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8 November 2018

Concept of control: new guidance from the Ukrainian competition authority

On 7 November 2018, the Antimonopoly Committee of Ukraine (the “AMC“) published its new Methodological Recommendations on Application of Notion of Control (the “Guidelines“), approved by the AMC on 1 November 2018. The new Guidelines explain how to establish control relations between undertakings, provide comprehensive descriptions of different types of control and forms of acquisition, as well as clarify certain terms used in competition legislation. By adopting these Guidelines, the AMC took another step towards harmonizing national legislation with EU best practices. Particularly, for the most part, the Guidelines mirror the “control” definition set out in the Commission Consolidated Jurisdictional Notice adopted under the EC’s Merger Regulation.

In addition to shedding more light on the AMC’s interpretation of the control definition, the Guidelines provide a number of novelties for Ukraine that are briefly outlined below:

  • Introduction of new definitions. The Guidelines consolidate definitions of certain terms used in different local legislative acts and introduce new definitions such as controlling and controlled entity, distinctions between sole and joint control, positive and negative control, de jure and de facto control, etc.
  • Means of control. The AMC describes different ways of gaining control, including via acquisition of shareholding, execution of agreements, etc. The AMC also confirmed, in line with the EU, that there may be an acquisition of control even if it is not the declared intention of the parties or if the acquirer is only passive and the acquisition of control is triggered by actions of third parties e.g. share buyback or share inheritance.
  • Veto rights. The Guidelines explain in detail what rights may lead to establishment of negative control over an undertaking, including rights to block strategic commercial decisions such as related to budget, business plan, major investments and appointment of senior management, etc.
  • Changes in the nature of control. Change of the nature of control, which is considered as acquisition of new control, takes place in the case of (i) moving from sole control to joint control, and vice versa and (ii) change in the number or identity of controlling shareholders. Based on this, as a general rule, change of control is considered to arise under the following circumstances:
  1. Entry of new controlling shareholders constitutes a notifiable concentration and, thus, requires prior approval of the AMC if the relevant thresholds are exceeded; and
  2. Reduction in the number of shareholders amounts to a notifiable concentration if it leads to change from joint control to sole control.

In any event, each scenario shall be assessed on a case-to-case basis in order to determine whether or not change of control amounts to a concentration.

N.B. Change from negative control to positive sole control without changing powers in the company does not constitute a change in the nature of control and, thus, is not a concentration.

  • Treatment of investment companies and funds. The AMC shed some light on the establishment of control in collective investment schemes that were treated ambiguously in the past. According to the Guidelines, investors as owners of assets usually do not exercise sole or joint control over such assets. In practice, control is exercised by an investment company or more rarely by investment fund itself.
  • Acquisition of control over the assets. The AMC provided further details clarifying the definition of assets, acquisition of control over which may trigger a filing requirement.
  1. The respective assets should be necessary and sufficient for conducting business activity, i.e. production, sales and purchase of goods;
  2. Transfer of assets and/or personnel to an outsourcing service provider may amount to a concentration if such assets will enable the outsourcing service provider to supply such services not only to the client but to third parties;
  3. Transfer of a licence leads to establishment of control if it is provided for a lifetime or long term and assets transferred with such licence contain those elements (e.g. know-how) that will allow the acquirer to enter a market.

The AMC stresses in the Guidelines that foreign regimes should be taken into account while establishing control relations. In other words, the AMC acknowledges that decisive influence may arise under other circumstances than those listed in the Guidelines due to the peculiarities of foreign rules that are not reflected in local legislation.

Although the Guidelines are not legally binding, the document provides insightful understanding of how the AMC views the notion of control and resolves many ambiguities when it comes to defining an undertaking and control relations.

For any questions on the Guidelines, please feel free to contact Vladimir Sayenko, Valentyna Hvozd, Oleksandr Nagorny or Maksym Nazarenko


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