Sophisticated M&A transactions include not only straightforward share purchase agreements but may also contemplate ancillary agreements (e.g. option agreements, share pledge agreements, repo financing, etc.). Moreover, share purchase agreements may envisage non-compete clauses, which also fall within the ambit of Ukrainian competition law.
Are there any peculiarities in obtaining AMC approval for put/call options?
Put/call options are often used in M&A transactions. A put/call option is a right of a party to sell or purchase (and a counterparty's obligation to purchase or sell) shares in the future. In practice, an option may be in the form of separate agreement, which may be considered a separate transaction. However, most commonly a put/call option is used as a solution to a deadlock which might occur between shareholders of the respective companies. All significant put/call options will most likely require approval from the Antimonopoly Committee of Ukraine (the "AMC") for concentration.
Under certain circumstances (for instance, in the case of deadlock) a party which will be adversely affected by the exercise of the option may resist obtaining of an approval for concentration from the AMC. Therefore, it is recommended obtaining AMC approval in advance, while negotiating such an option. Under competition law, AMC approval for concentration may be exercised as a general rule within a period of one year. In practice, in exceptional cases the AMC may issue the approval for concentration for a longer period (for instance, two years).
Is it necessary to obtain AMC approval to enforce a share pledge agreement?
A share pledge agreement is used as a security instrument in financial transactions. Substantial shareholdings are usually pledged as collateral. Therefore, enforcement of pledge agreements typically requires AMC approval for concentration. A creditor should take into account the terms and procedure for obtaining AMC approval for concentration when choosing the pledge to secure underlying obligations. A creditor may insist on receiving the power of attorney authorizing it to represent the interests of the company (whose shares are pledged) before the AMC in connection with the pledge enforcement and provide unconditional obligation of the borrower and the pledgor to submit all documents and information, required for receipt of AMC approval.
Is it possible to avoid obtaining AMC approval when executing a non-compete clause?
In order to maximize future returns on acquired assets, a purchaser must be able to benefit from some form of protection against competition from a seller following purchase of the business. Hence, non-competition obligations are imposed on the seller in the majority of M&A transactions. Such obligations guarantee transfer to the purchaser of the full value of physical and intangible assets and prevent devaluation caused by the other party's actions. In EU countries, the European Commission's approval for concentration is deemed to cover non-compete clauses set forth by the transaction documentation. However, Ukrainian competition law takes another approach and requires obtaining AMC approval for concerted actions in addition to AMC approval for concentration in order to enforce contractual obligations limiting (restraining) competition between the parties. Therefore, provisions on restriction of competition become enforceable upon obtaining AMC approval for concerned actions. Such approval may be obtained either before completion of the underlying transaction for the transfer of shares or following its completion depending on commercial arrangements of the parties.
Are portfolio investments exempt from the requirement to obtain AMC approval?
Portfolio investments have recently become more popular in Ukraine. Repurchase of shares by professional investors (companies with financial operations or securities operations as the main type of their activity) is one example of such investments. If such an investor does not vote at the meetings of the supreme body or other management bodies of the company and undertakes to resell the shares within a period of one year after the purchase date, such a transaction does not require AMC approval. In such cases, it is only necessary to notify the AMC about the transaction without having to obtain AMC approval for concentration. It is known in practice that a non-resident company (for instance, a private company limited by shares, established under the law of Cyprus), which is exclusively involved in corporate rights management, may also act as a professional investor.
Is there any liability for failure to comply with the requirements of competition law?
Failure to obtain AMC approval for concentration may lead to the imposition of a fine in the amount of up to 5% of annual revenue (turnover) for the preceding year of the companies and their affiliated persons, and also gives grounds for invalidation of the underlying transaction for the transfer of shares. If the parties undertake concerted actions through conclusion of an agreement limiting competition without respective AMC approval, they and their affiliated persons are subject to a fine in the amount of up to 10% of their annual revenue (turnover) for the preceding year.
Please note that AMC approval must be obtained by completion of the transaction, e.g. by the transfer of title to shares or corporate rights to the purchaser. In certain transactions, control over the target is transferred from seller to purchaser even before completion. In such cases, AMC approval must be obtained before control is transferred.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
