Currently, an effective Ukrainian merger control regime was introduced in 2002 and remains substantively unchanged since then. However, the enforcement practices and approaches of the national competition authority—the Antimonopoly Committee of Ukraine ("the AMC")—as well as filing habits of merging parties, have evolved notably since then.
As with many other countries, the Ukrainian merger control regime is exterritorial, in some cases excessively, the AMC claims jurisdiction over transactions reasonably lacking sufficient local nexus, for example where only one of the parties meets the local turnover or assets value threshold.
Notion of a 'Concentration'
'Concentrations' are defined quite broadly and cover the following transactions:
A. the merger of two or more previously independent undertakings, or takeover of one undertaking by another;
B. the establishment by two or more undertakings of a new undertaking that will independently pursue business activity on a lasting basis, while its establishment does not result in coordination of competitive behaviour of either its parents or of the new undertaking, on the one hand, and its parents, on the other;
C. the direct or indirect acquisition(s) of shares whereby certain thresholds (25 percent or 50 percent of the votes in the highest governing body of the undertaking concerned) are reached or exceeded;
D. the acquisition of direct or indirect control over an undertaking, including through: (i) acquisition or lease of a significant part of the assets of an undertaking (including in the process of its liquidation); or (ii) appointments to certain positions (eg Chairperson, Deputy Chairperson or more than half of members of decision-making or supervisory corporate bodies), etc.
The Ukrainian approach to qualification of transactions is highly formalistic; the authority concentrates on the form of a transaction rather than its substance. For instance, the establishment of a joint venture (as per item (B) above) may qualify as an acquisition of shares if the joint venture partners opt for acquiring a shelf company from a corporate services provider, or if one of the partners acquires a stake from the other.
Furthermore, a joint venture is deemed to be established once it is registered in the commercial register or the like. Preparatory stages of a joint venture often need to pass for the joint venture to become a full function undertaking also amounting to a notifiable concentration and which, if not cleared by the AMC, can attract sanctions.
Finally, if formation of a joint venture result in coordination of competitive behaviour of either its parents or between the joint venture and its parents, it may require a separate antitrust (as opposed to merger) clearance.
Following the same approach. the AMC requires separate steps of a multi-stage transaction to be notified separately. In particular, an acquisition of a joint control by two independent undertakings through a special purpose vehicle ("SPV") would normally require two separate clearances—one for joint establishment of a purely technical SPV (even in a situation where the SPV is a new company incorporated with thesole purpose of participating in a bidding process) and one for the acquisition of the target. Depending on the structure of the deal. it may involve other triggering events requiring additional clearances.
The same complexity is in place with multiple acquisitions. for example in asset deals involving (among other assets) shares in a number of directly acquired entities. Where one undertaking simultaneously acquires from the same (ultimate) seller a number of direct targets. it needs to have each of such acquisitions technically cleared by the AMC through issuing a separate clearance decision. It should be noted. however. that this approach has become the prevailing practice of the Ukrainian authority since 2011. Before 2011. most 'multi-target' deals were cleared by a single decision.
Speaking of item (D) above. although it provides only a couple of examples of notifiable transactions, it is in fact a catch-all provision intended to cover acquisitions with respect to any kind of control. Control, in turn, is defined in law as the ability to exercise decisive influence (including via blocking rights) on the strategic decisions related to the business activity of an undertaking. It may arise through contractual arrangements and also covers joint and negative control. As regards the latter. there is little guidance on what constitutes negative control. save for some quite confusing tests for negative control contained in the Ukrainian merger regulations. Consequently. in practice it may be difficult to distinguish negative control from standard minority protection rights. making relevant self-assessment a tricky exercise and making it necessary for merging parties to apply for clearance on a precautionary basis.
Under a fair interpretation of the law. a change from joint to sole control and vice versa should qualify as a concentration. However. due to a very broad definition of control and absent guidance on the matter from the AMC, the notifiability analysis of such a change needs to be made on a case-by-case basis.
A transaction qualifying as a concentration requires merger clearance by the AMC if it satisfies the following criteria:
(A) all of the following thresholds are met:
(i) the combined worldwide value of assets or turnover of the participating undertakings in the previous financial year exceeded EUR 12 million;
(ii) at least two participating undertakings had worldwide value of assets or turnover in the previous financial year in excess of EUR 1 million; and
(iii) the value of assets located in Ukraine or Ukrainian turnover of at least one participating undertaking in the previous financial year exceeded EUR 1 million; or
(B) the combined market share of the participating undertakings in the relevant and/or adjacent Ukrainian market(s) is above 35%.
Thresholds (A)(i)-(iii) work cumulatively with each other and alternatively with threshold (B).
For the purposes of qualification of a transaction and calculation of thresholds. Ukrainian merger control rules refer to the term "undertaking". It is defined as:
(i) legal entity;
(ii) (ii) natural person; and
(iii) (iii) a group of undertakings connected by control relationship. including via natural persons.
Ukrainian merger regulation has no definitive concept of an "undertaking concerned". In each case. the whole group qualifying as an undertaking shall be taken into account irrespective of its role in the transaction. Practically this means that turnover and value of assets of the entire group acting as a seller—and not only of the target—should be used when checking a company's figures against the Ukrainian merger control thresholds.
It follows from threshold A(iii) that an obligation to notify may arise if just one party to a concentration had EUR 1 million in assets or turnover in Ukraine irrespective of its role in the transaction and the overall effect of the transaction in Ukraine. This leads to the Ukrainian filing requirement catching many foreign-to-foreign deals that have no reasonable relevance to Ukraine and its competitive environment.
It should also be noted that pursuant to general provisions of the Ukrainian Competition Act. an argument can be made that application of the turnover/asset thresholds should be qualified by the 'effects doctrine'. Under this interpretation. it may be argued that clearance is not required if the transaction lacks reasonable local nexus and cannot have any anticompetitive effect. Still. this argument runs contrary to the current approach of the AMC in application of merger control rules. The AMC has. on several occasions. expressed its unofficial position on the issue: it claimed that such transactions are subject to clearance because the AMC has exclusive authority to determine whether a particular transaction may or may not impact competition in Ukraine, and verification of such impact is in fact conducted while reviewing a merger case and granting the clearance.
In all cases the AMC has accepted and reviewed applications for clearance of transactions lacking reasonable local nexus (but technically triggering the thresholds), thus indirectly confirming its jurisdiction over such transactions. Moreover. the AMC did impose fines for implementation of some of these transactions.
That is why the notifiability thresholds, and more specifically their interpretation and application by the authority, have been heavily criticized. There are many ongoing discussion in this regard. some of which have resulted in legislatives initiatives to reform and also increase the thresholds; the relevant bill has been developed by the AMC and has already passed the first reading in the Ukrainian Parliament (please see also the section on Prospective legislation below).
Exemptions from Filing Obligations
According to the Competition Act. the following transactions do not qualify as concentrations. meaning that no merger clearance is required irrespective of parties' turnover or assets value figures:
– as mentioned above. establishment of a new undertaking that aims at. or results in. coordination of competitive behaviour of either its parents or of the new undertaking. on the one hand. and its parents. on the other (such establishment is generally regarded as concerted practices and may requires antitrust clearance);
– acquisition of shares qualifying as a financial buyer transaction (ie the shares are acquired by a financial institution for the purposes of further resale within one year (extendable further), provided that the acquirer does not exercise voting rights attached to the acquired shares);
– acquisition of control over an undertaking or part thereof by a receiver or a representative of a state authority (eg in an insolvency procedure);
– intra-group transactions, provided that control links within the group were established in compliance with the Ukrainian merger control rules. While the AMC may be time-barred from imposing sanctions because of the five-year statute of limitations, under adverse interpretation of the law one may conclude that the filing obligation applies to intra-group transactions involving undertakings acquired in violation of Ukrainian merger control requirements, even if such violation happened within the whole period when merger control rules applied (both under the current and the previously applicable law). To date, there are no official guidelines by the AMC regarding such intra-group transactions. However, to our knowledge also, there have been no cases where the AMC penalized a group for similar violations.
There is no deadline for submitting a notification requesting merger clearance in Ukraine. AMC clearance must be obtained prior to closing— eg, transfer of the title to shares, acquisition of control or registration of a new entity. A merger notification can be submitted at a very early stage, and no binding or definitive agreement is required. There have been many transactions notified on the basis of Memorandums of Understanding, Letters of Intent and the like.
The filing obligation concerns all the parties to a concentration. In the case of a merger, the notification should be filed by the merging entities. In the case of a takeover, acquisition of control or acquisition of shares resulting in reaching or exceeding of applicable thresholds, the notification should be filed by the acquiring entity on one part and either the target or a controlling seller (at their discretion) from the other. In the case of formation of a new entity, the founding parent entities will be under the obligation to file.
In certain cases, the AMC may agree to accept a notification filed by one of the participants to the concentration, for instance in case of a hostile takeover or if there is a lack of cooperation between the parties to a concentration in relation to filing in Ukraine. The AMC will either proceed based on the information that is available to, and submitted by, the notifying party or send a separate information request to the other party. If the request is sent, the review period will start only after the receipt by the authority of all the requested information. This essentially means that in a hostile takeover transaction the review period is practically unlimited.
In general, the review period is 45 calendar days. During the first 15 days, the application may be found by the AMC to be incomplete and rejected. In this case, a new notification shall be submitted and the review period shall start from the beginning. During the review period, the AMC may ask questions; relevant requests do not stop the clock.
If the notified transaction raises competition concerns or if an in-depth investigation is required, the authority initiates a merger case. Importantly, the authority is not obliged to justify its decision to initiate a merger case. For this reason, a non-problematic transaction may move to a merger case if the authority fishes for certain information available to the parties or merely wants to buy time. The merger case review period is three months. However, AMC's requests to the applicants or third parties (eg, experts) stop the clock. In average, the duration of merger cases vary from two to five months.
A cleared transaction shall be completed within one year of the clearance date. A longer validity period for the clearance can be negotiated with the AMC at the review stage.
For failure to obtain prior clearance for a notifiable concentration, participants may be fined up to 5 percent of their turnover in the year immediately preceding the year for which the fine is imposed (in practice. starting from approximately EUR 500 and reaching about EUR 60.000 recently). Generally. the Competition Act provides for the fine to be imposed on the entire group of entities whose actions/inactions have led to the violation. The fine may be imposed on the acquiring party, the founding partners in the case of establishment of a joint venture. or the merging entities. The law is silent on whether 'turnover' refers to local or global sales. However. it has been the AMC's prevailing practice to interpret this provision as reference to worldwide turnover.
Moreover. pursuant to the Competition Act. any member of the infringer's group which benefited or might have benefited from the unauthorised transaction may be subject to fines at par with the principal infringer. This allows the AMC to impose fines immediately on the parties' local subsidiaries. In such cases. the AMC would stand a very good chance of forcible collection of the imposed fines.
If not paid on time, the fine is subject to late payment fee accruals (1.5 per cent per day. but not exceeding the principal amount of the fine imposed). In addition to the financial sanctions, the following may apply:
– a ban on the companies' cross-border activities with Ukraine such as importing/ exporting goods. performing under cross-border contracts etc (can be imposed by the Ministry of Economy of Ukraine at the AMC's request);
– third-party damages claims; and/or
– invalidation of the transaction.
The AMC may learn of the transactions that should have been notified from its own market surveys, third parties' (eg. competitors') or state authorities' complaints or while reviewing subsequent notifications of either party to the past transaction. Also. the AMC runs an electronic database consolidating the majority of the information from the filings (including the data on the composition of the groups involved) allowing it to compare the data submitted by respective groups for the purposes of various filings and to identify the changes.
The AMC has developed and submitted to the Ukrainian Parliament the draft law aimed at changing the notifiability thresholds. According to the proposed amendments. the clearance requirement is triggered when:
(i) all parties had EUR 30 million assets/turnover worldwide in the previous year and at least two parties had EUR 2.5 million in Ukrainian assets/turnover; or
(ii) one party had EUR 30 million in Ukrainian assets/turnover in the previous year and one other party had EUR30 million assets/ turnover worldwide; or
(iii) the combined market share of the parties in the relevant and/or adjacent Ukrainian market(s) is above 35%.
The prospects of adoption of this draft law remained unclear until recently. However. after Ukraine has made its choice towards the EU and signed the Association Agreement with the EU. the chances for due implementation of the 'effects doctrine' has increased.
In the meantime. imperfections of the Ukrainian merger control regime may impose an additional
burden on parties to global transactions that have a footprint (even if small) in Ukraine. Still. the growing number of investigations into unauthorized mergers by the AMC make the parties more cautious and create a sufficient incentive to include Ukraine as a filing destination into their global competition compliance policies.