Ukraine is well known to antitrust practitioners around the world for its merger control requirements catching many M&A transactions outside of the country.
Ukrainian thresholds are very low compared to other jurisdictions and under the Ukrainian Competition Act a transaction may require prior approval of the Ukrainian competition authority (the AMC) where only one of the parties had Ukrainian assets or turnover in excess of €1 million in the year preceding the transaction. Other applicable - worldwide - thresholds are also low and usually easily triggered even by mid-size companies.
Under Ukrainian competition law, the parties are analysed at group level. Therefore, calculation of the thresholds should be made on a consolidated basis, thus also covering other companies that are not involved in a transaction. Importantly, when analysing a target's financials and activities, a seller and other companies on the seller's side (i.e. the group to which the target belongs prior to the transaction) should also be considered.
Thus, due to the rather wide scope of groups analysis and relatively low thresholds, approval of the AMC is very often required for foreign-to-foreign deals that have no potential or actual effect on competition in Ukraine (e.g. when a target has no presence and activities in Ukraine or a transaction does not raise any competition concerns due to the absence of horizontal or vertical overlaps).
In legal and business circles there has been a lot of criticism of the Ukrainian merger control regime and, in particular, of such low thresholds going far beyond the reasonable level of protection of competition and imposing unjustified notification obligations which, among other things, are time and cost consuming.
Pursuant to the general provisions of the Ukrainian Competition Act, it applies to relations, which have or may have impact on the economic competition in Ukraine. Based on this provision it can be reasonably argued that a transaction with no - even potential - effect in Ukraine falls outside the scope of the Ukrainian Competition Act.
Unfortunately, there is no official clarification on the applicability of Ukrainian merger control requirements to transactions lacking measurable effect on economic competition in Ukraine. The current position of the AMC, which - although having been many times expressed informally - has never taken the form of an official guidance or recommendation, is that transactions triggering the thresholds technically require the AMC's approval.
This position is explained by two arguments. The first is that the AMC is the only authority empowered to determine whether a particular transaction may or may not impact on economic competition in Ukraine. The second is that the evaluation of such impact on economic competition is conducted in the process of review of a merger notification. Consequently, the AMC continues accepting and reviewing merger notifications filed with respect to transactions which do not affect competition in Ukraine.
In regards to sanctions, failure to comply with Ukrainian merger control requirements may constitute a violation and result in imposition of certain sanctions, including fines. Generally, companies may be fined in the amount of up to 5% of their respective turnover in the year immediately preceding the year when the fine is imposed.
In case of transactions which have no or no appreciable effect on competition in Ukraine, if the AMC learns of their implementation without the required approval, it procedurally has no choice than to open an investigation and impose sanctions. Historically the actual amounts of the fines imposed on companies for omissions to notify such transactions were significantly lower than the statutory maximum. It should be noted that in majority of cases companies voluntarily informed the AMC of violation of merger control requirements. So one may conclude that at least in practice the AMC does not actively pursue violations of this kind and is more inclined to focus on large-scale transactions and those deals which may have effect on socially important markets in Ukraine.
Another positive sign for international companies is that the AMC is set on modernising Ukrainian merger control. In particular, the AMC prepared a draft law that significantly raises the notifiability thresholds. If the proposed changes are adopted, approval from the AMC will be required only for transactions where (i) each party exceeded €4 million in Ukraine (assets or turnover) or (ii) either party exceeded €50 million in Ukraine (provided, however, that the worldwide thresholds are also met). This draft passed the first reading in the Ukrainian Parliament in 2009; however there has been no appreciable progress since then.