Trust industry professionals (trustees, secretaries, administrators, etc.) are quite often unaware of the existing competition law requirements in Ukraine whereby some of their actions may be qualified as triggering the necessity to obtain the preliminary approval of the Antimonopoly Committee of Ukraine (the "AMC") for transfer assets into trusts or foundations.

Definition

The Law of Ukraine "On Protection of Economic Competition" dated 11 January 2001 (as amended) (the "Competition Law") provides that certain actions of bodies corporate may constitute a "concentration" which under specific circumstances may require prior approval of the AMC. Amongst other definitions, the concentration, according to the Competition Law, takes place in case of:

- "acquisition of control directly or through other entities by one or more undertakings over one or more undertakings or their parts, in particular by:

  • direct or indirect (through other entities) purchase, other way of acquisition of title to the assets forming integral property complex or structural subdivision of the undertaking, gaining control over management, lease, concession or acquisition of right to use the assets forming integral property complex or structural subdivision of the undertaking including, but not limited to, acquisition of assets of undertaking in the process of liquidation;
  • appointment or election as a chairman or a deputy chairman of the supervisory board, the executive (management) board or any other supervising or executive body of the undertaking of a person who already occupies one or more of the listed positions in another business entity, or a case when more than one half of members of the supervisory board, the executive (management) board or any other supervising or executive body of two or more business entities are occupied by the same individuals; or

- direct or indirect (through other entities) purchase, acquisition/gaining in any other way of ownership or management rights over parts (shares, stakes) which allow to reach or exceed 25 % or 50 % of votes in the highest management body of the undertaking."

The "concentration" implies change of control which has a very similar definition to those used in the European merger control regulations.

Thresholds test

The concentration requires prior approval of the AMC should all of the following thresholds be met by the parties to the concentration (including their related entities):

  • the aggregate worldwide asset value or sales turnover for all parties to the concentration exceeds EUR 12 million;
  • the aggregate worldwide asset value or sales turnover for each of at least two parties to the concentration exceeds EUR 1 million; and
  • the asset value or sales turnover in Ukraine of at least one party to the concentration exceeds EUR 1 million.

Furthermore, the AMC's approval is required for any concentration should the market share of any of the parties to the concentration (including all affiliates of such party) or combined market share of all parties to the concentration on any product market in Ukraine exceeds 35 % and the concentration takes place in this or neighbouring product market.

Practical considerations

Considering the above one should bear in mind that a number of actions intended for establishing a trust or carrying out a group restructuring by a trustee may be considered as concentration which requires prior approval of the AMC to be obtained.

When a trust has a protector, the specific powers of such a protector might give him a negative control over the target assets due to, for example, the power to block certain decisions. It may be considered as concentration. Furthermore appointment of a person who already occupies the same position in another entity as a director of a company held in trust may also be considered as concentration.

Moreover, the acquisition or obtaining control over certain assets or shares by the beneficial owners as a result of change of control over the business may also be considered as the concentration as defined by the Competition Law. Furthermore, one may argue that further transfer of such assets or shares to the trustee for the benefit of another person also constitutes the concentration.

Considering extremely low financial thresholds, local activities of one of the parties to the concentration e.g. trustee via its related entity, beneficial owner or protector are, in theory, sufficient to trigger the filing requirement. Ukrainian law does not provide for an exemption that would apply should one of the parties has no sales in Ukraine whatsoever.

Financial sanctions

Completing a transaction which may result in concentration without obtaining prior approval of the AMC may lead to a fine being imposed in the amount of up to 5 % of the gross worldwide income (sales) of the relevant party (usually the acquiring party or party which made decision to complete the transaction), including all its related entities, for the fiscal year preceding the year in which the fine is imposed.

In practice the fines for breaching of competition laws have been reasonably low. Most fines for the failure to obtain a regulatory approval for the concentration where the concentration did not affect competition in Ukraine have not exceeded EUR 20,000. However, motivated by the view that fines generally shall be more substantial to have a greater deterrence effect (especially for large corporate groups) the AMC has imposed a fine of approximately EUR 60,000 for the failure to notify a high-profile transaction completed in IT business (despite the fact that the parties fully cooperated with the AMC's officers and that the concentration did not affect the competition in Ukraine).

Proposed amendments

The AMC's officials acknowledge the concerns of low filing thresholds and unpredictable application of Ukrainian competition laws to those foreign-to-foreign transactions where the only link with Ukraine was the sales of one of the parties.

In this regard the AMC has prepared an amendment to the Competition Law aimed to increase the financial thresholds and change the requirement as to link with Ukraine. Amendment provides that the combined total value of assets or combined sales (turnover) that trigger the filing requirement shall be increased from EUR 12 million to EUR 30 million. At the same time, at least two of the parties to the concentration should have assets or sales exceeding EUR 2,5 million in Ukraine (currently it is sufficient for one party to have assets or sales in Ukraine exceeding EUR 1 million). The proposed amendment provides for a filing obligation in case should one of the parties has assets or sales in Ukraine exceeding EUR 30 million and another party has assets or sales exceeding EUR 30 million worldwide.

It is difficult to predict when the proposed amendment will come into force as it shall be adopted by Ukrainian Parliament which follows long run procedure involving several readings. In any case we will be happy to inform you when the proposed amendment becomes effective.

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.