Monopolistic conducts which meet certain requirements should be reported and be reviewed under the Anti-Monopoly Law of People’s Republic of China (hereinafter referred to as “Anti-Monopoly Law”). This paper makes a brief introduction to the identification of business operators and its actual controllers in the process of declaration. The identification of different business operators and the calculation of business volume is an important factor involved in the declaration of concentration of undertakings. The identification of actual controllers, which is an important element of the declaration of concentration of business operators, is crucial when conducting market analysis and data collection for the purpose of declaration.
1．The Need to Identify the Standard and Identity of Actual Controllers in Declaration of Concentration of Business Operators
According to Anti-monopoly Law, Measure for the Undertaking Concentration Declaration and Provisions of the State Council on the Standard for Declaration of Concentration of Business Operators, the standard for the declaration of concentration of business operators is the business volume of the business operators, which means the worldwide business volume of all the business operators involved in the concentration exceeds RMB10 billion in the last accounting year and the business volume in China of at least two business operators among them exceeds RMB400 million in the last accounting year; or the business volume in China of all the business operators involved in the concentration exceeds RMB2 billion in the last accounting year and the business volume in China of at least two business operators among them exceeds RMB400 million in the last accounting year (except in the banking, insurance, securities and futures industry). According to the Measure for the Undertaking Concentration Declaration, the business volume of a business operator includes transactions, directly or indirectly, controlled by it and the business volume of other business operator(s), directly or indirectly controlled by the business owner. Such provisions will ensure the possibility for an individual business operator to exercise control on the market as much as it can, which is crucial to the analysis of anti-monopoly and to avoid any restrain of market competition resulting from monopolistic conducts.
The concept of “actual controller” is not originated from the Anti-Monopoly Law. Usually, in capital market and public offerings within and outside China, we should be clear about the enterprises and ones which will be the ultimate beneficiaries in the process of identification of actual controllers. Similarly, the existing regulations such as Anti-monopoly Law, Measure for the Undertaking Concentration Declaration and Provisions of the State Council on the Standard for Declaration of Concentration of Business Operators fail to clarify the definition of the concept of actual controllers, however, the identification of actual controller plays an important role in determining whether the transaction will affect the related market and the effect it will bring to the market. We should focus on whether the transactions (including merger, instauration, acquisition, arrangement and so on) would cause elimination of competition and restrain of competition in the related market and thus restrict other market participants.
The transactions between undertakings controlled by the same business operator are not identified as concentration of business operators between different undertakings, because the ultimate controller has not changed and furthermore, the impact of the transactions on the market competitors has not been changed substantially. For these reasons, Article 22 of Anti-Monopoly Law provides that undertakings may not need to declare to the Anti-monopoly authority in any of the following circumstances: one of the undertakings involved in the concentration owns 50 percent or more of the voting shares or assets of each of the other undertakings; or one and the same undertaking not involved in the concentration owns 50 percent or more of the voting shares or assets of each of the undertakings involved in the concentration.
2. The Identification of Actual Controller in Declaration of Concentration of Undertakings
We are of the opinion that the standard for defining actual controller should be the same under the same jurisdiction. In the practice of the declaration of concentration of undertakings, we may want to refer to the prevailing identification methods and standards involved in public offerings and listing process. For example:
- Natural Person
In the case where a natural person is the ultimate controller of undertakings, (not taking into account of any special arrangements or equity trust undertake by each natural person) the actual controller of the undertaking is the natural person who controls the undertakings. For undertakings which do not show obvious control by natural persons, we do not trace back to the natural person who ultimately controls the undertakings.
- Legal person that has many shareholders or dispersed ownership
In the case where the legal person does not have control over the undertakings or the ownership is dispersed, generally, we think there is no actual controller in this instance.
Trust is a popular structure for an individual or a family who likes to hold controlling shares involved in foreign investment. According to trust agreements, trustors will authorize trustees to establish a fund or a trust to make foreign investment. In such cases, restrictions imposed by trustors or beneficiaries on foreign investment should be taken into account to figure out whether beneficiaries or trustors could control the foreign investment. However, when the trustors are shareholders of the parties implementing the concentration, we generally recommend undertakings to disclose the beneficiaries to the relevant authority.
- The State-owned Assets Supervision and Administration Commission (hereinafter referred to as “SASAC”)
We need to pay special attention to transactions conducted by undertakings of the subsidiaries of SASAC at different levels in China. For enterprises under the control of the SASAC of the State Council or local SASAC or different SASAC at the same location, coupled with our recent experience in merger of tour operators and business operators of the same SASAC at municipal level, we do not think that different enterprises (including wholly-owned enterprises or holding companies) of the same SASAC should be identified as an independent controller. This concept has also been recognized by the Anti-monopoly authority. Since the SASAC is responsible for the state-owned supervision and management, the idea is in accordance with the legislative spirit and intention of Anti-Monopoly Law, thus avoiding the possibility of restraining market competition caused by the same administrative authorities. Such definition is different from the identification of actual controllers involved in the overseas listing.
In conclusion, declaration of concentration of undertakings not only depends on the legislative intent of Anti-Monopoly Law to maintain a fully competitive market, but also depends on the practical effect under other laws and regulations. The impact of actual controllers on the operators and the market should be fully disclosed to ensure the standard for identification of subjects and the methods used in gathering information during declaration process, thus making it easier for the declaration document to be adopted and approved.