Last week, the Antimonopoly Committee of Ukraine commenced a public discussion of strategic changes to Ukrainian competition law.
The reform focuses on the following topics:
- merger control rules;
- improved leniency programme & new settlement procedures; and
- joint and several liability.
Here is a short overview of the suggested changes.
Merger control rules
The regulator intends to:
- shift its focus to transactions with reasonable local nexus; and
- lift off unnecessary administrative pressure from businesses.
The regulator suggests carving out the remaining part of the seller group from the jurisdictional test, if the seller ceases to control the target upon completion. In contrast, currently, financials of the whole seller’s group are counted towards the jurisdictional test. This often results in parties having to obtain merger control clearance for the acquisition of an insignificant business or business having no local nexus.
The regulator also suggests introducing additional jurisdictional thresholds. Under the new thresholds, parties to a transaction must obtain prior merger control clearance when the transaction results in:
- reaching or exceeding 25% or 50% of votes in the highest governing body of a target or in the acquisition of control over it;
- the acquisition of control over a target through the purchase or lease of assets; and
- entering into a contractual arrangement granting control over a target,
- a target’s Ukrainian turnover or value of assets exceeds EUR 2 million, and combined Ukrainian turnover or value of assets of all parties exceeds EUR 30 million; OR
- a target’s Ukrainian turnover or value of assets exceeds EUR 2 million, and worldwide turnover of at least one other party exceeds EUR 150 million.
At the same time, currently existing jurisdictional thresholds will continue to apply to a transaction that results in:
- the merger of companies or company takeover;
- the establishment of a joint venture; and
- the acquisition of control through appointment of management.
In such case, the parties have to obtain prior merger control clearance, if:
- Ukrainian turnover or value of assets of each of at least two parties exceeds EUR 4 million, and combined worldwide turnover or value of assets of all parties exceeds EUR 30 million; OR
- Ukrainian turnover or value of assets of at least one party exceeds EUR 8 million, and worldwide turnover of at least one other party exceeds EUR 150 million.
In addition, the regulator suggests introducing the full-functionality criterion for joint ventures into Ukrainian competition law. Currently, this criterion is contained in the regulator’s non-binding guidelines and often creates uncertainty in its enforcement practice when it comes to the assessment of whether the establishment of a non-full functioning joint venture is subject to merger control rules.
Improved leniency programme & new settlement procedures
The existing leniency programme for cartel participants has proved to be unpopular among businesses due to the local business mentality and vague regulation for its application.
The improved leniency programme will set out clear guidelines for those who wish to benefit from it and will encourage businesses to disclose cartel activities by offering reduced fines. In particular, a cartel participant would be able to apply for leniency, if it:
- cooperates with the regulator during an investigation;
- provides sufficient evidence;
- ceases cartel activities, unless the regulator instructs otherwise; and
- is not a ringleader.
The regulator would grant full immunity from a fine to the first one who applies for leniency and meets the above conditions. Subsequent leniency applicants would be able to apply for a reduced fine:
- up to 50% for the second applicant;
- up to 30% for the third applicant; and
- up to 20% for others.
In addition, the regulator intends to introduce settlement procedures in cartel and abuse of dominance cases. Under settlement procedures, parties would be able to admit to the regulator’s objections and in return receive a 15% reduction in the fine.
Joint and several liability
Over the years, the regulator has encountered difficulties with the enforcement of fines. Some businesses employ aggressive tactics to avoid liability for competition law infringements. For example, there are reported cases when a defendant company often transfers its assets to a related entity and then files for liquidation or bankruptcy.
In addition, to impose a fine on a group of companies, the regulator has to split the fine and apply it to each company separately in different amounts depending on the severity of an infringement. To enforce the fine against several group companies, the regulator has to initiate court proceedings against each company.
To tackle these challenges the reform would:
- allow the regulator to impose fines on a group of companies; and
- introduce the concept of joint and several liability making controlling entities liable for infringements of their subsidiaries, which should prevent the avoidance of fines.
It is expected that the Ukrainian Parliament will pass the reform later this year and it should be adopted by the end of 2020 or early 2021.
By Anton Arkhypov, Senior Associate, Avellum