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A Step Towards Improvement of Investment Climate in Ukraine

Date of publication: 26 May 2016

Oleksandr Fefelov, Attorney at Law, Head of Antitrust and Competition Practive
Source: UNIAN

On May 18 amendments to the key law in the system of antimonopoly regulation in Ukraine – the Law of Ukraine “On protection of economic competition”, came into force. The amendments are related to increase of the effectiveness of the system of control over economic concentrations and were widely discussed and expected in the sphere of not only competition, but also of the corporate right.

Prior to this, during the 14-year period, really low value thresholds had existed after reaching of which the participants of M&A transactions had to lodge applications to the Antimonopoly Committee of Ukraine to receive the permit for concentration. There was the need to receive permits even when it was evident that the agreements did not stipulate for establishment of any monopolies and did not threaten competition at corresponding commodity markets, but were only meting outdated formal criteria. The present-day (almost revolutionary) amendments stipulate as new approaches towards defining the cases when the there is the need to coordinate M&A transactions with the AMCU, as well as legislatively consolidated important principles of cooperation of their participants with the regulator.

The legislator has introduced two tests to determine the necessity of obtaining the AMCU’s permit: (1) an aggregate value of assets or an aggregate volume of sale of goods of all participants of the transaction exceeded an equivalent of EUR 30 mln in the previous year and, at least, two of them had the cost of assets or sales in Ukraine exceeding the amount of EUR 4 mln each; and (2) total value of assets or the volume of goods to Ukraine of a party to the agreement, or at least one of the founders of the new subject, for the previous financial year exceeded the equivalent of EUR 8 mln, and, at the same time, volume of sale of at least one of them exceeded the equivalent of EUR 150 mln.

The first test is applied in cases when the seller (together with the acquisition target) and the buyer, one way or another, operate at the relevant Ukrainian market, and the second – when, for example, the turnover of the purchaser of business (founder of a new company) exceeded EUR 150 mln throughout the whole world, and the seller (or another founder) operate at the Ukrainian market at a comparable large scale and enjoys certain market power. In situations like these participants of M&A transactions must plan their realization with consideration for requirements of Articles 22-26 of the Law. The AMCU will not control execution of M&A transactions between foreign economic entities or between foreign and Ukrainian entities if their market power in Ukraine is insignificant. It means that major part of transactions may be closed, at least, 2-3 months earlier and through application of fewer efforts, which serves as a powerful signal for potential investors.

Among the important novelties is cancellation of the requirements to receive the AMCU permit in cases when a share at the relevant market of a party to the transaction, or aggregate share of participants, exceeds 35%, but they do not reach threshold criteria. For 10 years of its existence this provision had not provided a proof of its importance for protection of competition, but only created substantial obstacles in the process of defining relevant commodity market and market shares.

Amendments stipulate for possibility to consider applications in corresponding instances within 25 days under the simplified procedure and it is expected that a major part of them will be considered exactly this way, and the quantity and volume of documents and data submitted within the application process will decrease substantially.

The legislator has also deleted the regulator’s right to open cases on concentration or concerted actions is case of availability of such disputable substantiation as “the necessity to carry out complex and fundamental research or expert examination” which used to cause numerous complaints and misunderstandings as soon as according to the applicants’ opinion it often resulted in protracted consideration of their applications in a biased manner.

It needs to be noted that the AMCU is becoming more open towards questions of consideration of concentrations and concerted actions: the applicants will be able to officially discuss pressing matters related to complexity of documents and volume of information within consultations.

Article 256 of the EU-Ukraine Association Agreement stipulates for the obligation of Ukraine to approximate its competition laws and enforcement practices to the European laws and regulations. During a three-year period following execution of the said Agreement a number of Regulations of the Council and of the EU Commission for the Protection and Development of Economic Competition are subject to implementation into Ukrainian legal system.

It is impossible to improve effectiveness of the system of control over economic concentrations without introduction of considerable amendments to the procedure of consideration of applications, which is described in detail in the Regulation for concentration, approved by the Decree of the AMCU No. 33-р. With this aim in view the AMCU developed a draft of a new Regulation stipulating for a number of amendments review of which requires a separate article. Such amendments are being actively discussed by experts now.

We are welcoming position of the AMCU on ensuring transparent and effective work on cooperation with the business in the context of consideration of certain cases, improvement of the system of control over economic concentrations. In particular, introduction of the simplified procedure of consideration of applications, the possibility of elimination of possible deficiencies contained in the applications through electronic communication, and cancellation of the requirement to compose notices with the assistance of special software will allow saving a lot of time and effort.

It needs to be indicated that the draft of the Regulation stipulates for considerable decrease of the quantity of documents and volume of information required for filing applications which will be reviewed under the simplified procedure, and the list of documents and information submitted within the process of filing applications (which will be reviewed under the general procedure) is duly structured and understandable and does not include information which had previously caused puzzlement during the preparation process.

We would like to draw your attention that the Regulation indicates that the ultimate beneficiary will not be the person who has a formal right for 25 and more percent of the charter capital or the voting right in the legal entity, but is an agent, nominal holder (nominal owner) or only intermediary in relation to such right. It means that the applicants will have to submit information about real owner of business – concentration participant. The AMCU will also demand proof that engagement by a participant of monetary assets for M&A transaction will not lead to creation of control relations with the creditor. Compared to the existing situation the Regulation draws close attention to the economic substantiation of the agreement and it becomes evident that in many cases its preparation will require assistance of economists, marketing specialists etc.

In relation to consideration of cases on concentration it needs to be noted that the general term of their consideration will not exceed 135 days unless claimant files a petition of extension of the corresponding term.

Elimination of excessive overregulation and establishment of clear requirements on performance of M&A transactions must lead to growth of their quantity. At the same time the term of realization, volume of efforts and, finally, of the expenses will be considerably decreased which, in conjunction with the already existing obligations of the AMCU to publicize its decisions and support cases with transparency, improves investment climate of the country.