I INTRODUCTION

The Antimonopoly Committee of Ukraine (AMC) is the authority exclusively responsible for dealing with mergers.

i Notion of concentration

Merger approvals are required whenever a concentration is consummated, provided that the parties thereto meet or exceed the relevant financial thresholds. In particular, for the purposes of the Ukrainian merger control rules, a concentration is deemed to occur, inter alia, in cases of:

a mergers between undertakings (i.e., when two or more independent undertakings amalgamate into a new undertaking and cease to exist as separate legal entities);

b absorption of one undertaking by another (with one retaining its legal identity and the other ceasing to exist as a legal entity);

c acquisition of control directly or through other persons or entities by one or more undertakings over one or more undertakings, including by the way of:

  • direct or indirect acquisition (gaining control over or acquiring a lease) of assets that amount to a going concern or a structural subdivision of an undertaking;
  • appointment to the post of a chair or deputy chair in the supervisory council, the executive (management) board or any other supervising or executive body of an individual who already occupies one or more such positions in another undertaking; or
  • composition of the supervisory council, the executive (management) board, or any other supervising or executive body of an undertaking, in such a manner so as to enable the same individuals to represent more than 50 per cent of the members of such bodies in two or more undertakings;

d establishment by two or more undertakings of a joint venture, which in turn is intended to perform on a continuing basis all the functions of an autonomous economic entity; and

e direct or indirect acquisition of assets or participation interests (including shares) in an undertaking that allows the acquirer to reach or exceed 25 or 50 per cent of votes in the target undertaking's highest management body.

ii Definition of control

Ukrainian competition laws contain a very broad definition of control that is largely based on the EU example, but in practice is even wider in scope. Control is broadly defined in the Law of Ukraine 'On Protection of Economic Competition' as follows:

[...] decisive influence by one or more related legal entities and/or individuals over the business activity of an undertaking or its part, which is exercised directly or through other persons, in particular due to: the right of ownership or use of all assets or a major portion of them; a right that ensures a decisive influence over the formation, voting results or decisions of the managing bodies of the company; conclusion of agreements or contracts which allow the determination of the conditions of business activity, the giving of mandatory instructions or the performing of the functions of a managing body of the company; or the occupation of the position of chairman or deputy chairman in the supervisory council, the executive (management) board, or any other supervising or executive body of an undertaking by a person who already occupies one or more of the listed positions in another business entity. Related undertakings are those legal entities and/ or individuals that perform business activity jointly or in coordination, including if they jointly or in coordination exercise influence over the business activity of an undertaking. In particular, spouses, parents, children, brothers and sisters are considered to be related.

The local competition regulation provides a number of criteria based on which the undertaking is deemed to have or be subject to a 'decisive influence', including the following:

a undertakings in which the acquirer or the target undertaking directly or indirectly:

  • owns more than 50 per cent of the authorised capital;
  • holds more than 50 per cent of the votes of the managing bodies;
  • has the right to appoint the director, vice-director, chief accountant or more than 50 per cent of the members of the supervisory council, the managing body (e.g., the board of directors) or the audit committee; or
  • has the right to receive not less than 50 per cent of the net profits;

b undertakings that have the rights and powers mentioned in (a) above in relation to the acquirer or the target undertaking;

c undertakings that:

  • are managed by the acquirer or the target undertaking pursuant to a trust agreement, joint cooperation agreement, lease agreement or other agreement; or
  • have the same persons holding the positions of director, vice-director or chief accountant, or not less than 50 per cent of the members of the supervisory council, the managing body or the audit committee; and

d undertakings that provide financial assistance that is used to achieve the concentration, if this may result in a decisive influence of one undertaking over another.

In addition, related entities of the party concerned may include any affiliates that might have an ability to influence the respective party, or to be so influenced, as follows:

a undertakings in which the acquirer or the target undertaking and their related entities, as defined above, directly or indirectly:

  • own more than 25 per cent of the authorised capital;
  • hold more than 25 per cent of the votes of the managing bodies;
  • have the right to appoint the director, vice-director, chief accountant or more than 25 per cent of the members of the supervisory council, the board (or other management body) or the audit committee; or
  • have the right to receive not less than 25 per cent of the net profits; and

b undertakings that have the rights and powers mentioned in (a) above with respect to either the target undertaking or the acquirer or any of their respective related entities.

It therefore follows that, under Ukrainian merger control rules and local practice, the ability to exercise de jure or de facto control (including negative control) is the prerequisite for establishing a control relation between undertakings. Namely, if an undertaking can, on the basis of rights, contracts (shareholders' agreement, etc.), historic pattern of attendance at annual general meetings or other means, obtain any form of control (including the possibility to exercise the right of veto over strategic commercial decisions such as the budget, business plan, appointment or removal of senior management, major investments) over undertakings, it necessarily follows that a control relation between such undertakings is established.

It should be noted that the list above is not exhaustive, leaving the AMC with full discretion to find other cases where a control relationship may arise.

iii Financial thresholds

Wherever a transaction gives rise to a concentration as described above, the Ukrainian filing requirement would be triggered if the parties meet all of the following financial thresholds for the last financial year preceding the transaction:

a the aggregate worldwide value of assets or sales for all parties to the concentration, including related entities, exceeds €12 million;

b the aggregate worldwide value of assets or sales for each of at least two of the parties to the concentration, including related entities, exceeds €1 million; and

c the value of assets or sales in Ukraine of at least one party to the concentration, including related entities, exceeds €1 million.

iv Market shares threshold

In addition to the above financial thresholds, the Ukrainian merger control rules also establish a market share threshold that, if met, also triggers the Ukrainian merger filing requirement. Thus, irrespective of whether the financial thresholds are exceeded by the parties to the concentration, a requirement to seek a merger approval in Ukraine would arise if the market share of any party or the combined market share of all parties to the concentration on any product market in Ukraine exceeds 35 per cent, and the concentration takes place on the same or a neighbouring product market.

v Block exemptions

It should also be mentioned that the Ukrainian competition laws provide for certain specific exceptions from the notion of a concentration. They are intended to provide clarity and legal certainty, outlining which sorts of transactions do not amount to concentrations and therefore do not trigger the Ukrainian filing requirement, which include, in particular, the following:

a establishment of a joint venture undertaking by two or more undertakings that, in turn, results in the coordination of activities among the founders or between the founders and the new undertaking (such actions are instead treated as concerted practices and may also require a separate approval from the AMC);

b acquisition of shares or other equity interest in an undertaking by a person or entity whose main activities are financial or securities transactions, for the purpose of reselling such shares or other equity interest within one year, provided that the acquirer does not participate in the undertaking's managing bodies;

c actions otherwise constituting a concentration that occur between undertakings connected by control relations, provided that the latter were established in compliance with the Ukrainian merger control rules; and

d acquisition of control over an undertaking by an insolvency administrator or a state official.

The Ukrainian merger control rules also provide for a pre-notification procedure. Unlike in some jurisdictions, there is no requirement to make a pre-notification filing in Ukraine provided certain conditions are met. Instead, the procedure is generally used by the parties to ascertain whether a particular transaction requires a merger filing in Ukraine. In other words, the parties can seek a comfort letter (in Ukraine, 'preliminary conclusions') from the AMC to confirm whether a merger filing is required under particular circumstances.

No statutes, regulations or guidelines relating to merger control issues were issued during 2014. However, important legal developments are still in the pipeline that may have far-reaching consequences regarding when the Ukrainian merger filing requirement is triggered. These are considered in Section V, infra.

To see the rest of the review, please click here

Footnotes

1 Dmitry Taranyk is a counsel and Maksym Nazarenko is a senior associate at Sayenko Kharenko.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.