CIS Legal Update - September 2013: Notifications No Longer Required for Certain Economic Concentration Transactions in Russia

by Dechert LLP
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Despite having been amended twenty times to date, Federal Law No. 135-FZ: "On Protection of Competition" dated July 26, 2006 (the "Competition Law"), passed in July 2006 with the aim of effectively regulating monopolistic activity and eliminating unfair competition, still contains a number of excessive administrative barriers that confuse and sometimes unnecessarily burden companies operating in the Russian market. In its continuing effort to clarify and streamline the Competition Law, the State Duma (the lower House of Parliament) is now considering Draft Law No. 199585-6 on "Amending the Federal Law on Competition" (the "Draft Law"), which was introduced at the end of last year and just recently passed its first reading. The Draft Law would ease the burdensome requirement of notifying the anti-monopoly authorities within 45 days following the execution of certain transactions that result in an economic concentration1, including M&A transactions.

Transactions Requiring Notification 

Article 30 of the Competition Law lists six transactions that result in an economic concentration that require notification to the Federal Antimonopoly Service (the "FAS"). At present, these include:

  1. mergers carried out by commercial companies whose cumulative assets according to their last balance sheet or revenue for the previous calendar year exceed RUB 400 million;
  2. consolidation (accession) of a new commercial company, carried out by commercial companies whose cumulative assets according to their last balance sheet or revenue for the previous calendar year exceed RUB 400 million;
  3. mergers carried out by financial institutions whose cumulative assets according to their last balance sheet exceed the amount in the range of RUB 50 million – 1 billion depending on the type of financial institution.
  4. consolidation (accession) of a new financial institution, conducted by existing financial institution or institutions whose cumulative assets according to their last balance sheet exceed the amount in the range of RUB 50 million – 1 billion depending on the type of financial institution.
  5. the acquisition of significant stakes and assets of or controlling rights in commercial organizations by entities with cumulative property assets or revenue from the previous calendar year exceeding RUB 400 million; and
  6. the acquisition of significant stakes and assets of or controlling rights in financial institutions whose cumulative assets according to their last balance sheet exceed the amount in the range of RUB 50 million – 1 billion depending on the type of financial institution.

Changes Introduced by the Draft Law

According to its accompanying explanatory note2, the Draft Law aims to remove the requirement that companies notify FAS in cases in which their transactions result in economic concentration in the form of any of the six cases listed by Article 30 of the Federal Competition Law. This move comes after a study conducted in 2011 by FAS found that it issued only 14 prescriptions ruling against anti-competitive activity out of the 2,124 notifications it received – a statistic that indicates that FAS has a negligible need to monitor the economic concentration activity specified in Article 30. Companies that are unsure as to whether their economic concentration activity falls under the cases listed in Article 30 often notify FAS in an abundance of caution, creating unnecessary work for both companies and FAS, and resulting in perfectly avoidable delays and excessive costs. In its current form, the Draft Law will allow companies with transactions that fall under Article 30 to completely bypass this cumbersome procedure and complete their transactions without involving FAS.  

However, it is important to stress that the removal of the abovementioned notification requirement in this respect does not mean that the relevant companies would necessarily be exempt from obtaining preliminary approval from FAS. According to Article 28 of the Competition Law, preliminary approval from FAS is still required if the cumulative assets of the participating companies according to their last balance sheet exceed RUB 7 billion, or if the cumulative revenue of the companies together exceeds RUB 10 billion and if the cumulative assets of the target company and its group according to their last balance sheet exceed RUB 250 million.

As the Draft Law has only passed its first reading in the State Duma, it is early to draw any conclusions. However, if adopted, the Draft Law will significantly reduce administrative burdens for companies and individuals engaged in these transactions and will naturally relieve FAS of the unnecessary requirement of reviewing notifications that are highly unlikely to require any scrutiny or response. We will, of course, monitor the situation as it progresses and keep you updated.

Footnotes

1. Under Russian Law, economic concentration is defined as a transaction or action that might influence competition, including the formation and reorganization of companies, and transactions involving shares and participatory interests, property of commercial organizations, and rights over other commercial organizations.

2. The FAS Explanatory Note can be accessed here.

*This update was authored by Pavel Dunaev, a paralegal in the Moscow office.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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