asset purchase agreement dated 7 February 1992 between F.B.H. Distributors
Limited, Harty Security Limited, Harty Holdings Limited and F.B.H. Limited was
notified to the Competition Authority on 30 September 1992. The notification
requested a certificate under Section 4(4) or, in the event of a refusal to
issue a certificate, a licence under Section 4(2) of the Competition Act, 1991.
A Statement of Objections was issued on 13 October 1995 to which no response
The subject of the Notification
notification relates to an agreement dated 7 February 1992 between F.B.H.
Distributors Ltd, Harty Security Ltd and Harty Holdings Ltd (the vendors) and
F.B.H. Ltd (the purchaser) for the sale and purchase of the assets and business
of a security products and equipment business which was owned by the vendors.
vendors, located at Crossbeg Industrial Estate, Ballymount Road, Dublin 12 form
part of a group of companies of which Harty Holdings Ltd is the ultimate parent
company. F.B.H. Ltd is a relatively new company which was established to take
over the assets pursuant to the sale.
product and the market
The arrangements concern the sale of assets relating to the vendor's security
business, including stocks and spare parts as well as office furniture and
equipment. According to the parties there are many other companies in Ireland
involved in the buying of security equipment from suppliers outside the State.
In addition it is easy for new entrants to enter the market. The purchasing
company was set up to take over the assets and the business and therefore did
not have a turnover in the relevant market at the time of the notification.
The notified arrangements relate to an asset purchase agreement dated 7
February 1992 for the purchase by F.B.H. Ltd of all of the assets and business,
including the intellectual property rights owned by the vendors. The business
is described in the agreement as the 'Stockholding, Supplying, Servicing,
Designing, Manufacturing, Physical and Electronic Security Products electronic
swipe card systems, electronic funds transfer systems, electronic point of sale
systems, and associated or related products, and office furniture and fittings
including but not restricted to safes, locks, doors, cabinets (including fire),
drawers, strong-rooms, access controls, alarms, CCTV, cash dispensing and
vending machines.' F.B.H. Distributors Ltd and Harty Security Ltd owned the
assets and business while Harty Holdings Ltd owned certain intellectual
property rights in connection with the business. Of the total consideration
[£ ], 79.37% [£ ] was paid on 7 February 1992, 10.25% [£ ]
on 1 February 1993, 4.78% [£ ] on 31 July 1993 and 5.46% [£ ] on
31 January 1994.
16 of the agreement contained a restrictive provision whereby the vendors
covenanted that they would not compete with the business, either directly or
indirectly, within the Republic of Ireland, for a period of five years from the
date of the agreement.
of the Parties
defended the five year non-compete clause, arguing that it was justified
because the purchaser was paying for the assets over a three year period and
the restrictive covenant extended for two years from the date of the last
payment. It would not be commercially viable for the purchaser to buy the
business and assets without the protection that the vendors could not commence
in competition with them. The vendors were perfectly happy to enter into the
restrictive clause. F.B.H. submitted that the intent of the agreement was not
to restrict competition but merely to protect the purchaser's investment.
Authority issued a Statement of Objections to the parties on 13 October 1995
indicating that it intended to refuse a certificate or licence to the notified
agreement and setting out the reasons why it intended to do so. No response was
received from them.
4(1) of the Competition Act states that 'all agreements between undertakings,
decisions by associations of undertakings and concerted practices which have as
their object or effect the prevention, restriction or distortion of competition
in trade in any goods or services in the State or in any part of the State are
prohibited and void.'
undertakings and the agreement
3(1) of the Competition Act defines an undertaking as 'a person being an
individual, a body corporate or an unincorporated body of persons engaged for
gain in the production, supply or distribution of goods or the provision of a
service'. The parties to this agreement are the vendors and F.B.H. Ltd. At the
time of the agreement the assets, business, and intellectual property rights of
the business were owned by the vendors who were engaged for gain in the
importation, supplying, servicing, designing and manufacturing of security
products and equipment. F.B.H. Ltd purchased the business from the vendors and
was therefore engaged for gain.
of Section 4(1)
Authority has stated its views on sale of business agreements in a number of
previous decisions. It does not consider that it is necessary to restate these
views at any length in this instance. It has indicated that a sale of business
does not offend against Section 4(1). In this instance the purchaser is a
company which was set up merely to take over the assets and was not previously
involved in the business. Therefore the sale did not result in any increased
concentration in the market concerned. In addition there are many other
competitors importing and supplying security equipment in Ireland and there are
no barriers to entry into the market. Consequently the Authority does not
believe that this sale of business had any significant effect on the relevant
market in the State.
16 of the agreement contained a restrictive provision whereby the vendors
agreed that they would not compete with the business, within the State, for a
period of five years from the date of the agreement. The Authority has
considered similar restrictions in sale of business agreements in a number of
previous decisions. It has indicated that provided such restrictions are
limited in terms of duration, subject matter and geographical scope to what is
necessary to secure the transfer of goodwill of the business being sold, it
does not regard them as offending against Section 4(1). It has stated that it
would normally consider a period of two years as adequate for such a purpose.
Therefore, the Authority considers that the five year restriction in Article 16
exceeds what is necessary to secure the transfer of the goodwill of the
business. The parties have argued that the five year restriction is justified
because of the three year deferred payment arrangement and that the restrictive
covenant runs for two years after the final payment. The Authority does not
accept that this is a legitimate reason for extending the non-compete clause.
In any case the majority of the consideration (80% approx) for the business was
paid on the date of the agreement and all of the assets and equipment on the
business premises were transferred to the purchaser on that date. Therefore the
Authority considers that in effect, the goodwill was also transferred on that
date. The purchaser acquired control of the business upon completion. The fact
that the full consideration was not paid upon completion did not impede the
transfer of the goodwill.
of Section 4(2)
Section 4(2), the Competition Authority may grant a licence in the case of any
agreement or category of agreements which offends against Section 4(1) but
which, ´having regard to all relevant market conditions, contributes to
improving the production of goods or provision of services or to promoting
technical or economic progress, while allowing consumers a fair share of the
resulting benefit and which does not -
impose on the undertakings concerned terms which are not indispensable to the
attainment of those objectives;
afford undertakings the possibility of eliminating competition in respect of a
substantial part of the products or services in question.'
restriction on competing in Article 16 of the Agreement goes beyond what is
necessary to secure the transfer of the goodwill of the business. Consequently,
in the Authority's opinion, it cannot be regarded as indispensable to the
attainment of the objectives of the agreement and so does not satisfy the
requirements for a licence.
the opinion of the Competition Authority, the asset purchase agreement dated 7
February 1992, between F.B.H. Distributors Limited, Harty Security Limited,
Harty Holdings Limited and F.B.H. Limited (notification no. CA/698/92) notified
on 30 September 1992, under Section 7, constitutes an agreement between
undertakings. It considers that the restriction in Article 16 of the agreement
on the vendors competing with the business offends against section 4(1) of the
Competition Act and does not satisfy the requirements for a licence under
section 4(2). Consequently the Authority refuses to issue a certificate or
grant a licence in respect of the notified agreement.