Notification and clearance timetableFiling formalities
What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?
There is no deadline requiring a notification within a certain period of time following a particular transactional event (signing or board resolution, etc), although a notification must be made with the FTC 30 days prior to the closing of the transaction. When a notification is submitted, the FTC issues an acceptance notice to confirm the filing date, and the parties are subject to a 30-day waiting period following such date. If the parties fail to make the required filing or close in breach of the waiting period, a fine of up to ¥2 million may be imposed. However, to our knowledge no such criminal sanctions have ever been imposed, although parties that have failed to file are often requested to file a delayed report with a brief explanatory note setting out the reason for such delay and measures to be taken to avoid future negligence. The FTC can also apply to the court for annulment of any statutory merger or demerger for which the parties failed to file, but it has never yet done so.
In 2016, the FTC formally criticised, although with no penalty, a specific two-step structure used in an auction transaction with the aim of expediting the closing timeline by avoiding an initial FTC filing. This two-step structure was also investigated by overseas authorities including a financial penalty in China. This case demonstrated the FTC’s increasing appetite to intervene more closely in potential gun jumping attempts.
Which parties are responsible for filing and are filing fees required?
In the case of a statutory merger or demerger, both companies intending to effect the merger or demerger are jointly responsible for filing. For a business transfer or business-related fixed-asset transfer and share acquisition, the acquiring company is responsible. The FTC does not charge any filing fees.
What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?
Where a notification to the FTC is required, the parties cannot close the transaction for 30 days following the filing. When a notification is submitted, the FTC issues an acceptance notice to confirm the filing date. It is possible that the FTC does not accept an initial submission as a sufficient notification, in which case the parties should revise the notification to ensure that all required information is provided in the notification. To avoid such uncertainties, as a practice recommended by the FTC, companies normally submit a draft notification informally to the FTC in advance for the FTC to review even if there is no substantive competition issue.
As in pre-notification consultation in the European Union, the parties can discuss the substantive issues with the FTC before submitting the notification formally, and this process can take several months if there are several rounds of questions and market testing is conducted, before the FTC grants an informal greenlight to submit formally.
As a unique rule of Japanese law, which is different from many other jurisdictions, once the 30-day waiting period lapses, the parties can close the transaction legally even if the FTC has not completed its substantive review, although as explained below the FTC can reserve the right to take action for a certain period of time by requesting additional material or information before the expiry of the 30-day waiting period.
If the FTC asks one or more of the companies during the waiting period to submit additional material or information, the FTC may still take action even after the expiry of the waiting period, subject to statutory time limitation: any action must be taken prior to the later of 120 days from the date of acceptance of the notification or 90 days from the date of submission of the additional material.
The FTC has the discretion to shorten the 30-day waiting period. In the old regime before the 2011 Amendment, the FTC was reluctant to shorten the waiting period except for very rare cases. However, in the new regime the FTC is likely to be more generous in agreeing to shorten the waiting period, although there is some uncertainty as to whether a shorter period is always available if applied.Pre-clearance closing
What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?
There has been no precedent where the FTC challenged ‘gun jumping’ with a penalty. It is, however, possible under the Law for the FTC to take measures against transaction parties who have actually or effectively closed the transaction before the required clearance. In fact, as mentioned above, in 2016 the FTC formally criticised, although with no penalty, a specific two-step structure used in an auction transaction with the aim of expediting the closing timeline by avoiding an initial FTC filing. Considering the increasing global trend to regulate ‘gun jumping’, a similar level of caution as used in the most aggressive jurisdictions, such as the United States and European Union, is also prudent with regard to the FTC.Criminal penalty
A person who closes a transaction (executing a share transfer or registering a merger or demerger in the relevant company registry) before the expiry of the waiting period is subject to a criminal penalty of up to ¥2 million. As is the case for other criminal penalties under the merger control regime, in practice the FTC has so far not imposed such sanctions.Remedies
Apart from the criminal sanctions, the FTC may also order remedies that require the parties to take certain measures to restore competition in the relevant market if the transaction may restrict competition.Court action for annulment
Further, the FTC may petition the court for annulment of a merger or demerger on the ground that a transaction requiring a notification has been closed during the 30-day period described above, and the court may invalidate the transaction. The FTC has, however, never yet done so.
Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?
As discussed above, there have been no cases in which a sanction has been imposed against any company, either Japanese or foreign, for closing before clearance. However, the rules do allow the FTC to challenge foreign-to-foreign mergers as long as an impact exists and affects the Japanese market. In fact, the FTC proactively investigated BHP Billiton at the time of its merger discussions with Rio Tinto, which indicates the FTC’s general policy of not hesitating to investigate foreign transactions.
What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?
Under the Japanese rules, as long as the 30-day waiting period has lapsed, technically the parties can close a transaction legally without waiting for the FTC’s substantive clearance (completion of substantive review). However, even after the expiry of the 30 days, the parties remain exposed to the risk of receiving an FTC remedy order in a case where substantial antitrust concerns are raised by the FTC. Very occasionally, closing before clearance could become an issue in a foreign-to-foreign merger under a pressing schedule that cannot afford even the 30-day waiting period, but because of this risk, most companies choose not to close before clearance. The prohibition of closing itself does not extend beyond the 30 days, but technically the FTC may petition a court for an interim suspension of the deal.
It is not theoretically precluded that the parties try to agree with the FTC on a ‘hold-separate’ arrangement, but to our knowledge there is no precedent for such an attempt.Public takeovers
Are there any special merger control rules applicable to public takeover bids?
There are no competition law rules specifically applicable to public takeover bids. There is no clear rule as to when a notification can be filed with the FTC in the case of a takeover bid, but the announcement of the takeover bid is likely to become an important milestone for deciding the timing of notification, subject to case-by-case consultation with the FTC. It is generally understood that when a takeover bid requires an FTC notification, the registration statement for a takeover bid to be filed with the Japanese Financial Services Agency needs to disclose the merger filing requirements under the Law, and the offeror can express in the registration statement that failure to obtain the required antitrust clearance may cause the offeror to withdraw from the takeover bid.Documentation
What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?
To file a transaction with the FTC, a company must comply with the format prescribed by the FTC (different forms are set out for each transaction category), which can be downloaded from the FTC’s website. The filing, including parts of the additional documents to be attached to the form, must be in the Japanese language. As a result, when a foreign company prepares for a notification, sufficient time should be allowed for translation. Unlike Form CO in the European Union, which has to be prepared in flowing text, the Japanese form simply sets out tables into which reporting parties insert relevant information and data. An applicant is not expected to provide its own economic analysis of the market or detailed market data (except for very high-level data) in the filing. The FTC format on its own does not require notifying parties to fully express its own argument to justify the transaction.
The following are the details, among other things, that should be included in the form:
- descriptions of the companies involved including their affiliated entities and economic importance measured by assets or sales;
- the purpose and background of the transaction;
- information regarding shareholding relationships between the companies involved; and
- high-level market information, including types of products or services subject to horizontal overlap or vertical relationship between the parties, geographical coverage of such businesses, ranking and market shares of key players.
Additional documents must be provided (different requirements apply depending on the transactional category of share acquisition, statutory merger, demerger and business transfer, respectively), including the latest annual report, balance sheet, a profit and loss statement, articles of incorporation, a copy of the transaction agreement, and a record of the shareholders’ approval of the transaction.
To supplement the relatively simple notification form for a difficult matter, parties can submit additional information to supplement the notification form in the course of pre-notification consultation with the FTC, as in the European Union, to avoid Phase II, which makes the timetable more unpredictable. The 2011 amendment clarified in the implementation regulations that parties can submit such supplementary documents.
During the review, the FTC requests additional information, and sometimes these requests are more demanding than those of other authorities, particularly around supporting evidence as to market definitions. Recently, the FTC has also requested internal documents, although usually on a voluntary basis.
Submission of false information is subject to a criminal penalty of up to ¥2 million, but we are not aware of any cases where such a penalty was actually imposed.Investigation phases and timetable
What are the typical steps and different phases of the investigation?
Parties can discuss issues with the FTC through pre-notification consultation as in the European Union. Companies are encouraged to use pre-notification consultation to avoid Phase II review, by submitting extensive information proactively at this stage if the transaction is potentially problematic.
Once a notification is submitted, if the FTC finds that the filing raises any issues under the Law in Phase I, it is likely to contact the parties informally first. The FTC can also formally request more information by a written request (report request) as mentioned in question 18, although such a formal request triggers Phase II review. Further, if the parties fail to respond properly to the FTC’s request for information or otherwise the FTC considers that more proactive investigation is necessary, it may commence a formal investigation and has the power to interview relevant parties (eg, suppliers, competitors, employees, executives, customers) and examine related documents.
The FTC often interviews customers of the parties in addition to carrying out document-based assessment. If the parties are manufacturers with substantial production facilities, the FTC may visit such facilities. Such interviews and site visits could potentially take place either during Phase II review or, depending on the case, at the pre-notification stage.
What is the statutory timetable for clearance? Can it be speeded up?
Following the submission of a notification, the FTC issues a notice that confirms the date when the FTC officially accepted the notification. The parties are subject to a 30-day waiting period starting from such date (Phase I). If the FTC requires one or more parties to the transaction to submit additional materials or information (report request) before the expiry of the waiting period, Phase II review is triggered. According to a literal reading of the Law, the parties can still complete the transaction upon the expiry of the 30-day period even when the FTC has not completed their substantive review, but once Phase II is triggered, the FTC may take action even after the expiry of the 30-day waiting period prior to the later of 120 days from the date of the FTC’s acceptance of the notification or 90 days from the date of submission of the additional materials or information. Thus, the parties are subject to de facto prohibition from closing until a clearance is given.
The FTC issues a written confirmation of its clearance at the end of both Phase I and Phase II.
The FTC often shortens the waiting period in response to the parties’ specific request. When Phase II review is triggered, the case is disclosed on the FTC website for third-party comments, and a summary of the FTC’s analysis also appears on the website after the completion of the review.
Before the formal timeline starts, usually, in particular in a difficult case, there are informal pre-notification discussions as in the European Union. Especially where the FTC conducts market testing and there are several rounds of questions, this process can take several months.
There have been some recent cases where the FTC requested, on a voluntary basis, parties’ internal documents. The requests were not as formal as those seen in the United States and European Union, but this may become a more common practice.