ANTITRUST LAW REFORM — KEY CHANGES

The Parliament of Ukraine is planning to implement a comprehensive reform of Ukrainian competition law. Draft law of Ukraine “On amendments to some laws of Ukraine in relation to competition law reform” No.2730, dated 14 January 2020, focuses on the introduction of new merger control thresholds, settlement procedures, improved leniency program, joint and several liability, and some other amendments.

This article analyses the major changes that the reform introduces.

Merger control rules

The Antimonopoly Committee of Ukraine (the “AMC”) intends to lower the pressure on businesses and shift its attention to transactions with reasonable local nexus.

At this time, the value of assets and turnover of the seller and all the entities related to the seller by control, i.e., consolidated financial indicators of the seller’s group, are included in the jurisdictional test. This often requires parties to notify the acquisition of a small business or business having no nexus to Ukraine. Under the draft law, the financial indicators of the seller group shall be no longer counted towards the target if the seller ceases to control the target as a result of the transaction. 

However, to prevent the split of one single transaction into several small transactions and in this way avoid notification requirements, the regulator will consider two or more transactions among the same parties taking place within two years as a single transaction. If the financial indicators of the parties exceed the jurisdictional thresholds, such transaction will be subject to the merger control rules.

Given that the financial indicators of the seller group will not be counted towards the target, the AMC proposes to lower the jurisdictional thresholds. It is expected that the transaction will be subject to merger control rules if it results in:

• reaching or exceeding 25% or 50% of votes in the target’s highest governing body or acquisition of control over the target;
• acquisition of control over the target through the purchase or lease of assets; and
• entering into a contractual arrangement which will subsequently grant control over the target,

provided that:

• the target’s Ukrainian turnover or value of assets exceeds EUR 2 million, and the parties’ combined Ukrainian turnover or value of assets exceeds EUR 30 million; OR
• the 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.

Such an approach will reduce notifications of foreign-to-foreign transactions without any local Ukrainian nexus, which are currently being notified to the Ukrainian competition authority.

At the same time, the existing jurisdictional thresholds will continue to apply to transactions resulting in:

• amalgamation of companies;
• establishment of joint ventures; and
• acquisition of control through appointment of management.

In addition, the AMC suggests introducing the full-functionality criterion for joint ventures into the Law of Ukraine “On the Protection of Economic Competition”, dated 11 January 2001. Currently, this criterion is mentioned in the regulator’s non-binding guidelines. It 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.

Procedural rights

The parties will have a broader scope of procedural rights during the Phase II review. In particular, the parties will be able to:

participate in hearings during the Phase II review;
extend the Phase II review for one (1) month, if the parties offer remedies;
examine materials of the Phase II review, if there are potential grounds to prohibit the concentration or concerted practices.

Improved leniency programme

In 2012, the AMC introduced the concept of a leniency programme to detect existing cartels. Even though this is an efficient tool in fighting cartels in other jurisdictions, leniency is still unpopular in Ukraine due to the local business mentality and vague regulation for its application. 

The current Ukrainian leniency programme offers companies involved in a cartel, which self-report and hand over evidence to the AMC, total immunity from fines, which the regulator would have otherwise imposed on them. However, given that the immunity is granted on a first-come-first-served basis, the company that considers applying for leniency is unaware if it is the first applicant. So such company faces a risk of receiving a fine for concerted actions instead of benefiting from self-reporting.

The improved leniency programme will set out more detailed guidelines for those who wish to benefit from it. It will encourage companies to come forward with evidence of illegal cartels by offering reduced fines. Particularly, a cartel participant would be able to apply for leniency, if it:

• cooperates with the regulator during an investigation;
• provides sufficient evidence (e.g., detailed overview of the cartel activities and full information on the participants);
• ceases cartel activities, unless the regulator instructs otherwise; and
• is not a ringleader.

The AMC would grant a full immunity from a fine to the first applicant for leniency that 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.

New settlement procedures

The regulator intends to introduce settlement procedures in concerted actions and abuse of dominance cases. After the company receives a statement of objection, it would be entitled to settle a case by sending a request to the AMC asking for the settlement procedure. Such procedure should be carried out through signing a settlement agreement that must include the following:

accepting the fact of infringement by the defendant, specified in the statement of objection;
accepting the amount of the fine by the defendant; and
15% reduction of the fine to be imposed in case of non-application for the settlement procedure.

The settlement agreement is subject to further approval by the commercial court.

The amendments shall accelerate the investigation of competition law infringements, and they shall also avoid the further challenge of the decision of the AMC.

Joint and several liability

Over the years, the regulator has faced challenges with the enforcement of fines. To avoid liability for competition law infringements, the companies might employ aggressive tactics. For example, there are reported cases when a defendant company transfers its assets to a related entity and then files for liquidation or bankruptcy.

To confront these issues, the reform introduces the concept of joint and several liability, making controlling entities liable for infringements of their subsidiaries. Therefore, the regulator will be able to impose fines on a group of companies.

Moreover, the regulator will be entitled 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.

The proposed changes aim to implement the provisions of the Ukraine-EU Association Agreement. Even though the draft is still subject to further deliberations and revision, it is a step in the right direction to improve the current Ukrainian competition law.