MOFCOM Requests Public Comments on Draft Provisions Related to Remedies Imposed in Conditional Approvals

by Sheppard Mullin Richter & Hampton LLP
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Since the Anti-monopoly Law (“AML”) has come into effect in August 2008, MOFCOM has issued 16 conditional approvals requiring certain structural or behavioral remedies in order to prevent the anticompetitive consequences that, from MOFCOM’s perspective, could arise as a result of the transaction. On March 27, 2013, the Ministry of Commerce (“MOFCOM”) requested public comments by April 26, 2013 on draft provisions concerning the evaluation, negotiation, implementation, monitoring, reconsideration of the remedies used in the conditional approvals issued as a result of the pre-merger review process as well as related sanctions. Once the draft provisions are finalized, they will replace the 2010 interim provisions on the acquisition and divesture of assets.

The current draft provisions reflect MOFCOM’s effort to provide more guidance and transparency to the process related to conditional approvals. These provisions are important not only for parties to the transaction but also for third parties who may be affected by the transaction or may be interested as being part of the remedy.

The 2010 interim provisions focused only on the structural remedy of divestiture of assets. The draft provisions have expanded the scope to include behavioral remedies related to the vertical relationships between the parties to the transaction. The draft provisions sets forth more guidance regarding the negotiation and evaluation period, as well as offering more due process for the parties to the transaction as well as third parties, albeit at the request of MOFCOM. In contrast to the interim provisions, there are references to timing, which no doubt will be revised as a result of the public comment period.

MOFCOM sets forth the factors which are considered when it reviews the possibility of removing or altering the remedies imposed by the conditional approval, among others, whether the competitive elements of the relevant market have changed and whether the modification of the remedies are in the social and public interests. Through public comments there may be more precision added to these factors.

The most significant addition is the chapter on sanctions. Similar to the sanctions imposed in the regulations for failure to file a reportable transaction, if the parties violate the terms of the remedies, they can be subject to a fine up to 500,000 CYN or ordered to restore the situation existing before the transaction. There are additional provisions concerning violations of the respective duties of the trustee, the purchaser of the assets and any MOFCOM official or staff.

Given that this is the first round for requesting public comment, there will probably be more changes. However, these draft provisions reflects MOFCOM’s commitment to developing an effective and transparent pre-merger review process to support a competitive market.

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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