Although we have not witnessed any major legislative or policy changes during the last year, these seem to be forthcoming in 2009 as the Antimonopoly Committee of Ukraine (AMCU) developed a draft amendment to the Competition Act 2001, which introduces fundamental changes to the national merger control system.
In particular, the draft provides for three independent notifiability tests which are much closer to international standards than those in operation at present.
In order to be caught by the first test the global combined turnover/assets of all parties should be over EUR 50 million (EUR 12 million currently) and the individual Ukrainian turnovers/assets of at least two parties should be in excess of EUR 4 million (EUR I million and only for one party currently). Consequently, clearly 'nexus-less' transactions, for example acquisitions of a target having no link to Ukraine, are finally excluded from the first test scope.
The "nexus-less"" transaction still may be caught by the second test on the condition that an undertaking has significant individual Ukrainian turnover/assets (worth more than EUR 50 million) and any other party to such a transaction has individual global turnover/ assets in excess of EUR 50 million. In other words, this test again justifies the notifiability by strong local standings of either party to a transaction.
The third test remained unchanged if compared to the provisions currently in operation: 35% combined market share of the parties in the relevant or neighboring market. Nevertheless, the other two tests are completely different from what we have now.
Market overlap, vertical integration, and certain other notions of significant interest were not mentioned as a part of assessment of notifiability under tests No. I and No.2. However, even in its present wording the proposed legislative amendment demonstrates progress towards reasonability and transparency of mergers evaluation.
Concentrations. Notifiability Thresholds. AMCU Merger clearance by the AMCU is required where a transaction qualifies as notifiable concentration. The following actions are regarded to be concentrations:
— merger of two undertakings, or the annexation of one undertaking to another:
— acquisition of direct or indirect control over an undertaking (including, through acquisition of a significant portion of assets of an undertaking and appointment of its managers);
— establishment of a full-function entity by two or more undertakings;
— direct or indirect purchases, acquisitions or acquisitions of control over equity interests whereby certain thresholds (25% or 50% of the votes in the highest governing body of the respective company) are reached or exceeded.
The concentration would be notifiable, thereby requiring prior clearance from the AMCU where:
— in the previous financial year (i) the aggregate worldwide assets value or turnover of the parties exceeded EUR 12 million, and (ii) at least two parties had a worldwide assets value or turnover о over EUR I million each, and (iii) the assets value or turnover in Ukraine of at least one party exceeded EUR 1 million; or
— either individual or aggregate market share of the parties in the market concerned or the neighboring market exceeds 35%.
For the purpose of calculation of the thresholds the assets value/ turnover/market share of the entire group of the relevant undertaking is taken into consideration.
Local Nexus. Where the notification threshold is calculated with reference to local assets value/turnover (threshold (iii) above) the la» does not differentiate between domestic and foreign-to-foreign transactions, if the target or one of the merging parties has no assets or sale in Ukraine. Thus, for the merger clearance requirement to be triggered it is sufficient that the Ukrainian materiality nexus be exceeded to either party to concentration. Moreover, when calculating the asset' value/turnover of targets, these figures should also include those of the entire group the target belongs to prior to the concentration.
Applying for Clearance. AMCU Review. Clearance Test. To get clearance, the parties should submit to the AMCU an application accompanied by a rather extensive set of documents, and pa a processing fee of approximately EUR 550. The application is reviewed over a period of up to 45 days (15 for "preview" and 30 fo substantive review) at Phase I. If grounds which may prevent tin concentration from being cleared or require an in-depth examination are identified, the AMCU will launch Phase II proceedings taking up lo another 3 months. In practice, however, the AMCU may extend Phase II indefinitely by issuing additional data requests to the applicant*s» and third parties.
The clearance test is that a transaction should not lead to monopolization or substantial restriction of competition in the market(s) concerned. There are no further legislative guidance on the considerations on which the AMCU's substantive review should base. This gives AMCU considerable leeway in assessment of anticompetitive impact of a particular transaction.
Abuse of Dominance
An undertaking is considered to enjoy a dominant market position if it holds (i) a market share of 35% or more (unless it can prove that significant competition exists), or (ii) a market share of less than 35%, where no significant competition exists due to the comparatively small market shares held by its competitors. Several undertakings may also be deemed to enjoy a dominant position on the market where (i) the total market share of up to three undertakings exceeds 50%, or (ii) the total market share of up to five undertakings exceeds 70%.
Abuse of dominance is defined as actions/inaction of an undertaking holding a dominant position which may entail prevention, elimination, restriction of competition or infringement of interests of other undertakings, which would have been impossible if a sufficient level of competition was present in the market concerned.
Concerted actions which have led or may lead to the prevention, elimination or restriction of competition arc considered to be anti-competitive and are. therefore, prohibited. Anti-competitive concerted practices include price fixing, limiting production, dividing up markets or sources of supply (including zonified distribution).
Where any kind of unilateral conduct may qualify as the above, the parties should seek AMCU approval for concerted actions.
Certain exemptions with respect to vertical restrictions exist under the Competition Law. However, they are premised by absence of (i) significant restriction of competition, (ii) hindering of market access, and (iii) unjustified raising of prices or deficits.
Another block exemption is provided by the AMCU Model Requirements to Concerted Actions and states that the parties do not need AMCU approval if their aggregate market share is below 5%.
Unfair competition is defined as any competitive act which is contrary to the rules of trade and other good-faith customs of business activity. The Unfair Competition Law contains an exhaustive list of market practices: unauthorized use of a third party's business reputation, hindering competition or attaining an undue competitive advantage, and collection, use and disclosure of commercial secrets.
The law imposes on rather severe sanctions and liability on those violating it.
The AMCU may impose fines on an undertaking of (i) up to 5% of its sales proceeds in the previous fiscal year for an unauthorized merger, (ii) up to 10% of its sales proceeds for abuse of a dominance or anticompetitive concerted practices, and (iii) up to 3% for unfair competition. Fines may also be imposed for misrepresentation to the AMCU. failure to provide information in a timely manner, etc.
The AMCU is also empowered to order the winding up of a monopolistic undertaking, initiate invalidation of illegal transactions via courts, arrange for an import/export ban by the Ministry of Economy, and otherwise eliminate the negative consequences of the violation.
Moreover, individuals and companies that have suffered damages may file a claim seeking compensation for pecuniary and moral damages.
Finally, Ukrainian law also provides for administrative and even criminal liability for violations of competition laws.