Merger clearance in Ukraine – long anticipated reforms

December 2015 | EXPERT BRIEFING | MERGERS & ACQUISITIONS

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Ukrainian merger control is, in most cases, characterised by extremely low notification thresholds and the fact that the merger control regime may catch foreign-to-foreign transactions even if they do not directly target Ukrainian assets of the merging parties. The Ukrainian antitrust agency, known as the AMCU, must be notified of any transactions where the parties meet the thresholds established by Ukrainian competition regulations, namely: (i) €12m in assets or annual revenues for all the parties, (ii) €1m in assets or annual revenues for at least two parties; and (iii) €1m in assets or annual revenues in Ukraine for any party. Should the parties fail to alert the AMCU to their transaction they may face a maximum fine up to 5 percent of the income obtained from the sale of goods and services in the year preceding the year in which the fine is imposed.

Historically, Ukraine’s antitrust agency has proven quite unpopular with both local and foreign businesses. Its unpredictability has caused significant delays to transaction closures. On many occasions, the agency has been accused of acting in favour of local oligarchs and politicians in certain local markets. Accordingly, many undertakings, especially those with a minimal presence in Ukrainian markets, have chosen not to proceed with their merger filings and have closed transactions without prior clearance from the agency, albeit at their own peril.

However, the situation with Ukrainian merger control may be about to change dramatically. In May 2015 a new chairman of the AMCU, Yuriy Terentiev, who originates from the business community as a practicing in-house lawyer, was appointed to this position. Furthermore, a new board of state commissioners of the agency was appointed in June 2015 by the president of Ukraine. The appointments have brought new hope for the reformation and future implementation of global best practices in the field of competition regulation in Ukraine.

In recent months the renewed AMCU has taken a series of steps to prove that it is no longer ignoring the needs of the business community and the general public. Within weeks of the new appointments being made, the agency changed its position from simply ‘keeping things under control’ to active participation in the public discussion on a number of important antitrust matters.

As soon as the agencies new officials were appointed, they actively joined the discussion, commenced by the local legal community, concerning the calculation of fines for competition law infringements. As a result, on 15 September 2015 relevant guidelines have been adopted. The document, which for the time being is of an advisory nature, provides a two-step methodology: the definition of the basic fine amount and its further adjustment with due regard to mitigating and aggravating circumstances of the infringement. The legal society expects that the authority will adopt an official and obligatory methodology in the near future, so companies will be able to challenge the fine amount in courts. If the draft law establishing the obligatory character of the guidelines is further adopted by the Ukrainian parliament, it will increase transparency of the authority’s decision-making with regard to fine definition and reduce existing corruption risks.

Further, the AMCU put forward a brilliant initiative for the amnesty of undertakings that have failed to notify their transactions to the agency in the past. The respective initiative was also provided in the guidelines mentioned above and establishes a fixed fine amount –approximately €835 for mergers self-reported from the day of its adoption until 15 March 2016. Should the merging parties apply to the AMCU after this term, but no later than 15 September 2016, the fixed fine will amount to approximately €4175.

From a procedural standpoint, self-reporting parties will need to provide the Committee with a similar number of documents and information required for the review of an ordinary application for merger clearance. The officials of the AMCU have, however, mentioned that the scope of the information and documents submitted to the authority may be reduced upon request from the merging party. Given that there is no official clarification of this issue, one should have practical knowledge and experience with merger clearances in order to identify the data that may be lawfully omitted during the filing process.

On 2 October 2015, the Committee amended the regulation on the submission of applications for obtaining merger clearance and limited the term for in-depth consideration of the merger cases. From now on, the term shall not exceed 180 days from the date of application itself, unless the merging parties apply to the authority with a request for extension. That said, the amendment is aimed at increasing the legal certainty for undertakings applying for merger approval, as previously the AMCU was entitled to consider cases within a three month period from the moment of submission of the documents and information requested by the watchdog. At the same time the AMCU was not limited in the quantity of such requests and thus the countdown could be significantly delayed. It is important to note that the improvement will not apply to cases initiated by the Committee upon the self-reporting of undertakings which failed to obtain merger clearance when necessary.

The AMCU has also taken an active position in discussions over the current legislative initiatives concerning the lowering of merger thresholds, namely, bills 2168a and 2168a-1, which are now registered within the Ukrainian parliament and should be put to vote shortly. Both bills stipulate a significant increase in merger notification thresholds – a long awaited change that had been neglected for the last decade despite well-respected international organisations, specifically, the UNCTAD and the OECD, repeatedly pointed out the need for its implementation. Bill 2168a also sets out the possibility for undertakings to receive consultations concerning the scope of the information and documents that are to be submitted to the AMCU prior to the submission date, and provides the chance to undergo a simplified notification procedure if the effect of the merger on the Ukrainian market is insignificant.

These developments are, without doubt, positive and show the willingness of the AMCU to develop into a modern European antitrust agency. But it is still too soon to congratulate the agency on the fruits of its work. The merger control regime in Ukraine remains rather complicated and hinders investment on a national level. Accordingly, national competition legislation must be reformed and best European practices implemented. Until such reforms are put into practice, the AMCU will remain under a critical spotlight and will be regarded as an overly bureaucratic and ineffective state agency. But for now it is important to acknowledge that the Ukrainian competition agency understands the acute social needs and is taking steps to meet them.

Lana Sinichkina is a partner and Viktoriia Gladka is head of the competition law practice at Arzinger. Ms Sinichkina can be contacted on +380 (44) 390 55 40 or by email: lana.sinichkina@arzinger.ua. Ms Gladka can be contacted on +380 (44) 390 55 40 or by email: viktoriia.gladka@arzinger.ua.

Lana Sinichkina and Viktoriia Gladka

Arzinger