2017 Merger Control Survey: Ukraine

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The Law of Ukraine on Protection of Economic Competition of 2001 (the Competition Law) is the main merger control legislation. It defines the notion of a concentration, sets out the basics of the domestic effects concept, notifiability thresholds, exemptions, principal procedural rules and sanctions.

The Antimonopoly Committee of Ukraine (the AMC) is the primary state authority responsible for enforcement of merger control rules in Ukraine. In particular, it has powers to investigate and authorise or prohibit mergers, penalise for violations and issue individual guidance.

The following transactions are considered concentrations:

• A merger of independent undertakings or takeover of one undertaking by another;

• A direct or indirect acquisition of control over an undertaking (including through the acquisition or lease of assets or appointments to certain management or supervisory positions);

• the establishment by two or more independent undertakings of a new undertaking that will on its own pursue business activity on a lasting basis, while its establishment will not result in the co-ordination of competitive behaviour of either its parents or of the new undertaking, on the one hand, and its parents, on the other; and

• the reaching or exceeding of 25% or 50% of the votes in the highest governing body of an undertaking,

Except:

• an establishment of an undertaking, which qualifies as concerted practices;

• an acquisition of shares qualifying as a financial buyer transaction;

• intra-group transactions; and

• the acquisition of control over an undertaking or its part by a trustee in a bankruptcy proceeding or the like.

On May 18, 2016 new merger thresholds became effective. Now, a transaction is notifiable and requires prior approval of the AMC if either of the following thresholds is met:

• the combined parties' (for the purposes of these tests parties are considered as part of their corporate group) worldwide value of assets or turnover exceeded €30 million (approximately $32 million) and the value of assets in Ukraine or Ukrainian turnover of each of at least two parties exceeded €4 million – both in the last financial year;

Or

• the value of assets in Ukraine or Ukrainian turnover of the target (including the controlling shareholder or seller groups) or of at least one of the founders of a new entity exceeded €8 million and worldwide turnover of at least one other party exceeded €150 million – both in the last financial year.

There is no official clarification on application of thresholds to guide the parties in uncertain cases. For instance, it is unclear to which parent the turnover of a jointly controlled undertaking should be allocated. In a worst case scenario, a joint venture's turnover may be equally attributable in full to either parent. The parties may file a transaction falling below the thresholds in which case the authority will review it.

The same notifiability tests apply irrespective of whether the mergers are domestic or foreign-to-foreign. Although the Competition Law only applies to transactions that have or may have effect on the economic competition in Ukraine (a kind of local effects concept), in practice such effect is presumed once the thresholds are met. In particular, the AMC may assert its jurisdiction even in cases where the local €8 million threshold is crossed by the controlling seller only.

Filings are mandatory. Once the notifiability thresholds are met, a transaction must be cleared prior to closing, unless it qualifies for an exemption (such as a financial buyer exemption).

Statutory maximum fine for implementation of a notifiable transaction prior to or without clearance is up to five percent of the group's worldwide turnover achieved in the year immediately preceding the year when the fine is imposed. In practice, according to AMC Guidelines on calculation of fines for violations of competition laws (the Fining Guidelines) the actual fines in merger cases are limited as follows:

• 10% of the turnover on the relevant (and adjacent) Ukrainian market for implementation without clearance of a notifiable concentration that resulted in monopolization or substantial restriction of competition;

• between UAH510,000 (approximately $19,800 million) and five percent of the turnover on the relevant (and adjacent) Ukrainian market for implementation without clearance of a notifiable concentration that does not lead to monopolisation or significant restriction of competition or have impact on Ukrainian product markets; or

• between approximately UAH170,000 and UAH510,000 for implementation without clearance of a notifiable concentration in case the parties are active on non-overlapping and non-adjacent markets in Ukraine.

The AMC may apply coefficients (depending on the effect of violation on competition, social importance of the products and profitability of economic activity connected with violation) which may increase or decrease the fine. Also, in each case, the above basic amounts are subject to possible further adjustment for aggravating or mitigating circumstances.

Importantly, the Fining Guidelines also provide for a quasi-amnesty for corrective merger filings. In particular, the fine for failure to have a past merger cleared is limited to UAH102,000 (approximately $4,000) if a corrective filing is made before March 15, 2017 (provided that the merger closed before September 15, 2015).

In addition to fines, there may be several negative implications for the parties. These include reputational issues (information about the imposed fine, identity of the offender and non-confidential decisions are published by the AMC on its website); a ban on the companies' cross-border activities with Ukraine, if the parties refuse to pay the fine; third party damages claims (compensation is paid in the double amount of the actual damages); possible complications with Ukrainian clearance of future notified transactions of the parties (the AMC may scrutinise them more closely); and invalidation of the transaction.

The notification is filed jointly by the parties directly involved in the transaction (for example, the purchaser and the target or seller, in case of acquisition). However, the liability for closing of a notifiable transaction without clearance normally rests with the acquiring party. Filings with respect to hostile takeovers can be submitted by the acquirer only.

The filing fee is UAH 20,400 ($800).

The recently updated merger regulation makes filing requirements much more reasonable compared to the previous regime. In short, the following will need to be provided by the parties: information and documents regarding the transaction and sources of its financing; parties' asset and turnover data; information regarding the notifying parties and their beneficiary owners; general information on parties' activities globally and in Ukraine (for all markets); and detailed information on the relevant markets, including information on market shares and competitors.

If the parties' combined market shares exceed 15% on the overlapping markets or 20% on vertically related markets, in addition to the above list they will need to provide a detailed economic analysis of the transaction's effect on the Ukrainian market(s), information regarding membership in associations and parties' excerpts from the trade register or similar (notarised and apostilled or legalised).

Pre-filing contacts are possible, but there is no detailed procedure for that.

Standard phase 1 clearance takes up to 25 calendar days (under simplified procedure) or up to 45 calendar days (under standard procedure).

The standard procedure consists of the following stages. The preview period (15 calendar days) consists of a formal check where the AMC decides whether the filing is complete and can be passed for the review on the substance (phase I). The AMC's additional questions do not stop or restart the clock.

In the phase I review (up to 30 calendar days), the AMC makes an assessment on the substance. In particular, it analyses the parties' standing, the overall market situation and the effects of the transaction on the market. phase I closes with the AMC decision to either clear a concentration or to initiate the phase II review. The AMC's additional questions do not stop or restart the clock.

The phase II review (up to three months) is initiated if there are grounds to prohibit the concentration. The AMC takes a closer look at the transaction and the associated competition concerns, examines expert opinions and other additional information. Although under the Competition Law phase II is limited to three months, theoretically it may take longer because the AMC's additional questions may stop or even restart the clock. In practice and according to the most recent version of the merger regulation, the phase II review period is limited to 135 days. During phase II the AMC will either issue the clearance or adopt a prohibitive decision.

As of May 18, 2016, a fast-track simplified 25-day review procedure is available for transactions where only one party is active in Ukraine or where parties' combined shares do not exceed 15% on the horizontally overlapping markets and parties' shares or combined shares do not exceed 20% on vertically related markets.

In practice, under either simplified or standard procedure it may be possible to negotiate a more expedited review with the AMC if the transaction has simple structure and does not raise any competition concerns.

A concentration can be authorised by the AMC if it does not result in monopolisation (creating or strengthening of the monopoly or dominant position) or substantial restriction of competition on the Ukrainian market or a significant part of it. Also, the authority may clear an initially problematic transaction if the parties offer adequate remedies to alleviate competition concerns (efficiency arguments and positive effect on public interest may be taken into account as supporting arguments but will unlikely be decisive).

The Cabinet of Ministers of Ukraine may still approve a transaction that was prohibited by the AMC if positive effects of such transaction on public interest outweigh the negative impact of the restriction of competition, unless such restriction: is not necessary for achieving the purpose of the concentration; or jeopardises the market economy system.

In cases raising competition concerns, the AMC may still issue a clearance that will be conditional upon remedies. Such remedies may be behavioural (for example, to refrain from certain actions) or structural (for example, divestitures), although in practice the authority appears more likely to impose behavioural rather than structural remedies.

If during the review of the application the AMC identifies grounds to prohibit concentration and initiate phase II, it is required to inform parties of such grounds and allow them 30 days (with possible extension) for offering remedies to resolve the competition concerns identified by the AMC and thereby gain clearance of the transaction. The wording of the law is not clear-cut on this and the AMC will likely do so with opening phase II.

The AMC is also required to carry out consultations with the parties in order to agree the terms and conditions of the remedies.

Under the Competition Law, the AMC's decisions may be appealed in whole or in part in the commercial court within two months following the receipt of the decision. Generally, in practice, Ukrainian courts do not review substantive competition issues such as market definition, the standing of an undertaking in the market or the considerations for determining the level of fines. Judicial review in competition cases remains rather unpredictable due to lack of specific expertise and uniform approach in the area.

The AMC is constantly tailoring and updating its Fining Guidelines. In September 2016 the authority prolonged the amnesty period during which companies can make corrective merger filings and receive a fixed fine of approximately $4,000 to March 15, 2017. The draft law on calculation of fines, which aims, inter alia, to make the Fining Guidelines binding upon the AMC, is still pending approval by the Parliament.

On November 28 the AMC published draft guidelines on the assessment of horizontal mergers, which explains the principles applicable to the assessment of concentrations where the parties are actual or potential competitors. The document aims to implement the relevant obligation of Ukraine under the Association Agreement and is largely based on the European Commission Guidelines on the assessment of horizontal mergers. The AMC also announced its plans on issuing guidelines on the assessment of non-horizontal mergers; though, no text is available by December 2016.

About the author
		Igor Svechkar Partner, Asters Kyiv, Ukraine T: +380 44 230 6000 E: igor.svechkar@asterslaw.com W: www.asterslaw.com Igor Svechkar is a partner heading Asters competition practice. He has been focusing on competition law for more than 15 years and has developed one of the largest competition law practices in Ukraine. He advises clients on various competition issues, including merger control, concerted practices, and dominance. Svechkar is a holder of ILO Client Choice Awards 2011-2013 (Competition, Ukraine); ranked as the top expert for antitrust by the Chambers Europe 2015, Best Lawyers 2016, Ukrainian Law Firms 2014-2015 Handbook, The International Who is Who of Competition Lawyers and Economists 2014-2015, the Guide to the World's Leading Competition and Antitrust Lawyers/Economists 2014, and GCR's List of Top Young Antitrust Lawyers in the World 40 under 40 (2015). Svechkar has advised large international clients such as Ansell, Bunge, Caterpillar, Coca-Cola, Deer & Co, Eni, Ford, General Electric, GlaxoSmithKline, LVMH, L'Oreal, Merck, Microsoft, Molson Coors, Nissan, Novartis, Onexim, Pfizer, Procter & Gamble, Sony Pictures Entertainment, Telenor, and YSL.

About the author
		Tetiana Vovk Counsel, Asters Kyiv, Ukraine T: +380 44 230 6000 E: tetiana.vovk@asterslaw.com W: www.asterslaw.com Tetiana Vovk is a counsel in Asters' competition & antitrust practice group. Vovk focuses on merger control, concerted practices, dominance and competition compliance and has more than 10 years of relevant experience. She regularly represents clients before the Antimonopoly Committee of Ukraine in investigations and merger cases. Since 2008, Vovk has been listed in the Best Lawyers Directory as a recognised expert in antitrust. Vovk advised Allianz, Bucyrus, Mitsubishi Chemical, Telenor, Dow AgroSciences, Amcor, Teva, Microsoft, Seagate, Finmeccanica, General Electric and other clients on various competition matters, such as merger control cases, AMC investigations and sector inquiries.