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The Concentration Law


The Concentration Law's (the "Law") stated purpose is to reduce economy-wide concentration, and to promote competition in various sectors of the economy. The Law sets out to achieve this purpose by the following chapters:

 
Chapter B of the Law:
Weighing Considerations of Economy-wide Concentration

This Chapter deals with two principal and separate aspects: economy-wide concentration and competition within various sectors.

1. Considerations of Economy-wide Concentration When Allotting Rights.

The purpose of this part is to prevent the establishment of a body that can influence proper governance through its economic power, rather than by democratic means.

The relevant regulatory authority must consider economy wide concentration issues at the time of allotting rights within any area of essential infrastructure (which are included in a list in the Law and includes 21 areas such as Petroleum, Water production, Public Transportation and etc.) to an entity which is classified as a Concentrating Entity.

 The Chapter deals both with the allotment of assets, such as the privatisation of a company owned by the State, and the allotment of rights, such as the grant of a license to operate in a specific area.

Before a right in an area of essential infrastructure is allotted to a Concentrating Entity, the party allotting that right must weigh considerations of economy-wide concentration. The allotting body can then either decide on the merits of the specific case it examines or by setting general rules which expressing the need to avoid undue economy-wide concentration.

Extension and renewal of a right: The extension or renewal of a right is treated in a similar manner to the allotment of that right, and the provisions of the Law will apply if the following two conditions are satisfied: 

  • The party holding the right to be extended has held that right for more than ten years;
  • The allotment of the right or any previous renewal of that right was not examined in light of the provisions of the Concentration Law within the ten years preceding the date of requested renewal.
2. Sectoral Competition Considerations in the Allotment of Rights

The object of this part is to increase competition in the economy by taking into account considerations of sectoral competition. This part applies to any allotment of a right including to licenses required for any area of activity, even if it is not an essential infrastructure, if by virtue of the nature of the right, its economic value or the law that applies to it, the number of participants in its field of operation is limited. The application of this part does not depend on whether the party receiving the right or license is a Concentrating Entity or not. 

When allotting a right and determining the terms of that right, the allotting body must take into account, considerations of promoting competition in the sector. In certain circumstances, the obligations to take into account considerations of promoting competition in the sector impose an obligation to consult with the Antitrust Authority.

Extension and renewal of right: The extension or renewal of a right is treated as the allotment of the right, and therefore considerations of promoting competition within the sector are to be taken into account at the time of renewing or extending a right, if the two conditions mentioned above are satisfied.

 

 

Chapter C of the Law:
Limiting Control of Companies in a Pyramid Structure

Chapter C's purpose is to prevent control through thin capitalization and discrepancies between the holdings of the equity and the holdings of means of control which might lead to discrepancies between the interest of the company to that of the controlling shareholder. The Law also sets out to prevent such discrepancies since they allow for the controlling shareholder entrenchment in its position with no real capitalisation behind it.

The central principle with respect to limiting control of companies in a pyramid structure is the prohibition of pyramid structures of companies having more than two layers of Reporting Companies (essentially, a company that has offered shares or debentures to the public). In cases in which the uppermost Reporting Company in the pyramid is not controlled by a controlling shareholder the Law allows for three levels of Reporting Company.

1. Sanctions

If a Reporting Company controls another Reporting Company in contradiction to the provisions of the Law, the District Court will appoint a trustee to whom the means of control of the Reporting Company will be transferred in order to sell them, alternatively the Court may direct that the means of control held in contravention of the provisions of the Law should be dormant.

2. Application and Transitional Provisions

The provisions of the Concentration Law regarding limitations on control of companies in a pyramid structure came into effect on the Publication Date. Nevertheless, the Concentration Law provides for a transitional period during which corporate pyramid structures will be allowed to continue with more than two layers of Reporting Companies, on the following conditions:

  • A company which on the Publication Date was the second layer of Reporting Companies in a pyramid company can continue to control another Reporting Company until the end of six years from the Publication Date.
  • An Additional Layer Company can continue to control a further Reporting Company for up to four years from the Publication Date if it controlled that company before the Publication Date.

Beginning 11th June 2014 until the end of four or six years as the case may be, various provisions will apply regarding the identity of directors.

 

Chapter D of the Law:
Separation Between Significant Real Entities and Significant Financial Institutions

The underlying principle behind Chapter D is that simultaneous control of a financial institution that supplies a substantial portion of the financing and credit in Israel and of a non-financing entity, raises difficulties for third parties seeking financing and credit to compete with the entity related to the financial institution. These difficulties are assumed to have been a significant impediment to growth and competition in Israel. Therefore this chapter requires separation, in terms of management and control, between significant financial institutions and significant real entities.

A Significant Financial institution is a company managing a provident or a pension fund, managing a mutual fund, an insurer, an investment manager/consultant/marketer, a banking institution and so on, the value of whose assets (including assets controlled by it and assets of the party controlling it) exceeds NIS 40 billion (approx USD 10.5 million).

A Significant Real Entity is any other entity which sales turnover, (including the sales turnover of the party controlling it and of all the Real Entities that it controls or that are under common control) exceeds NIS 6 billion (approx. USD 1.56 billion), or NIS 2 billion (approx USD 520 million) in market in which the Real Entity has been declared as a monopoly, and the sales turnover of the party in that market exceeds NIS 300 million (approx. USD 78 million). Or, the credit of the Real Entity, of the party controlling it, and of the entities controlled by it and under common control, exceeds NIS 6 billion (approx. USD 1.56 billion).

The Chapter sets various rules regarding the separation of Significant Financial Institution and Significant Real Entities. The following are the basic principles of the regulations:

1. Rules regarding Prohibition of Control

The Law limits cross holdings of Significant Real Entity and Significant Financial Institution. A party breaching such limitations would be required to sell its holdings, so that it does not possess any holdings above the permitted levels.. In addition, a party breaching these provisions is liable to criminal or civil sanctions or fines.

In addition, the chapter includes provisions which are aimed at preventing conflict of interest – and prohibits officers in Significant Real Entities from acting as directors for Significant Financial Institutions. 

2. Transitional provisions

The Law sets transitional provisions regarding separation of Significant Financial Institutions from Significant Real Entities. In essence, the chapter allows a period of six years to sale holdings that contradict the Law if any increase in the value of the holdings is by natural growth (not by way of merger or acquisition). In cases in which the increase of value resulted from non-natural growth the Law shortens the cross holdings period to four years.

 


 


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The Concentration Law


The Concentration Law's (the "Law") stated purpose is to reduce economy-wide concentration, and to promote competition in various sectors of the economy. The Law sets out to achieve this purpose by the following chapters:

 
Chapter B of the Law:
Weighing Considerations of Economy-wide Concentration

This Chapter deals with two principal and separate aspects: economy-wide concentration and competition within various sectors.

1. Considerations of Economy-wide Concentration When Allotting Rights.

The purpose of this part is to prevent the establishment of a body that can influence proper governance through its economic power, rather than by democratic means.

The relevant regulatory authority must consider economy wide concentration issues at the time of allotting rights within any area of essential infrastructure (which are included in a list in the Law and includes 21 areas such as Petroleum, Water production, Public Transportation and etc.) to an entity which is classified as a Concentrating Entity.

 The Chapter deals both with the allotment of assets, such as the privatisation of a company owned by the State, and the allotment of rights, such as the grant of a license to operate in a specific area.

Before a right in an area of essential infrastructure is allotted to a Concentrating Entity, the party allotting that right must weigh considerations of economy-wide concentration. The allotting body can then either decide on the merits of the specific case it examines or by setting general rules which expressing the need to avoid undue economy-wide concentration.

Extension and renewal of a right: The extension or renewal of a right is treated in a similar manner to the allotment of that right, and the provisions of the Law will apply if the following two conditions are satisfied: 

  • The party holding the right to be extended has held that right for more than ten years;
  • The allotment of the right or any previous renewal of that right was not examined in light of the provisions of the Concentration Law within the ten years preceding the date of requested renewal.
2. Sectoral Competition Considerations in the Allotment of Rights

The object of this part is to increase competition in the economy by taking into account considerations of sectoral competition. This part applies to any allotment of a right including to licenses required for any area of activity, even if it is not an essential infrastructure, if by virtue of the nature of the right, its economic value or the law that applies to it, the number of participants in its field of operation is limited. The application of this part does not depend on whether the party receiving the right or license is a Concentrating Entity or not. 

When allotting a right and determining the terms of that right, the allotting body must take into account, considerations of promoting competition in the sector. In certain circumstances, the obligations to take into account considerations of promoting competition in the sector impose an obligation to consult with the Antitrust Authority.

Extension and renewal of right: The extension or renewal of a right is treated as the allotment of the right, and therefore considerations of promoting competition within the sector are to be taken into account at the time of renewing or extending a right, if the two conditions mentioned above are satisfied.

 

 

Chapter C of the Law:
Limiting Control of Companies in a Pyramid Structure

Chapter C's purpose is to prevent control through thin capitalization and discrepancies between the holdings of the equity and the holdings of means of control which might lead to discrepancies between the interest of the company to that of the controlling shareholder. The Law also sets out to prevent such discrepancies since they allow for the controlling shareholder entrenchment in its position with no real capitalisation behind it.

The central principle with respect to limiting control of companies in a pyramid structure is the prohibition of pyramid structures of companies having more than two layers of Reporting Companies (essentially, a company that has offered shares or debentures to the public). In cases in which the uppermost Reporting Company in the pyramid is not controlled by a controlling shareholder the Law allows for three levels of Reporting Company.

1. Sanctions

If a Reporting Company controls another Reporting Company in contradiction to the provisions of the Law, the District Court will appoint a trustee to whom the means of control of the Reporting Company will be transferred in order to sell them, alternatively the Court may direct that the means of control held in contravention of the provisions of the Law should be dormant.

2. Application and Transitional Provisions

The provisions of the Concentration Law regarding limitations on control of companies in a pyramid structure came into effect on the Publication Date. Nevertheless, the Concentration Law provides for a transitional period during which corporate pyramid structures will be allowed to continue with more than two layers of Reporting Companies, on the following conditions:

  • A company which on the Publication Date was the second layer of Reporting Companies in a pyramid company can continue to control another Reporting Company until the end of six years from the Publication Date.
  • An Additional Layer Company can continue to control a further Reporting Company for up to four years from the Publication Date if it controlled that company before the Publication Date.

Beginning 11th June 2014 until the end of four or six years as the case may be, various provisions will apply regarding the identity of directors.

 

Chapter D of the Law:
Separation Between Significant Real Entities and Significant Financial Institutions

The underlying principle behind Chapter D is that simultaneous control of a financial institution that supplies a substantial portion of the financing and credit in Israel and of a non-financing entity, raises difficulties for third parties seeking financing and credit to compete with the entity related to the financial institution. These difficulties are assumed to have been a significant impediment to growth and competition in Israel. Therefore this chapter requires separation, in terms of management and control, between significant financial institutions and significant real entities.

A Significant Financial institution is a company managing a provident or a pension fund, managing a mutual fund, an insurer, an investment manager/consultant/marketer, a banking institution and so on, the value of whose assets (including assets controlled by it and assets of the party controlling it) exceeds NIS 40 billion (approx USD 10.5 million).

A Significant Real Entity is any other entity which sales turnover, (including the sales turnover of the party controlling it and of all the Real Entities that it controls or that are under common control) exceeds NIS 6 billion (approx. USD 1.56 billion), or NIS 2 billion (approx USD 520 million) in market in which the Real Entity has been declared as a monopoly, and the sales turnover of the party in that market exceeds NIS 300 million (approx. USD 78 million). Or, the credit of the Real Entity, of the party controlling it, and of the entities controlled by it and under common control, exceeds NIS 6 billion (approx. USD 1.56 billion).

The Chapter sets various rules regarding the separation of Significant Financial Institution and Significant Real Entities. The following are the basic principles of the regulations:

1. Rules regarding Prohibition of Control

The Law limits cross holdings of Significant Real Entity and Significant Financial Institution. A party breaching such limitations would be required to sell its holdings, so that it does not possess any holdings above the permitted levels.. In addition, a party breaching these provisions is liable to criminal or civil sanctions or fines.

In addition, the chapter includes provisions which are aimed at preventing conflict of interest – and prohibits officers in Significant Real Entities from acting as directors for Significant Financial Institutions. 

2. Transitional provisions

The Law sets transitional provisions regarding separation of Significant Financial Institutions from Significant Real Entities. In essence, the chapter allows a period of six years to sale holdings that contradict the Law if any increase in the value of the holdings is by natural growth (not by way of merger or acquisition). In cases in which the increase of value resulted from non-natural growth the Law shortens the cross holdings period to four years.

 


 

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