Now in effect is an amendment to the Russian Competition Law abolishing the requirement for business entities to make a subsequent notification to the Federal Antimonopoly Service (FAS) in relation to certain regulated transactions.
The Amendment is the latest attempt by FAS to relax Russia’s antimonopoly clearance procedure.
REGULATED TRANSACTIONS IN RUSSIA
Regulated transactions under Russian Competition Law generally include the acquisition by a person (or a group of persons) of (i) voting shares in a Russian target entity, (ii) fixed production/intangible assets of a Russian target entity, (iii) rights which allow the purchaser to determine the business of the Russian target entity, and (iv) more than 50 percent of the voting shares in a foreign target entity, as well as mergers, accessions and, in certain cases, incorporations of Russian business entities.
Historically, intra-group transactions that fell within the above definitions also required clearance from or notification to FAS. However, the applicable notification procedures have evolved over time. In particular, the Competition Law has established an exception for certain intra-group deals as well as a special intra-group subsequent notification procedure (discussed in more detail below).
ANTIMONOPOLY CLEARANCE PROCEDURES IN RUSSIA
Before the amendment, the Competition Law recognised two types of procedures regarding antimonopoly clearance of regulated transactions: prior consent or a subsequent notification. The applicable type of procedure depended on thresholds which were stipulated by the law.
If the Competition Law required the prior consent of FAS for a regulated transaction, then the parties could not proceed with the transaction until such consent was obtained. Generally, FAS issued consent for the regulated transaction within one month from the application date.
For a subsequent notification, the acquirer had to notify FAS within 45 days after the completion of the transaction.
THRESHOLDS FOR REGULATED TRANSACTIONS
Prior consent of FAS was and is required if:
- the total aggregate assets of the acquirer’s group plus the target entity’s group exceeds RUB 7 billion (approximately US$196 million), and the total aggregate assets of the target entity plus the target entity’s group exceeds RUB 250 million (approximately US$7 million)
- the total aggregate revenue for the preceding calendar year of such persons exceeds RUB 10 billion (approximately US$280 million), and the total aggregate assets of the target entity plus its group exceeds RUB 250 million (approximately US$7 million) or
- if the target entity or any entity from the target entity’s group, or the acquirer or any entity from the acquirer’s group, was included on the register of companies with a market share of over 35 percent or had a market dominant position.
A subsequent notification was applicable for transactions in which the assets and revenue of the acquirer and target were significantly lower than the abovementioned thresholds.
EXCEPTION FOR INTRA-GROUP DEALS
A transaction (that would normally require FAS prior consent on the basis of the asset value or revenue of the entities concerned) concluded between a parent company and its subsidiary, in which the parent company holds more than 50 percent of the voting rights, shall not require the prior consent of FAS (“Exception”).
Importantly, FAS further clarified that the Exception should apply to intra-group transactions between indirectly linked entities (provided that the 50 percent voting share link was maintained between all the entities in the chain). Thus, the clarification made the Exception applicable to the transaction between sister companies and the indirect shareholder and the target. However, it should be noted that the Exception may not be applicable to the chain of shareholders that includes partnerships or other forms of business organisation with no shares or participation rights. In such a case, the applicability of the Exception should be investigated on a case-by-case basis.
However, prior to the Amendment, the Competition Law did not stipulate a similar exception for the subsequent notification requirement. As a result, the acquirer could avoid the prior consent procedure, but was still required to notify FAS after the transaction was completed. The Exception gave the acquirer flexibility in terms of time (i.e., to not have to wait one month before FAS issues the consent), but the acquirer still had an obligation to file with FAS a huge volume of documents (almost identical to what is required under the prior consent procedure). This was inefficient.
SPECIAL INTRA-GROUP NOTIFICATION PROCEDURE: STILL AVAILABLE
The acquirer can make a subsequent notification to FAS in relation to intra-group transactions provided that the acquirer has disclosed information on its group of persons to FAS one month before the transaction. This option is not frequently used. This procedure was not affected by the Amendment and remains available for the intra-group transactions out of the scope of the Exception.
EFFECT OF THE AMENDMENT
The Amendment will have the following effects on antimonopoly clearance of regulated transactions:
- The Competition Law now stipulates a list of thresholds for only those regulated transactions in which the prior consent of FAS is required. An acquirer and target with a relatively low asset value/revenue are no longer required to obtain any antimonopoly clearance in respect of the regulated transaction.
- An acquirer that falls within the Exception is no longer required to make any notification to FAS.
- There is a special intra-group notification procedure available for certain intra-group transactions that do not fall within the Exception. The acquirer is able to decide whether to seek FAS prior consent or to make the prior group structure disclosure to FAS and after the transaction to file a subsequent notification.
IN SUMMARY WHAT HAS CHANGED?
The assessment of regulated transactions between independent parties has not been changed: the parties are still required to confirm or exclude any requisite merger control filing obligations.
For intra-group restructurings (especially those conducted by large groups of companies), it should be noted that the majority of intra-group transactions should no longer require any notification or clearance. However, this is not a rule. If the prior consent thresholds are exceeded, then review of such intra- group transactions and assessment of filing obligations should still be conducted.