Ring-Fencing Concept in Competition Law: Ukraine vs. EU

В статье рассматриваются вопросы, связанные с защитой конкуренции и активов при слияниях и поглощениях, а также других формах концентрации. Особое внимание автор посвящает контролю за международными слияниями и поглощениями со стороны антимонопольных органов Украины.

When merger control rules

Approximately 120 jurisdictions around the world have merger con­trol laws on their books, designed to regulate acquisitions on compe­tition law grounds.

The general theory behind merg­er control laws is that it is better to prevent a company attaining a posi­tion of market power, which would facilitate anti-competitive behavior, than to regulate a dominant com­pany post factum. Therefore, various merger control regimes around the world have one common aim — to detect acquisitions that would re­sult in an unacceptable degree of concentration in the market (usually by establishing a requirement for pre-completion notification or clear­ance) and prohibit or modify them to remove the anti-competitive effect (if they have not yet gone ahead) or remedy them when a transaction that is doubtful from the competition law perspective has been already com­peted. In many countries a failure to notify and/or clear the transaction has serious consequences — from significant fines to declaration of the transaction as null and void. There is also a risk that a competition au­thority may order a transaction to be unraveled, requiring divestment of the acquired business. Thus, obser­vance of the merger control rules is a must.

Everything is quite clear and predictable when a transaction is modifiable in one or two jurisdic­tions (at least from the timing and notification content standpoint), but when the transaction is multina­tional, this quite often means that it must be cleared in several coun­tries, so more varied merger control notification rules apply.

When faced with a multina­tional transaction, the parties need not only make sure that the deal is possible on the markets where it could potentially affect competi­tion (i.e. the competition authorities will not object to the deal and will not prohibit it) and all mandatory pre- or post-completion notification requirements and statutory waiting periods are respected, but need to carefully coordinate the notification process in the most efficient way to enable the transaction to be closed without delays.

To close or not to close — that is the question: EU vs. Ukraine

Different countries have differ­ent regulatory rules and timetables. Thus, certain clearances, especially in jurisdictions with a “suspensive effect” (where closing of the trans­action must be delayed until all regulatory clearances have been ob­tained), may become key hurdles in closing the deal.

Because suspension is not man­datory in every country, if the par­ties are very anxious to close the deal, depending on which countries are involved, it may be possible to close the transaction in many countries except in those which are then ring-fenced for the purposes of a delayed local completion. This will mean that the parties will not implement the transaction in such jurisdictions until clearance is ob­tained and will issue statements in this regard at closing.

While such ring-fencing is gen­erally possible in EU countries, this concept (like the concept of “hold­ing separate”) is not workable from the perspective of Ukrainian com­petition legislation.

Taking into consideration the way the Ukrainian competition leg­islation is drafted and the position of the Antimonopoly Committee of Ukraine (the Ukrainian compe­tition authority), which it has ex­pressed many times with respect to notification of transactions, it is very unlikely that this concept of ring-fencing the transaction from the Ukrainian jurisdiction would be accepted by the competition authority.

The literal interpretation of the merger clearance requirement provided by Ukrainian competition legislation leads to the conclusion that any entity (including enti­ties related to it by control) having Ukrainian assets/turnover of over EUR 1 million and worldwide as­sets/turnover of over EUR 12 million must obtain prior clearance from the Antimonopoly Committee of Ukraine for any acquisition any­where in the world if the target (including entities related to it by control) has worldwide assets or turnover of more than EUR 1 mil­lion, even if the contemplated transaction has no relation to any impact on any Ukrainian market. This requirement appears unrea­sonable and over-burdensome for foreign companies not doing sig­nificant business in Ukraine, but still the Antimonopoly Committee of Ukraine stands by its conserva­tive position according to which: any notifiable transaction must be cleared with the authority prior to completion if the thresholds are exceeded, since the Antimonopoly Committee of Ukraine is the only body empowered to determine whether a contemplated transaction may or may not affect competition in Ukraine.

Thus, Ukrainian merger con­trol rules require prior clearance from the Antimonopoly Committee of Ukraine for any acquisitions or other types of concentrations (re­gardless of whether they affect the Ukrainian market or not, or whether the Ukrainian or foreign companies are acquired), so long as the finan­cial thresholds are exceeded and the effect of a foreign-to-foreign trans­action on the Ukrainian market is ir­relevant when determining whether a transaction needs notification or not, or deciding whether it can be closed prior to receipt of clearance from the Antimonopoly Committee of Ukraine. The rule is that approval must be granted prior to closing.

When reviewing the applica­tion filed on a transaction which has been closed, the authority is not obliged to take into account any carve outs made by the par­ties with respect to implementa­tion of completion in Ukraine, or with respect to Ukraine in general. The risk remains that even if such a carve out is included for Ukraine when the closing is completed, the Antimonopoly Committee of Ukraine may review such closing as a violation of merger control rules and fine the parties for failing to obtain prior approval. The parties would have to obtain post-closing approval in any respect.

The general rule is that for fail­ing to clear a transaction prior to obtaining Antimonopoly Committee approval, the Ukrainian competi­tion authority may impose a fine on the parties to the transaction of up to 5% of the global annual turnover of the participating groups (includ­ing all entities related by control) for the fiscal year preceding the year in which the fine is imposed.

The Antimonopoly Committee of Ukraine does not usually impose the maximum allowed fines but sets the amounts individually on a case by case basis.

Taking into consideration the above, and that Ukraine is not the only country where the clearance ring-fencing concept does not work, the parties to transactions (especial­ly multinational transactions) should pay special attention to merger con­trol requirements in all jurisdictions that could be affected by the trans­action and where the merger con­trol regime requires notification or clearance, as well as to the timing of clearing the transaction and the pos­sibility of ring-fencing a jurisdiction if merger clearance has not been ob­tained, in order to avoid a delay in the overall deal.

Автор:

Olga G. MIKHEIEVA

Источник:

The Ukrainian Journal of Business Law. – 2014. – № 7-8. – Р. 24 – 25.

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