Borrower–Lender Relations Between Competitors
Israel’s competition commissioner recently published a public statement regarding borrower–lender relations between competitors, and whether this constitutes a restrictive agreement. The public statement follows some cases in which competitors were engaged in financial agreements. In some of these cases, the commissioner ordered that these agreements should be ended, as a remedy in merger cases.
The assumption is that these relations might affect the business considerations of the relevant parties. In addition, the parties might have access to commercial business information, which is not public. These relations can, in some circumstances, harm the independence of the parties, the competition between them and even the competition
in the market.
Israel’s competition commissioner is of the opinion that a commercial entity’s ability to decide, independently and without any reliance on external sources, is an essential component in preventing harm to competition. The extent of this harm is a result of the specific circumstances of a case.
The commissioner details two criteria on which the effect on competition should be examined. The first is the lender’s ability to influence the borrower, as well as the influence on the competition incentives of the borrower. The second is the economic incentives that influence the lender-competitor as a result of his concern over the redemption of his debt and the interest that shall be paid for it.
But this does not categorically determine any financial relationship between competitors as a restrictive agreement, and it states that each case should be examined on its merits. Five criteria are detailed in the statement:
• the term of the relationship, the frequency of the contacts between the parties and the ability to terminate the agreement;
• the financial situation of the borrower, its redemption ability, the debt amount and its rate from the borrower’s total business volume;
• the terms of the loan and therefore the rights given to the lender as a result;
• the existence of additional arrangements between the parties, such as mutual financial relationships, etc; and
• other factors, such as the circumstances that led to the agreement, alternative financial sources the borrower has, etc.
The statement was published to provide guidance for the business community. Only minor treatment is given to these relations in international rulings and literature as most of the statement had regard to equity investment in a competitor.
Israel’s competition commissioner has published, from time to time, public opinions on different matters, such as cooperation between competitors regarding government authorities, self-purchase of shares and whether this should be deemed a merger.
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