Brazil: Associative Agreements Are Subject To Prior Notification To The Brazilian Antitrust Authority

Last Updated: 12 February 2015
Article by Walter Stuber

Resolution No. 10, of October 29, 2014, of the Administrative Council for Economic Defense [Conselho Administrativo de Defesa Econômica – CADE] (CADE Res. 10/2014), regulates the hypothesis of mandatory notification of the entering of an associative agreement (contrato associativo) between two or more companies, as required by item IV of article 90 of Law No. 12,529, of November 30, 2011 (the Brazilian Competition Act)1.

Under the Brazilian Competition Act, associative agreements entered into between companies whose economic groups reported a turnover in Brazil equal or higher than R$ 750 million and R$ 75 million, respectively, must be notified to CADE for prior approval2.

For the purposes of CADE Res. 10/2014, associative agreements are any contracts with a term of more than two years in which there is horizontal or vertical cooperation or risk sharing that entails interdependent relationship between the contracting parties. This situation will occur in agreements in which the contracting parties are:

  1. horizontally related to the subject-matter of the agreement, whenever the sum of their participation in the relevant market affected by the agreement is equal to or greater than 20%; or
  2. vertically related to the subject-matter of the agreement, whenever at least one of the parties holds 30% or more of the relevant markets affected by the agreement, provided that at least one of the additional conditions are met: (a) the agreement contemplates the sharing of revenues or damages between the parties; and/or (b) there is an exclusive relationship arising out of the agreement.

Contracting parties are the entities directly involved in the legal business that is being notified to CADE and their respective economic groups, as defined in article 4 of Resolution No. 2, of May 29, 2012, of CADE (CADE Res. 2/2014). In this regard, for the purpose of calculating the turnover, the expression "economic group" comprises the companies that cumulatively met the following conditions: (i) are under common control, internal or external; and (ii) where any of the companies mentioned in item (i) herein holds directly or indirectly at least 20% of the stock or voting capital3.

Furthermore, the associative agreement with duration of less than two years must be notified to CADE under CADE Res. 10/2014 when, upon its renewal, the two-year period is reached or exceeded.

CADE Res. 10/2014 is in full force and effect since January 3, 2015, i.e. sixty days after November 4, 2014, the date of its publication in the Official Gazette of the Union (Diário Oficial da União – DOU).

1 Mergers, acquisitions and joint ventures are economic concentration acts that are subject to CADE´s prior approval, also known as pre-merger control. Associative agreements are also deemed to be economic concentration acts.

2 The objective criteria mentioned herein are laid down in article 88 of the Brazilian Competition Act.

3 This definition is contained in paragraph 2 of article 4 of CADE Res. 2/2012, as amended by CADE Res. 9, of October 1, 2014. Pursuant to paragraph 2 of the same provision, for the purpose of calculation of the turnover, "investment funds of the same economic group" comprise the funds that cumulatively comply with the following requirements: (i) the economic group of each unit holder directly or indirectly owns not less than 50% of the units of the fund involved in the operation via individual participation or through any kind of unit holders' agreement; and (ii) the companies controlled by the fund involved in the owns not less than 50% of the units of the fund involved in the operation via individual participation or through any kind of unit holders' agreement; and (ii) the companies controlled by the fund involved in the transaction and the companies in which the fund holds directly or indirectly an ownership of not less than 20% of the stock or voting capital. Paragraph 3 of the same provision clarifies that the definition of economic group used herein applies only for the purposes of calculating the turnover in order to determine the objective criteria laid down in article 88 of the Brazilian Competition Act, and does not link CADE decisions with respect to the request for information and analysis of merit of the concrete cases.

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.

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Walter Stuber
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