As previously mentioned, the Competition Law provides for merger control in the form of a pre-transaction clearance. The thresholds for the pre-transaction filing are as follows:
- the worldwide value of assets of the acquirer (with its group) and the target company (with its group), according to the latest accounts, exceeds 7 billion roubles; and the worldwide value of assets of the target company (with its group), according to the latest accounts, exceeds 400 million roubles; or
- the worldwide aggregate turnover of the acquirer (with its group) and the target company (with its group) in the previous business year exceeds 10 billion roubles; and the worldwide value of assets of the target company (with its group), according to the latest accounts, exceeds 400 million roubles.
Post-transaction notification may still apply in a very limited number of cases; for example, to certain intra-group transactions, provided that the company discloses its group on the official competition authority website.
As mentioned above, the acquisition of strategically important businesses in Russia requires separate clearance by the state authorities. Thus, in accordance with the Strategic Investments Law, the following types of transactions are subject to receiving the consent of the Government Commission:
- transactions (except those concerning a subsoil plot of federal value) as a result of which the foreign investor (or its group) receives:
- the right to dispose of more than 50 per cent of shares (interests) in a strategic company; and
- the right to appoint an individual executive body and (or) more than 50 per cent of a collegial executive body or board of directors (or supervisory board) of a strategic company.
- transactions related to shares (interests) in a strategic company that is making use of a subsoil plot of federal value, as a result of which the foreign investor (or its group) receives:
- the right to dispose of more than 25 per cent of shares (interests) in the strategic company; and
- the right to appoint an individual executive body and (or) more than 25 per cent of a collegial executive body or board of directors (supervisory board) of the strategic company.
- acquisition of shares (interest) in respect of a strategic company using a subsoil plot of federal value, if a foreign investor (or its group) of persons has the right to dispose of not less than 25 per cent and not more than 75 per cent of shares (interests) in this company;
- contracts on the implementation of the functions of the managing director (or managing organisation) of a strategic company;
- transactions aimed at the acquisition by a foreign state, international organisation or organisation that does not disclose information, or by an organisation under its control of the right, directly or indirectly, to dispose of more than 25 per cent of shares (interests) in a strategic company, or other opportunity to block decisions of a strategic company or acquisition of more than 5 per cent of shares (interests) in a strategic company that is making use of a subsoil plot of federal value;
- other transactions or agreements aimed at the transfer of the right to determine the decisions of the managerial bodies of a strategic company, including conditions of implementation of its business activity, to the foreign investor or a group of persons; and
- acquisition of fixed productive assets of strategic companies, the balance sheet value of which exceeds 25 per cent of all fixed productive assets of the transferring company.
Subsequent control is maintained through notification on possession of 5 per cent or more of the shares (participatory shares) constituting the authorised capital of the strategic company.
Regarding the post-transaction notification, this should be submitted to the authority within 45 calendar days of the date of the transaction closing. Post-transaction notification should be considered within 30 days of the date of submission of the relevant documents.
Once the results of the notification have been submitted to FAS Russia, a special notice is granted, acknowledging that notification of the transaction has been taken into account.
Additionally, foreign investors or groups of persons are obliged to submit post-completion notification to the authority and inform the authority of implementation of the transaction or other actions for which preliminary consent was granted.
Under the Foreign Investments Law, transactions made by foreign states, international organisations or by organisations controlled by them are subject to pre-transaction clearance if the transaction results in:
- the acquisition of the right to dispose directly or indirectly of more than 25 per cent of the total number of the voting shares or participatory shares constituting the authorised capital of any Russian commercial organisation; or
- other abilities to block the decisions made by managerial bodies of the commercial organisations.
In practice, however, the notifications made under the Foreign Investments Law are not reviewed by the Government Commission, unless the target is a strategic company (and therefore, subject to separate filing under the Strategic Investments Law).
Generally, prior to implementation of the transaction leading to establishment of direct or indirect control over a strategic company, a foreign investor should obtain the approval of the Government Commission. Preliminary proceedings are held by FAS Russia and other state bodies.
Furthermore, the Strategic Investments Law provides the option to recognise a transaction as strategic if the chair of the Government Commission (i.e., the Russian Prime Minister), at his or her own discretion, believes that this transaction might influence national security and the defence of Russia.
According to this option, within five business days of the date the Russian competition authority becomes aware of a transaction by a foreign investor with respect to a Russian entity, it shall send requests to provide information about the forthcoming transaction to the Russian Prime Minister, the federal authorities, or other organisations responsible for the implementation of national policy and statutory regulation in the sphere in which the Russian entity is involved. Within the next 15 business days, addressees shall submit their suggestions to FAS Russia as to whether the transaction shall be considered under the specific procedure, requires strategic clearance and is of strategic importance for Russia. If the Russian Prime Minister makes a decision about the necessity of securing preliminary clearance of the transaction, FAS Russia shall inform the foreign investor of that decision within three business days.
Moreover, the law sets forth the Government Commission's powers to determine any obligations to be imposed on foreign investors as conditions for prior approval of a transaction that it considers necessary to safeguard national defence and state security. Although the list of these obligations in the previous version of the Strategic Investments Law was exhaustive, foreign investors themselves could nonetheless propose to the Government Commission obligations that were not on the list and state that they were prepared to undertake to complete a transaction and could include them in the agreement concluded with FAS Russia. In accordance with the latest amendments, however, as introduced in 2018, the Government Commission may now impose any obligations, even those not listed in the Strategic Investments Law, fulfilment of which is related to maintaining national security and defence. In other words, the list of obligations is not exhaustive.
An application is submitted to FAS Russia, which works as a 'secretary', checking all the documents, coordinating agencies and preparing a draft of the decision for the Government Commission. Altogether, the compliance procedure takes between three and six months from the moment of submitting the application.
As to the procedure of consideration of the application, since 2 February 2016 the Government Commission has had the right to adopt decisions on applications filed by foreign investors in the absence of Commission members, without convening a meeting (absentee vote). Decisions as to whether an absentee vote might be held or not are made by the chair of the Commission. If the Commission members cannot reach a unanimous position, a vote should be held again in the presence of all Commission members.
In the event of failure to observe the legal rules with respect to clearance of the transactions and notification of the authorities of the transactions implemented, civil and administrative liabilities will apply.
Violation of the filing obligations (failure to notify within the required time limits, such as by submitting misleading information to FAS Russia, failure to provide required information, or failure to comply with the FAS Russia ruling), as well as closing the transaction without clearance by FAS Russia, may result in the imposition of an administrative fine of up to 500,000 roubles on the acquirer. Administrative liability in the form of a fine of up to 20,000 roubles may be also imposed on the chief executive officer of the acquirer.
If a transaction implemented without clearance by FAS Russia could, or does, result in the restriction of competition in Russia (including, without limitation, the strengthening of a dominant position), FAS Russia may file a lawsuit. A competent state court may declare the transaction invalid and, as a result, reverse the transaction. Transactions executed in breach of the Strategic Investments Law are null and void. If it is not possible to apply the consequences of invalidity on a void transaction, the state court may, upon a lawsuit brought by FAS Russia, adopt a decision to deprive the foreign investor of its right to vote at a meeting of the shareholders' (participants') of the strategic company, or to invalidate those decisions of the management bodies of the strategic company adopted after the establishment of control in breach of the Strategic Investments Law. A foreign investor might also face an administrative fine of up to 1 million roubles for failure to obtain preliminary approval or notify the transaction in accordance with the Strategic Investments Law.
The following case is a recent example of the courts voiding transactions concluded without obtaining clearance under the Strategic Investments Law. In April 2017, FAS Russia initiated judicial proceedings to invalidate transactions that had established control of Perm Port joint-stock company by UK national Charles Batler. However, the courts rejected the claim based on the fact that FAS Russia missed the limitation period to file a lawsuit.
The amendments, as of 2017, to the Strategic Investments Law also made special provision in relation to the Republic of Crimea and the federal city of Sevastopol: foreign investors are required to disclose information about any holding of five per cent or more of shares (interests) constituting authorised capital of strategic companies incorporated in the Republic of Crimea or the federal city of Sevastopol within 90 days of the amendments coming into force.
In addition to the existing fines for failure to comply with the requirement for foreign investors to file post-transaction notification of: (1) their acquisition of 5 per cent or more of votes in the authorised capital of strategic companies; (2) the completion of pre-approved transactions; and (3) holding 5 per cent or more of shares (interests) in strategic companies incorporated in Crimea or Sevastopol, the Strategic Investments Law will provide for the foreign investor to be deprived, through a court further to a claim by FAS Russia, of the right to vote at a general meeting of the company until the foreign investor properly fulfils the obligation to file a notification for consideration by the authority.
The statutory period for consideration of the pre-transaction merger control application by FAS Russia is 30 calendar days from the date of receipt of the application and the full set of documents attached thereto. The above term may be extended by an FAS Russia decision for up to two months for the submission of additionally requested documents. As such, the period for obtaining approval under the Strategic Investments Law is between two-and-a-half and three months from the moment of submission of the application, and can be extended for up to three more months (which often occurs in practice). It should be noted, though, that FAS Russia introduced a bill to amend the Fifth Antimonopoly Package, which provides for several initiatives regarding the possibility of extending the review period under the merger control procedure in certain cases (which is currently proposed to be quite significant in terms of time). These initiatives are described in more detail in Section VII.
The Competition Law provides for an extension of the period to consider whether an application is to be approved in advance, in accordance with the Strategic Investments Law, prior to adoption of the decision with respect to the transaction in accordance with the Competition Law. Moreover, FAS Russia will refuse to clear a transaction in accordance with the Competition Law if the transaction is not approved in accordance with the Strategic Investments Law.
The parties may also apply to FAS Russia to provide notice of a forthcoming transaction before submission of an application or subsequent notification (the pre-notification process). The parties may provide FAS Russia with the documents and information about the transaction and participate in developing remedies with a view to ensuring competition. The same provisions concerning remedies apply to strategic companies.
Under the Strategic Investments Law, the Government Commission is entitled to initiate an expert assessment of the data, which are accessible by the applicant, as regards their pertinence to data constituting a state secret. In addition, for the purposes of establishing the fact of institution of control by a foreign investor or a group of persons over a company of strategic importance, as well as the fact that there is an agreement made by a foreign investor and third persons (concerted actions) aimed at instituting control over a company of strategic importance, operational units of the federal security service agencies are entitled to undertake operational search measures. The results of these operational search activities may be used for substantiation of claims made in court.