Changes in the Anti-Monopoly Regulation of M&A Deals in Russia
In the beginning of 2016, "the fourth antimonopoly package" came into force; this is the Federal Law of 05.10.2015 No. 275-FZ “On Amendments to the Federal Law "On Protection of Competition" and Some Legislative Acts of the Russian Federation”
In the beginning of 2016, "the fourth antimonopoly package" came into force; this is the Federal Law of 05.10.2015 No. 275-FZ “On Amendments to the Federal Law "On Protection of Competition" and Some Legislative Acts of the Russian Federation,” which is a comprehensive set of amendments to antitrust legislation. Also, in July 2016 the Federal Law of 03.07.2016 No. 264-FZ introduced further amendments to the Federal Law "On Protection of Competition" (hereinafter “the Law”).
In this Article we address the principle developments of the antimonopoly legislation affecting the M&A regulatory context.
First, the registry of entities having a share in a commodities market of more than 35% or entertaining a dominant position has been abolished. The cancellation of these registers serves the interests of those undergoing proceedings in respect of abuse of dominant position, or participating in deals affecting economic concentration, including M&A deals.
Furthermore, prior notification requirement has been uplifted in respect of transactions between the natural monopolies, but in its stead an obligation has been introduced to obtain prior consent of the competing entities if the total value of assets of the parties to the agreement exceeds RUB 7 billion, or if their total sales revenue for the previous year exceeds RUB 10 billion. A prior approval remains mandatory only for agreements which concern concerted activity.
It is worth noting that entities intending to conclude an agreement on concerted activities which are not obliged to do so in accordance with the law may, at their discretion, submit an application for the harmonization of the conclusion of such an agreement. Agreements approved by the Antimonopoly Service cannot be recognized as agreements restricting competition (a cartel). By way of illustration, IPT Group may demonstrate successful experience in reconciliation of joint operating agreements with the Anti-Monopoly Service pursuant to Article 35 of the Law.
Article 11(2) of the Law has expanded the concept of a cartel: banned are agreements not only between sellers, but also between buyers. This amendment is in line with the international practice, where a cartel among buyers is also prohibited. Admissibility of "vertical" agreements has also been revisited. Before the amendment, the limit of 20% had applied to any commodity market, including those not directly related to the "vertical" agreement. According to the revised law, the vertical agreement is permissible if the share of each participant in the commodity market does not exceed 20%.
An agency agreement may be recognized to be a "vertical" agreement. This new approach of the fourth antimonopoly package is justified: antitrust law should apply to agency agreements on the basis of their contents, in accordance with the European concept of financial and commercial risks.
The revised antimonopoly legislation should be taken into account in implementing M&A deals, to the extent that the parties act in the same commodity markets and/or have a dominant position. As for the amendments introduced in July (Federal Law of 03.07.2016 No. 264-FZ), the requirements to certain categories of business entities have been softened. In particular, the threshold for determining whether a prior consent is required for transactions with stocks/shares, property and rights in respect of commercial companies, the book value of assets of the entity of economic concentration (its group of persons) has been increased to RUB 400 million. This revision will reduce the inflow of applications which had been previously submitted (including in respect of M&A deals) when large business acquired stock/shares/property and rights in minor companies.
Furthermore, a company cannot be recognized as having the dominant position in a market if its founder (member) is one individual (who may be registered as an individual entrepreneur) or several individuals, if the gross sales in the previous calendar year do not exceed RUB 400 million (except for certain companies, including financial institutions and of natural monopolies).
It should be noted that the amendments in the civil legislation which came into force in 2015 (Federal Law of 08.03.2015 No. 42-FZ "On Amendments to Part One of the Civil Code") provide new opportunities for structuring M&A deals in Russia under Russian law, and, therefore, such deals may require approval of the antimonopoly authorities under the revised legislation.
For example, now the civil legislation includes the institutes of representation of the circumstances (Art. 431.2 of the Civil Code) and indemnity for the loss of property (art. 406.1 of the Civil Code), which are similar to the institutions of “representations and warranties” and “indemnity” in the Anglo-Saxon legal system, and the presence of such institutions improves the efficiency of the Russian law in respect of M&A deals structuring, including the conclusion of shareholders' agreements, joint operating agreements, etc. To avoid the risk of recognition of such agreements as a cartel, it is necessary to obtain prior consent of the antimonopoly body in accordance with the innovation in clause 8 of Part 1, Art. 27 of the Law, even if the conclusion of such agreements does not require harmonization in accordance with Chapter 7 of the Law.
However, the entry into force of the revised Civil Code raised a number questions. For example, new types of civil-law transactions now include an option for the conclusion of an agreement (Art. 429.2 of the Civil Code of the Russian Federation) and an option agreement (Art. 429.3 of the Civil Code). The option to conclude an agreement (the "Option Agreement"), whereby one party, by means of an irrevocable offer, grants the other party the right to enter into one or more agreements (the possibility of the acceptance of the offer may be subject to certain conditions, including those at the discretion of the other party). If prior consent of the antimonopoly authority is necessary for the conclusion of the deal based on the Option Agreement, it is
Deputy Head of the Legal Support Department
The General Counsel of the Legal Support Department for Investment Projects
Deputy Head of the Legal Support Department
The business tax amnesty in Russia has ticked off. Comments by Dmitry Kvitko, Head of International Corporate Finance
Lawyer, MA student at Law School, Mikhail Lomonosov Moscow State University