On 13 July 2021, the Ukrainian Parliament adopted in the first reading the draft law No.5431 “On amendments to certain laws of Ukraine on improvement of activities of the Antimonopoly committee of Ukraine” (hereinafter – the “Draft Law”) aiming at far-reaching reform of Ukrainian competition law, which includes amended merger control rules, changes to dawn raid procedures, a revival of the leniency and introduction of the settlement procedure. 

It is going to be the second major reform of Ukrainian antitrust law since 2015 when the Parliament reformed the merger control procedures. Earlier in 2019, there was an attempt to further modernise the antitrust laws by extending the rights of the parties to antitrust proceedings, introducing settlement and improving the leniency instruments, setting time limits to infringement investigations, rights to recuse AMCU officials. However, the President did not sign the law and returned it to the Parliament for further development. 

Except for the Draft Law, there are several other draft laws in this regard registered with the Parliament, but since the Draft Law was adopted in the first reading, it has the best chances to be adopted shortly. The new Draft Law was, however, strongly criticised by legal and business communities in Ukraine. To address such concerns the Antimonopoly Committee of Ukraine (hereinafter – the “AMCU”) presented its proposed amendments to the initial Draft Law. 

In this article, we offer an overview of the key amendments proposed by the Parliament and the AMCU regarding investigation proceedings, leniency and settlement, liability and merger control. 

The final adoption of the Draft Law is planned for autumn 2021. At the moment of preparing this article, Draft Law is being prepared for the second hearing. However, it can be expected that most changes proposed by the AMCU will be accepted, so the initial Draft Law together with the proposal from the AMCU gives a good understanding of what to expect this autumn and to what businesses active in Ukraine should prepare.

Amendments to the merger control rules

The Draft Law provides for clarification as to what constitutes a “concentration” to cover acquisitions of factual control. Having said this, the current edition of Law of Ukraine “On protection of economic competition” (the “Competition Law”) also cover acquisitions of factual control. However, the list of situations listed in the Draft Law will provide for more legal clarity. Thus, when the Draft Law is adopted the term “concentration” will among others include:

  • concluding agreements or other acquisition of rights, which allows the purchaser to determine business activities of the target, give compulsory orders or perform functions of the executive bodies etc.
  • - acquisition of shares which ensures a possibility of decisive influence, including but not limited to 25% or 50% shares, (i.e. can cover minority shareholding transactions if such minority shareholding can ensure controlling powers). 

The Draft Law also specifies the three criteria under which an establishment of JV will constitute a concentration: independence, full-functionality and business activities on a lasting basis. If the three criteria are not met, the establishment of such JV will constitute concerted actions and might require a respective concerted actions approval.

The ACMU also proposed to specify rules for transactions of financial institutions which involve acquisition of shares for subsequent resale. Such transactions do not require a merger control approval (just like in the EU), however, a financial institution acquiring such shares is obliged to notify the AMCU thereof and to resell such shares to an unrelated entity within 1 year from the acquisition. If such resale cannot be conducted within a year, the financial institution can apply to the AMCU to extend the period for resale. Such rules, i.e., regarding notification of such transactions, are not new for Ukrainian Competition law, but currently they are envisaged by the recommendations of the AMCU which, however, do not have a binding force. Therefore, including such rules in the text of the Draft Law is expected to ensure more legal certainty in this regard.

The Draft Law also provides for important changes in merger control thresholds. First and foremost, the initial wording of the Draft Law provided that financial figures of the seller group shall not be included in the calculation of total assets/sales values of the target if the transaction results in loss of control by the seller group over the target. The AMCU however proposed a different approach: the financial figures of the seller group shall not be included if the target is not active on the Ukrainian market.

Secondly, the AMCU proposed to change the approach to the second group of thresholds. Previously, a transaction would trigger a filing requirement in Ukraine if the target (including all entities related to it by control) generated sales volume or assets value in Ukraine in the amount of EUR 8 million, while at least one other participant generates sales value EUR 150 million worldwide. Now, Ukraine related threshold of EUR 8 million can apply to any participant to the transaction, provided that the other participant meet the worldwide threshold

Thus, the merger control thresholds will look as follows:

  • the aggregate asset value or the aggregate sales volume of the participating undertakings (including their related by control entities/persons and calculated on a worldwide basis) exceed the Hryvna equivalent of EUR 30 million, and
  • • the aggregate assets value or the aggregate sales volume on the territory of Ukraine exceed the Hryvna equivalent of EUR 4 million for each of at least two participants to a concentration (including their related by control entities/persons). OR
  • OR • the aggregate sales volume or assets value of one participant to a concentration (including its related by control entities/persons) on the territory of Ukraine exceeds the Hryvna equivalent of EUR 8 million, and 
  •  the sales value of at least one other participant to a concentration (including its related by control entities/persons and calculated on a worldwide basis) exceeds the Hryvna equivalent of EUR 150 million.

It is worth noting that the initial Draft Law also provided for separate, lower, financial Ukraine related thresholds for acquisition of control, assets/shares, conclusion of agreements ensuring a possibility of decisive influence, however, eventually the AMCU suggested not to include such provisions. 

An important novelty is that for the purposes of calculation of merger control thresholds, two or more transactions that affect or can affect the turnover of products on the same and/or adjacent markets between the same parties within 2 years shall be considered as one transaction as of the date of the last transaction. It appears that the reason behind such approach is to prevent a dilution of large transactions into smaller ones that do not formally meet merger control thresholds. 

The AMCU has also proposed stricter thresholds for an expedited merger control procedure. Now to qualify for an expedited procedure the participants shall meet the following criteria: 

  • only one participant to the concertation is active in Ukraine, or
  • a combined market share of the concentration participants on the affected product market does not exceed 15% and
  • - (combined) market shares of the participants to the concentration do not exceed 20% on the upstream or downstream markets..

Currently, the mentioned market share thresholds are alternative rather than cumulative. 

In addition to the above changes to merger control on substance, the Draft Law also provides for several procedural changes to the merger control review such as: 

  • A possibility of 1-month extension of Phase II investigation if the parties to the concentration/concerted actions offer commitments
  • If the transaction is prohibited by the AMCU, the parties to the transaction shall have a right to familiarise themselves with the case materials to ensure their right to defence. 
  • Increased filing fees. 

Amendments to investigation proceedings and dawn raids

Firstly, it is planned to extend the AMCU’s right to not open an infringement investigation. Under the current version of the Competition Law, the AMCU may refuse to open an investigation of the claimed infringement if it does not have a substantial impact on competition. Initially, the Draft Law proposed to allow the AMCU also not to open an investigation where it believes that the claimed infringement does not correspond to its priorities. Such provision was highly criticised by legal and business communities, so the AMCU offered an alternative: a right not to open an investigation if the claimant did not prove that claimed activities indeed have signs of an infringement. This amendment also may raise further debate, considering that in many cases only the AMC is capable through its powers of gathering sufficient evidence to prove the signs of competition law infringement

On a separate note, it should be noted that the initial Draft Law provided also for the powers of the AMCU to conduct inspections of private residences and other premises of individuals based on a court ruling as well as a right to summon officials, employees and representatives of business entities and other individuals to provide explanations concerning the investigated competition law infringement. Such provisions were also highly criticised by legal and business communities, so the AMCU offered to exclude such provisions. 

Secondly, the Draft Law states that only parties to the case shall have a right to provide evidence in the case. This can be interpreted in the way that no third-party submission shall be considered within a case review. At the same time, the AMCU preserves its right to collect evidence in particular by collecting statements from third parties, sending requests for information, but this grants AMCU discretion on whether to consider data obtained from third parties in each particular case. Therefore, it is not clear whether collecting evidence will indeed be limited to evidence from the parties to the case only. 

Thirdly, the Draft Law abolishes the right of the AMCU to conduct general compliance inspections and allows for a dawn raid only during case investigations to collect evidence of antitrust infringement.

Further, the Draft Law reinforces the rights of the AMCU to access business premises, arrest and seize evidence during a dawn raid. Such provisions largely reflect the current rules of inspections, arrest and seizure of evidence provided by the current Dawn Raid Regulation. But, at the same time, it provides for several important novelties such as:

  • Right of the AMCU to audio and video record the proceedings.
  • Right to seal premises, if the access to such premises is obstructed and there are enough reasons to believe that such premises contain evidence on the case. Access to sealed premises shall be construed as obstruction and bears liability for the business entity as well as administrative liability for employees of the entity. 
  • Dawn raids, including seizure and arrest of evidence, shall be limited to business hours only.
  • Seizure and arrest of evidence shall be conducted in the presence of at least 2 witnesses and/or provided that such proceedings are audio- and video recorded. An attorney of the business entity or its other authorised representative shall be present as well. The attorney or representative shall have 3 hours to arrive, or such proceedings can be conducted without a legal counsel of the business entity. 
  •  The inspection commission shall be comprised of at least 2 AMCU officials. The Draft Law excludes the possibility of employees of other state bodies and business entities to be members of the commission as it is provided by the current edition of Dawn Raid Regulation. 
  • Reinforced the right of the AMCU to engage the police and other enforcement bodies in dawn raids. 
  • Detailed rules of inspections will be defined in the respective regulation of the AMCU

Also, the Draft Law provides for a right of an entity not to submit the information requested by the AMCU within market research if such information was submitted to the AMCU within the last 12 months.

And finally, the AMCU proposed amendments include the power of the AMCU to issue writs of execution. This means that to ensure enforcement of the AMCU decisions, in particular of the financial penalties part, the AMCU will not need to refer to the court first to ensure enforced recovery of fines but will proceed straight to the executive service. It is expected that such provision will significantly expedite the enforcement of AMCU’s decisions. 

Revival of leniency procedure 

The Draft Law aims to improve the existing leniency procedure and bring it in line with the EU leniency procedure. The amendments proposed by the Draft Law and the AMCU include:

  • specifying the requirements to qualify for leniency: (i) to be the first to apply to the AMCU for leniency; (ii) to disclose the concerted actions to the AMCU; (iii) to terminate participation in the concerted actions; (iv) to cooperate with the AMCU; (iv) to provide evidence which AMCU did not have, and which is enough to open the case and is substantial for taking the decision on the case.
  • Introduction of partial immunity for subsequent applicants:
    • 50% for the first next applicant
    • 30% for the second
    • 20% for the third.
  • An entity that forced other participants to concerted actions cannot benefit from full immunity. However, the wording does not exclude the possibility for such entity to benefit from a partial fine decrease. Also, it is not clear whether initiators and/or coordinators of cartels will be considered as those, which forced other participants; thus, it is not clear whether they can benefit from the full immunity. 
  • The Draft Law does not mention anything about markers that are provided by the current Leniency Regulation, thus, it’s not clear how an entity will in practice secure its place in the queue for immunity.
  • The Draft Law intends to limit the liability of full leniency recipients in private enforcement only to damages of their direct suppliers/customers. The injured parties can recover their damages from the full leniency recipient only if such damages cannot be recovered from other concerted actions participants. 

Introduction of settlement 

The Draft Law aims to introduce a settlement procedure that is similar to the one existing in the EU. However, unlike the EU settlement, the instrument to be introduced in Ukraine is about to cover not only cartel cases but any type of concerted actions as well as abuse of dominance cases. According to the initial Draft Law, the procedure can be initiated only after the statement of objections is issued which is one of the final steps in the review of the case on infringement, while further on the AMCU suggests that the procedure on settlement can be initiated at any moment before the decision on the case. Neither of these approaches corresponds to the EU one, which provides that the settlement can be initiated exclusively before the statement of objection is issued so that settling parties waive their right to defence upon SO and thus significantly simplify and speed up the administrative procedure for investigations. The Draft Law states that the settlement procedure can result in a decrease of fine by 15%, while in the EU it is only 10%.

Further, according to the Draft law and the proposal of the AMCU, it is expected that the settlement procedure will be implemented through signing a “settlement agreement” which shall provide for (i) admission of guilt; (ii) termination of the violation; (iii) commitments of the settling parties to eliminate reasons for and/or consequences of the infringement; (iv) 15% fine decrease. The settlement procedure shall not apply to an infringement that cannot be terminated and the reasons for and consequences to which cannot be eliminated as well as in case of a repeating violation. The initial Draft Law also proposed that the agreement shall be approved by court, however, the AMCU suggested removing this procedural requirement. 

In contrast, there is no such “agreement” procedure in the EU and the European Commission has wide discretion to determine which cases may be suitable to explore the parties' interest to engage in settlement discussions, as well as to decide to engage in them or discontinue them or to definitely settle up till the final decision on the case. The Draft Law does not specify who may be the initiator of settlement procedure in Ukraine. 

Penalties and liability

Firstly, the Draft Law abolished the recovery of double damages within private enforcement proceedings. If the Draft Law is adopted, entities and individuals shall be entitled to recover single damages only.

Secondly, the Draft Law specifies the joint and several liability of the entities belonging to one group. The Draft Law specifies that the fine for an antitrust infringement can be imposed on the group of entities as represented by an entity or physical person(s), which exercise control over group. The last part is determined based on the possibility of an entity/physical person to exercise influence over a group of business entities or receive a part of their profit. The Draft Law is aimed to provide more clarity regarding liability of such group entities noting that they bear joint and several liability with respect to fine payment and thus, the AMCU has a right to impose a fine on any such company of the group or physical person (beneficiary) controlling such group.

Further, the Draft Law provides for a subsidiary liability of successors, founders (shareholders) of the infringing entity, if such entity is terminated, insolvent or has insufficient assets to cover the fine because of actions of its controlling shareholders. 

As noted earlier, the Draft Law is being prepared for the second hearing and is anticipated to be adopted this autumn. While the final version of the Draft Law is not available yet, it can be expected that the Parliament will accept most changes proposed by the AMCU. Thus, the initial Draft Law in combination with the proposal from the AMCU gives a good understanding of what businesses active in Ukraine should prepare to in the nearest future.