedies for damages suffered as a result of abuses of dominant market positions. Unlike TO however, BO does not contain merger control provisions. 

The Telecommunications Authority (the TA) and Broadcasting Authority are given wide powers to investi-gate and make orders in relation to any anti-competitive practices. Their powers include imposing fines and giving orders or directions.

Upon the coming into force of the Competition Ordinance (Cap 619) (the Competition Ordinance), the competition provisions in TO and BO will be repealed, subject to transitional arrangements.

Mergers And Acquisitions In The Hong Kong Telecommunications Market

In the telecommunications sector, transactions leading to changes in shareholder voting rights in carrier licensees are subject to review by the TA. Note that the merger regime only applies to carrier licensees as defined in TO. They include local and external fixed network operators and mobile network operators.

Broadly, the changes subject to merger control include:


  • acquisition of more than 30% of the voting shares of a carrier licensee by one or more parties
  • acquisition of the power to control a carrier licensee by one or more parties
  • acquisition of more than 15% but less than 30% of the voting shares of a carrier licensee by one or more parties who hold more than 5% of the voting shares of another carrier licensee or who control another carrier licensee

In accordance with its obligations under TO, the TA has issued the Guidelines on Mergers and Acquisitions in Hong Kong Telecommunications Markets, which specify the factors the TA will take into account in analysing transactions that may raise competition concerns and the procedures it will follow in investigating such transactions.

No Requirement To Notify Mergers

There is no requirement to notify changes of ownership or control under the merger provisions of TO (though there may be an obligation to inform the TA under the conditions of a licence). However, it is always open to the relevant parties to discuss with the TA the implications of the transaction and to obtain informal advice (which would not be binding on the TA) on a confidential basis if necessary, or to submit a formal request for the TA’s consent to the proposed change.

The application of TO is ex post in that it is applied after the merger or acquisition has been completed. While an ex post regime minimises the compliance burden, there are difficulties in ‘unscrambling’ a completed merger if action is required to overcome any anti-competitive effects. Accordingly, TO provides for the licensee to seek on a voluntary basis ex ante consent to a proposed merger or acquisition before it progresses. The TA may give consent, refuse consent or give consent subject to thedirection that the carrier licensee takes such action that the TA considers necessary to eliminate or avoid any anti-competitive effect.

Powers Of The TA

Without limiting the general nature of the action the TA may direct, TO empowers the TA to direct a carrier licensee to modify the changes in ownership or control that are of concern. Failure to take any directed action would constitute a contravention of TO. Administrative sanctions available under TO (including directions, financial penalties, and cancellation, withdrawal or suspension of licences) may be imposed upon the carrier licensee.

Amendments To TO

Merger control under TO will be replaced by the merger control rules in the Competition Ordinance, which will continue to apply to carrier licensees only. There are significant differences between the rules under TO and the Competition Ordinance, with the latter closely following the EU merger control rules. However, it will still take some time before the Competition Ordinance comes into full force and before official guidelines, decisional practice and case law clarify how exactly it will be applied.

The Competition Ordinance

On 22 June 2012, after a lengthy consultation and legislative process, the Competition Ordinance was finally passed into law. It introduces a cross-sector competition law regime in Hong Kong, though merger control continues to be limited to the telecommunications sector. 

The Competition Ordinance creates a Competition Commission (the Commission) and a Competition Tribunal (the Tribunal) to police the new rules and formulate guidelines regarding their interpretation and enforcement.

The Commission will:


  • investigate suspected breaches of the Competition Ordinance
  • commence investigations on receipt of complaints, on its own initiative, or on referral from the government or a court
  • be vested with a full range of investigative powers to enable it to apply the Competition Ordinance

The Tribunal will:


  • consist of judges of the Court of First Instance 
  • amongst other things, determine cases brought before it by the Commission

Phased Implementation 

The Competition Ordinance is not yet in full effect. 

Several key provisions came into force in January 2013, including provisions relating to the establishment, functions and powers of the Commission. This step marks the commencement of the phased implementation of the Competition Ordinance. The focus of this implementation phase includes the Commission’s preparation of guidelines; the substantive provisions will only come into force after these have been finalised. 

Although the Competition Ordinance is unlikely to be implemented for a while, this transitional period is a key opportunity for corporations to familiarise themselves with the new legal requirements, review their practices and make necessary adjustments. In particular, corporations will need to consider the implications of the new law for future M&A transactions.


The prohibitions under the Competition Ordinance are divided into three major categories:


  • the first conduct rule prohibits undertakings from engaging in agreements, concerted practices or decisions by associations of undertakings with the object or effect of preventing, restricting or distorting competition in Hong Kong
  • the second conduct rule (together with the first conduct rule, the Conduct Rules) prohibits undertakings with a substantial degree of market power from abusing that power by engaging in conduct that has the object or effect of preventing, restricting or distorting competition in Hong Kong
  • the merger rule prohibits undertakings from directly or indirectly carrying out a merger that has, or is likely to have, the effect of substantially lessening competition in Hong Kong; this will initially apply only to undertakings that hold carrier licences granted by the TA

The Competition Ordinance has extraterritorial reach and applies regardless of where the relevant agreement, conduct or merger takes place, and regardless of where the parties to the agreement, conduct or merger are located.

The term ‘undertakings’ is broadly defined to mean ‘any entity, regardless of its legal status or the way in which it is financed, engaged in economic activity, and includes a natural person engaged in economic activity.’ However, not all undertakings are subject to the law. Most statutory bodies will enjoy a blank exemption and small and medium-sized enterprises will receive preferential treatment under the Conduct Rules. 

Further, the merger rule does not apply if the economic efficiencies that arise or may arise outweigh the adverse effects caused by any lessening of competition in Hong Kong. A specified merger may also be exempted on public policy grounds.

Exclusion Of Merger Control

The Hong Kong government only intends for the Competition Ordinance to regulate merger and acqui-sition activities in the telecommunications industry. Notably, the Competition Ordinance expressly provides that the Conduct Rules do notapply to mergers in other sectors. The government has, however, stated that it eventually intends to introduce merger control rules for all sectors.

While mergers outside the telecommunications sector are not regulated by the Competition Ordinance, the merged entities, with an increased market share, would be subject to regulation under the second conduct rule if the merger results in a substantial degree of market power.


The Tribunal is empowered to order a full range of remedies for contraventions of the Competition Ordinance, including:


  • pecuniary penalties
  • disgorgement orders
  • awards of damages to aggrieved parties
  • divestiture of assets, shares or businesses
  • interim injunctions during investigations or proceedings
  • termination or variation of an agreement or merger
  • injunctions
  • disqualification orders against directors for up to five years

The Commission also has the power to apply to the Tribunal to block an anticipated telecommunications merger in whole or in part, or even to order the unwinding of a completed merger.

The Tribunal can only impose pecuniary penalties on application by the Commission. Pecuniary penalties for relevant violations are capped at 10% of the total turnover of the undertaking concerned, obtained in Hong Kong for each year (up to a maximum of three years) of the contravention. If the contravention lasts for more than three years, the maximum will be calculated based on the three years with the highest turnover.


This article was supplied by Lexis Practical Guidance.


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