The New Ukrainian Approach to Regulation of Business’ Concentration

The amendments came into force on May, 18 of 2016. From now, there are new increased turnover / total assets’ volume thresholds which define the necessity of obtaining of the authorization for the concentration from the Antimonopoly Committee of Ukraine (hereinafter referred to as “AMCU”). This article provides a brief review of concentration regulation in Ukraine considering the latest amendments.

What is “Concentration”?

The Law of Ukraine on Protection of Economic Competition defines “Concentration of economic entities” (herein after referred to as “concentration”) as one of the following actions:

• merger of economic entities or affiliation of an economic entity to another entity;
• direct or indirect acquisition of a control over one or several economic entities (parts of entities) by one or several economic entities, in particular by means of:

a) purchase or acquisition (by other means), acquisition of the right to manage or use (by all means) an assets which are an integrated property complex or a structural subdivision of an economic entity; 

b) appointment or election of a person occupying one or several management positions in one economic entity to the management position in another economic entity, or creation of a situation where more than a half of the members of the Supervisory body in different economic entities are the same persons.

• incorporation of an economic entity by two or more economic entities, if such an incorporation does not result in coordination of competitive behaviour between founders, or between founders and a newly-incorporated economic entity;
• direct or indirect purchase or acquisition (by other means) in ownership or management of the shares (stocks) ensuring achievement or exceedance of 25% or 50% votes at the Highest Body of the relevant economic entity. 

Any of listed above actions is considered as “Concentration” under the antitrust law of Ukraine. However, not every concentration requires a prior authorization of the AMCU. 

In what cases the prior authorization is required?

The prior authorization of the AMCU for the concentration is obligatory only if participants of the concentration exceed the thresholds stipulated by law, in particular when:

• total volume of assets (turnover of the goods) of the participants of concentration in Ukraine and abroad exceeds 30 million Euros for the last financial year, and provided that the volume of assets (turnover of the goods) in Ukraine at least of the two participants of concentration exceeds 4 million Euros (of each of them). 

or

• total volume of assets (turnover of the goods) in Ukraine of the entity which is acquired or at least of the one of founders of the newly-incorporated entity exceeds 8 million Euros for the last financial year and provided that the volume of assets (turnover of goods) in Ukraine and abroad at least of the one of the other participant exceeds 150 million Euros.

The turnover of the goods is determined as an amount of income (proceeds) from sale of goods (after taxes deduction) for the last financial year.

Therefore, it is obligatory to obtain the AMCU’s prior authorization for the concentration only if the participants of concentration meet the threshold requirements listed above.

The participants of the concentration – who are they?

The law provides for the list of entities which are considered as participants of the concentration. They are:

• Economic entities in respect to which a merger or affiliation is planned or being carried out;
• Economic entities which acquire a control over another entity or economic entities over which a control is being acquired;
• Economic entities whose assets, shares are acquiring and respective acquirers;
• Economic entities who intend to be the founders of the newly-incorporated economic entity;
• Individuals and legal entities, associated with participants of concentration by relations of control, which allows deeming certain group of entities as a single entity. 

It should be noted, that the group of entities is considered to be a single economic entity if one or several economic entities of such a group have a control over the other entities in this group. Therefore it is crucial to understand the meaning of “control” under the Ukrainian Antitrust Law. 

In accordance with the law, control is a direct or indirect decisive impact of one or several associated individuals and/or legal entities on economic activities of an entity or its part through:

• the right to own or use all the assets or their considerable part; 
• the right ensuring a decisive impact on the formation, voting results, and decisions of managing bodies of the economic entity; 
• conclusion of an agreements and contracts that make it possible to define conditions of economic activities, to give binding instructions or to perform functions of the managing body of the entity; 
• occupation by the same person of the managing positions in different economic entities; 
• occupation of more than a half of the positions in managing bodies of different economic entities by the same persons. 

In their turn, associated persons are defined as legal entities and/or individuals, who jointly or concertedly perform (including making impact on) economic activities of the entity. In particular, associated individuals are spouses, parents and children, brothers and sisters. 

Thus, concentration will occur only in case of interaction of two or more economic entities outside of relations of control. Any actions within the group of economic entities with relations of control won’t be considered as concentration, because such a group shall be deemed as single entity. 

In addition, it is noteworthy that Ukrainian law does not separate residents and non-residents with regards to concentration. Moreover, Ukrainian Antitrust Law applies on all concentration actions which may cause an influence on economic competition in Ukraine regardless of the territory of such actions. Therefore, the concentration of non-residents, which is held outside the territory of Ukraine, may require the prior authorization of AMCU if participants of this concentration meet the assets (turnover) threshold requirements listed above.

How to obtain the AMCU’s prior authorization for the concentration? 

To obtain AMCU’s prior authorization, participants of the concentration shall file the application with package of required documents to the AMCU and pay the fee in amount of 20 400 UAH (approximately 700 Euros).

The package of required documents includes: constituent documents of the participants; information about the participants of concentration; lists of capable individuals which are spouses, children, parents, brothers, sisters of individuals – founders of the participants of concentration; the list of individuals – members of the management bodies of the participants of concentration; economic justification of the concentration and other information which differs depending on type of concentration.

AMCU considers an application for authorization for the concentration within a period of 45 days from the date of receipt of application and decides whether to authorize or decline the authorization of the concentration. 

The law also provides for the simplified authorization procedure within 25 days in case if:

• only one of the participants has an economic activity in Ukraine,

or

• aggregate share of the participants of concentration in the same market does not exceed the 15% threshold

or

• shares or aggregate share of the participants of concentration do not exceed 20% threshold on markets, trading goods, without selling and buying of which, an economic activities of any other participant of concentration is impossible.

What is the responsibility for the concentration without prior authorization?

Concentration without prior AMCU’s authorization entails responsibility in the form of fine in the amount of up to 5% of income (proceeds) from sales of products for the last financial year, which is closest to the year when fine is imposed. It should be noted again, that the group of entities is considered as single if one or several entities of such a group have control over the other entities in this group, thus the fines can reach huge amounts.

Furthermore, the AMCU may initiate the invalidation of the transaction from the moment of its closing. It is also should be considered that, the limitation period for responsibility is 5 years from the day of violation.

Therefore, violation of antitrust concentration requirements may result in negative consequences for the participants of concentration. The foreign investors as well as Ukrainian business often don’t aware of corresponding requirements or do not pay proper attention or, even worse, hope that AMCU will never know about concentration because of it’s overload. However, considering the limitation period, the possibility of disclosure of information about concentration by other participants of the market and huge fines, the risks of unauthorized concentration will hardly be justified. Moreover, confession and obtaining the authorization when concentration is already done will not exempt from liability.

By Oleksandr Melnyk, Associate, GOLAW