Notification and clearance timetableFiling formalities
What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?
The AML does not provide any deadlines for filing, but provides that notifiable transactions cannot be closed without being notified to and cleared by the authority.
Undertakings that fail to notify a qualifying transaction to SAMR may be subject to various penalties. SAMR has the power to order the undertakings to cease the implementation of the concentration, dispose of shares or assets, or transfer businesses within a given time limit and adopt other necessary measures to restore the pre-merger market situation. SAMR may also impose a fine of a maximum of 500,000 yuan. The more serious implication for most businesses is the adverse impact on relations with SAMR, potentially on a long-term basis.
Both MOFCOM and SAMR’s published decisions for failure to file to date involve not only domestic transactions and Sino-foreign transactions, but also foreign-to-foreign transactions.
In 2014, MOFCOM adopted its first public failure to notify decision. It imposed a fine of 300,000 yuan on Tsinghua Unigroup for failure to notify its acquisition of RDA Microelectronics (both are Chinese companies). Fines were imposed notwithstanding the fact that MOFCOM found that the transaction had no adverse impact on competition in China, making it clear that ‘lack of impact’ on competition is not a basis for not filing in China if the transaction constitutes a concentration of undertakings and the turnover thresholds are met. Since then, MOFCOM and SAMR have to date published 36 decisions for failure to notify. The maximum fine of 500,000 yuan has not been imposed so far. In practice, fines have generally ranged from 150,000 yuan to 400,000 yuan.
In January 2017, MOFCOM adopted its first penalty decision involving a foreign-to-foreign transaction for failure to notify. Canon was fined 300,000 yuan for failure to file its acquisition of Toshiba Medical. The case involved a multi-step transaction. There have been two further cases involving foreign-to-foreign transactions: on 3 May 2017, MOFCOM announced that it had imposed a fine of 150,000 yuan on OCI Corporation for failure to file its acquisition of Tokuyama Malaysia; and on 10 August 2018, SAMR fined Paper Excellence BV, a company registered in the Netherlands, for failure to file its acquisition of Eldorado Brasil Celulose SA, a Brazilian company, prior to closing.
In 2018, MOFCOM/SAMR imposed penalties in 15 cases for failure to notify, a record number in a year since the AML entered into force in 2008. It highlights the authority’s strict stance on failure to notify reportable transactions.
In some cases, the merging parties voluntarily submitted a notification after completing their underlying transactions, and actively cooperated during the investigation with MOFCOM or SAMR, as the case may be. However, the merging parties were still fined despite these mitigating factors.
Which parties are responsible for filing and are filing fees required?
According to the 2009 Notification Measures, the Notification Form and the Notification Guidance, the notification of a concentration effected by way of merger is made by all undertakings involved in the merger. For a concentration effected by other means, the notification is made by the undertaking that will acquire control or will exercise decisive influence, with the assistance of other undertakings to the concentration. Undertakings involved in the concentration that serve merely as an acquisition or investment vehicle are not considered as an appropriate notifying party. The Notification Guidance further provides that if two or more of the undertakings have the obligation to notify, the undertakings may jointly notify or appoint one of the undertakings to make the notification. It should be noted that where parties agree that one of them should notify the transaction on behalf of all of them, the others are not exempt from their obligation to notify. Other undertakings participating in the transaction may submit a notification where the parties obliged to file the notification fail to do so.
It is not unusual in practice for the target to be involved as a joint filing party. At present, there are no filing fees.
What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?
SAMR has a statutory review period of 180 calendar days.
The initial review period is 30 days (Phase I), commencing from acceptance of the filing as complete. In practice, the period between notification and acceptance of the case is unpredictable. The pre-acceptance period normally takes up to six to eight weeks or longer depending on, among other things, the complexity of the transaction, the completeness of the notification, supplemental questions raised during the market inquiry and the merging parties’ response to those questions. The pre-acceptance period can be shorter (approximately up to four weeks) if the transaction is a simple case. The authority has intensified its pre-acceptance review for data completeness in recent years, which may potentially impact the duration of the pre-acceptance period for both normal and simple cases.
At the end of the initial Phase I review period, SAMR must either issue a written decision to clear the transaction or issue a written notice of ‘further review’. If the notifying party does not receive any written notice of further review at the end of the review period, the transaction is deemed to have been cleared and the parties are free to implement the concentration. If the notifying party receives such a notice, which, unlike in the European Union for example, does not necessarily indicate that SAMR has concerns about the concentration, the review period can be extended for another 90 days (Phase II), commencing from the date of the decision for ‘further review’ of the transaction. In certain circumstances, the 90-day Phase II review period may be extended by another 60 days.
However, some conditional clearance decisions show that in practice the total review period can take a longer time than the maximum statutory review period of 180 days. This is the case, for example, where the authority is running out of the time to complete its review owing to complex remedy negotiations. In such a case, the notifying party may need to agree to withdraw and refile the notification, which restarts a further 180-day review period. Recent examples of cases where the parties have withdrawn their notification and re-filed include KLA-Tencor/Orbotech (2019), UTC/Rockwell Collins (2018), Linde/Praxair (2018) and Essilor/Luxottica (2018).
There is no provision under the AML or its implementing rules for expedited review. However, transactions that qualify as simple cases under the Guidelines on the Notification of Simple Cases benefit from quicker review. The simple case procedure is proving effective so far in shortening the review period. In 2018, simple cases accounted for approximately 80 per cent of the authority’s case load, and more than 98 per cent of them were cleared within Phase I.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?
The completion of a concentration, subject to a notification duty, prior to clearance can lead to the sanctions described in question 9.
MOFCOM, and SAMR, have imposed fines for closing before clearance. In the context of transactions involving failure to notify before closing, the published penalty decisions to date involve domestic transactions, Sino-foreign transactions and foreign-to-foreign transactions.
Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?
Yes. The sanctions described in question 9 also apply to foreign-to-foreign mergers. In January 2017, MOFCOM published the first penalty decision involving a foreign-to-foreign transaction for failure to notify prior to clearance (ie, Canon’s acquisition of Toshiba Medical).
What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?
There is little track record to date on this question and there is no formal ‘hold-separate’ arrangement that might be acceptable to remedy local issues in a foreign-to-foreign merger.Public takeovers
Are there any special merger control rules applicable to public takeover bids?
No. Although there is no official position on this, in practice, the review process can be expedited when a transaction is subject to public takeover bid rules.Documentation
What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?
Under the AML, the 2009 Notification Measures and the Notification Guidance, the notification and documents to be submitted include the following:
- a notification form, containing the names of the parties, registered business addresses, scope of business, the identity certificates or registration certificates of the notifying parties, as well as the date on which the concentration will take place - in the case of offshore notifying parties, certificates notarised and authenticated by the relevant local authorities must be submitted;
- explanation of the transaction’s impact on competition in the relevant market;
- the transaction agreement and other relevant documents;
- the financial and accounting reports for the previous accounting year of the participating undertakings, audited by public accountants; and
- other documents and materials as may be required by the authority.
The Notification Form requires a significant amount of information and documents to be provided such as details of the parties’ Chinese activities and foreign entities active in the relevant sectors, details of the joint venture (if applicable), general information on other undertakings involved in the transaction (eg, the seller), internal documents and materials prepared by third parties in relation to the transaction, and detailed information about customers and suppliers. This may result in more time and resources being required to prepare a filing. While some of the information required is optional, SAMR may ask for explanations if the optional information is not provided.
As mentioned above, ‘simple cases’ are subject to less burdensome information requirements. According to the Guidelines on Notification of Simple Cases, SAMR will not review a notification as a simple case on its own initiative. Notifying parties that would like their transaction to be treated as a simple case must submit an application to SAMR using a ‘simple case notification form’. Some of the information and documents required to be submitted in the normal notification form are not required in the simple case notification form. This, to some extent, eases the administrative burden for notifying parties. Information and documents that do not need to be provided in a simple case notification form include:
- information on the parties’ affiliates if not active in the business relevant to the notified transaction;
- the business licences and certificates of approval of the parties’ affiliates within China;
- the demand and supply structure of the relevant market and information on the parties’ major suppliers and customers;
- information on market entry;
- information on horizontal or vertical cooperation agreements; and
- potential efficiencies of the transaction.
However, a simple case notification still requires substantial corporate and competition-related information; in particular, market definition analyses and a full set of data including total market sizes and the market shares of the parties and their major competitors. In addition, a ‘public notice form’ must be submitted alongside the simple case notification form. The notice identifies the notifying parties and includes a summary of their activities, the transaction and the reasons for notifying the transaction as a simple case (with reference to one or more of the criteria for qualifying as a simple case). After the transaction is accepted by SAMR as a simple case, SAMR will publish the public notice form on its website for a period of 10 days for public comments. See also question 30.Investigation phases and timetable
What are the typical steps and different phases of the investigation?
See question 11. The AML contemplates a two-phase review process. The 2009 Review Measures provide guidance on the procedures to follow when the authority conducts its review. They also recognise a notifying party’s right to be heard and to make known its views on concerns raised by the authority.
Prior to a formal notification of a concentration, a notifying party may consult SAMR on matters related to the notification. The application for pre-notification consultation is made in writing. This is not a mandatory procedure. In complex cases, for example, where the notifying parties are uncertain as to whether a transaction is reportable, or the precise scope of the relevant markets involved are difficult to delineate, it may be helpful to consult SAMR prior to filing. This may facilitate preparation of the filing and streamline the review process. The decision to consult SAMR is made on a case-by-case basis.
What is the statutory timetable for clearance? Can it be speeded up?
See question 11 for the review periods.
In practice, a large majority of reviews (including ‘no-issue’ cases) extend well beyond the initial 30-day Phase I review period - unless the transaction is a simple case. For a case without significant competition concerns and that does not qualify for simple treatment, the usual time taken from notification to clearance is approximately four to six months depending on the facts of the case. It is commonly understood that the delay is largely caused by a combination of factors such as capacity constraints at SAMR, the complexity of the cases and the broad scope of involvement of other government agencies and third parties that the authority consults during its review process.
Although the Guidelines on Notification of Simple Cases do not provide any formal guidance regarding the timetable for review of simple cases, this is proving effective in shortening the review period. The usual time taken from notification to clearance is approximately two to three months and the vast majority of simple cases are cleared within Phase I. Some cases are cleared shortly after the start of Phase II if SAMR is unable to complete its review within Phase I. SAMR does not usually conduct extensive consultation with stakeholders such as other government agencies for simple cases as it does for normal cases. This is one of the key factors that facilitates the shortened review.
Administrative time limits have been set for case teams to request information and for notifying parties to respond to information requests. This serves to streamline and speed up the review process.