1. Have there been any recent developments regarding the Iran merger control regime and are any updates / developments expected in the coming year? Are there any other 'hot' merger control issues in Iran?
Until 2007, Iran did not have a specific law containing the merger control concept rather than the law on the merger of Cooperative Companies which did not cover another type of companies. In 2007 The Act of Implementation of The Constitution's Article 44 Policies (The Privatization Act) recognized the concept of the merger in article 1 (16). Merger control is the subject of articles 47 and 48. The Executive Instructions of Articles 47, 48, and 49 of the Privatization Act (The Merger Control Executive Instructions) was ratified in 2018.
As one of the major developments in the merger control regime of Iran, under article 53 of the privatization act, the Competition Council (the Council) was created to achieve the objectives of chapter 9, which is "Promoting Competition and Prohibiting Monopolies". In recent years, the Council's activities and its role in the Iranian economy is increasing exponentially. According to article 62 of the Privatization Act, the Council is the only authority to probe anti-competition procedures and the responsibility to start an investigation on anti-competition procedures and make decisions. It will do that either itself or based on complaints raised by legal or real entities, including Prosecutor General or Local Prosecutor, State Audit Court, General Inspection Authorization, section adjustor, government-affiliated organizations, and institutions, guilds groups, the association of support for consumer rights and non-government organizations. The Executive Bylaw related to the Methods of Search and Investigation. Handling the Complaints and Enforcing the Decisions of the Council was approved in 2016.
In addition, to handle the professional, executive, and other affairs of the Council, the National Competitive Council has been formed to serve as an independent government institution.
Furthermore, article 105 of The Fifth 5 Year Development Plan (2012-2016), permitted the merger of companies to the extent that it does not cause centralization and monopoly. In other words, the merger activities that companies undertake should comply with the Competition Law ( Articles 43 to 84 of The Privatization Act ), instructions and regulations issued by the Competition Council, and must not contradict the principle of prohibition of monopolies.
The latest regulation concerning the merger control in Iran is the Bylaw on Article 15 of the Law on Maximum Use of Country's Production Capacity ( The Law on Encouraging Cooperation's of Companies ) 2021. This bylaw defines merger and joint venture as two methods of company's extensions. . The objective of the bylaw is to protect and promote the establishment of merger and joint venture entities, by facilitating and obtaining financial credits and tax exemptions for such procedures. According to this bylaw, the merger of the companies in line with their articles of association, decision of the stakeholders, and other relevant regulations is permitted. To control such mergers, the law prohibits mergers that:
- Such mergers cause centralization and monopoly per the Privatization Act.
- When merging a General Partnership Company in a Private Joint Stock Company is against the rights of the shareholder of the General Partnership Company.
As Iran's legal system is developing, the parliament sees the merger as an important issue that should be addressed more comprehensively. Thus, in the new bill of Commercial Code of Iran 2005, Iranian legislators have allocated one part of the bill to the merger and merger control. The bill has yet to be ratified by the parliament.
2. Under Iran merger control law, is the control test the same as the EU concept of 'decisive influence'? If not, how does it differ and what is the position in relation to 'minority shareholdings'?
The concept of the "decisive control "control test is not defined under Iran's merger control law. According to the Privatization Act, no legal or real entity will be authorized to own capital or share of other companies or firms in a way that would hinder competition in one or more markets. However, there are some exceptions:
- Ownership of shares or capitals by a broker and the like that is engaged in the process of purchase and sale of notary bonds. This will be in effect as long as she/he has not used the voting rights of their shares to hamper competition.
- Enjoying and securing mortgage rights of shares and capitals of companies and firms active in the market for a good or service on the condition that possession will not lead to owning voting rights in companies and firms.
- If shares and capital is owned under emergencies, on condition that the Competition Council is informed of the issue within one month of the ownership and that ownership will not be maintained longer than the time limit set by the Council.
The controller firm or company is defined in the Privatization Act as: "A firm or company which controls economic activities of the other firms or companies using wholly or partly acquisition of stocks, assets, management, etc. Controlling shares is the least number of shares that enables the holder to determine the majority of the board of director's members and managing shares is the number of the shares of a company whose holder is authorized to nominate at least one member to the boards of Directors as stipulated in the Articles of Associations.
Regarding the non-governmental banks and financial and credit institutions and other intermediary monetary firms, the permitted ceiling of ownership of such companies (directly or indirectly) is %10. However, the Central Bank of Iran can permit acquiring up to %33 of the shares in some cases. Any transactions above the mentioned ceiling without permission from the Central Bank can be considered null and void by the authorities.
Regarding minority shareholdings, Iran's merger control regime is silent. However, it has attracted legislatures' attention in recent years, because of its importance and that issue is being debated in the parliament.
3. Are joint ventures caught by the national merger control provisions (including non-structural, cooperative joint ventures)?
Article 43, Chapter 9 of Privatization Act (Facilitating Competition and Prohibiting Monopoly) stipulates that all legal and real entities including public, government, cooperative and private sectors will be subject to provisions of the chapter. Therefore, while an express authorization of the merger control authorities is not required for the incorporation of a Joint Venture (JV), the JV activities should comply with the Privatization Act and anti-competition regulations. In other words, activities undertaken and agreements made by a JV should not cause centralization or monopolies according to the competition law.
Furthermore, any provisions distorting competition are not allowed to be included in the JV agreements according to Article 44 of the Privatization Act. Moreover, none of the directors, advisors, and staff of the JV can currently hold a similar position in a related company or firm or similar profession to restrict or disrupt competition in one market or more. Also, no JV is authorized to own capital or share of other companies or firms in a way that would hinder competition in one or more markets.
According to Article 1 of the Law on Encouragement of the Cooperation of Companies 2021, non-structural, cooperative JVs are allowed as a civil partnership and must be registered with the Registration Office and comply with Islamic principles, the principle of damage prevention, and prohibition of monopolies.
4. What are the merger control thresholds and would a purely foreign-to-foreign transaction be caught (commenting on any 'effects' doctrine/policy if relevant)?
The main criteria for prohibiting a merger transaction are stipulated in article 48 of the Privatization Act. The forbidden acts, according to the above-mentioned article, that may hinder competition are:
- Hoarding and refusal to enter into a transaction
- Discriminatory pricing
- Discrimination in trade conditions
- Aggressive price settings, The Council will determine the seriousness of the harm caused, on a case-by-case basis and will decide whether this practice is considered as an anti-competitive act.
- Misleading comments
- Forced sale or purchase
- Abusing dominant economic conditions
- Restricting resale prices
Furthermore, in the event the below situations happen as a result of a merger, the merger is considered anti-competitive:
- When the price of goods and services increases unconventionally
- In the event of extreme centralization of the market
The scope of extreme market centralization is specified by the Council in The Merger Control Executive Law 2018. To measure market concentration, the Herfindahl-Hirschman Index (HHI) is used. According to Article 2 of the said law, extreme centralization happens when:
- Below situations take place simultaneously :
- The market share of the company established by the merger process is more than 40% of the relevant commodity or service market, and
- The HHI score in the relevant market is more than 4000.
- In some markets, the Council publishes guidelines regarding the price adjustments, amount, and conditions of access to a monopolized market of such goods and services - in line with related regulations. If activities undertaken by companies in such markets do not comply with those guidelines, the anti-competitive act is conducted.
The Council has the authority to identify instances of anti-competitive procedures and exemptions covered by the Privatization Act and make decisions on which procedure is caught by merger control law.
Foreign to foreign transactions are principally subject to the Iranian merger control if the criteria above are met and the transactions are considered harmful to the competition in Iranian territory. Specifically when foreign entities involved in the merger transactions have branches or subsidiaries in Iran. However, while the branches or subsidiaries or a JV established by such foreign entities does not have a significant impact on the Iranian market and will not in foreseeable future (after the merger transaction), they are not caught by the Privatization Act.
5. Are there any specific issues parties should be aware of when compiling and calculating the relevant turnover for applying the jurisdictional thresholds?
As is mentioned in question 4, the required threshold is indicated in the Merger Control Executive Instruction Law 2018. The Council will consider the HHI Index to determine the scope of centralization. The parties of a merger can inquire about the relevant HHI score related to their market before entering a merger agreement.
6. Where the jurisdictional thresholds are met, is notification mandatory and must closing be suspended pending clearance?
Under Article 49 of the Privatization Act, which uses the verb " can " instead of " shall " asking the Council for clearance is not mandatory, therefore Iranian Competition Law has a voluntary regime of merger control. Many substantive issues regarding mergers in Iran are not addressed by the privatization act or any other laws, therefore, they are recognized and enshrined under the "freedom of contract" principle and governed by the contract law. Hence, closing should not be suspended pending clearance.
However, the Council has the authority to investigate and research events of breach of competition law and is empowered to autonomously impose fines and other remedies for the infringement of competition law. Therefore, it is recommended that parties involved in the merger, would apply for the Council clearance before initiating the merger procedure.
7. Is there any discretion to review transactions that fall below the notification thresholds?
The Council is the only authority to probe anti-competition procedures and has the responsibility to start an investigation on anti-competition procedures and make decisions. In some cases, the merger is allowed regardless of being categorized by the Council as an anti-competition activity. For instance, when avoiding the stoppage of the activities of firms and companies or their access to technical know-how will not be possible other than through merger. According to the Merger Control Executive Law 2018, the Council is authorized to recognize what kind of merger procedures fall under this exemption.
8. Is it possible to close the deal globally prior to local clearance?
No prohibition is ordained to close deals before local clearance locally or globally. However, the Council has the authority to review transactions and mergers whether on its merit or following any reports about the transaction and if necessary, void or nullify the agreement. So, actions or matters that cause an anti-competition activity inside Iran's territory can be caught by the Council. Therefore, it is suggested that, if a deal is considered to be effective on the Iranian market and may distort competition in Iran, parties should apply for the Council clearance before closing.
9. Is there a deadline for filing a notifiable transaction and what is the timetable thereafter for review by the Competition Council?
It is not mandatory in Iran's merger control regime to notify the Competition Council of a transaction or an agreement. Therefore there is no deadline for filing a notifiable transaction. However, in the event a firm or company submit its request to the council voluntarily, the Competition Council will have the responsibility to investigate the case within a maximum of one month from receipt of due requests and, inform the applicant of the result in a written way or by sending a reliable message. If the inquiry-related actions are found not being harmful to the competition and if no response is received from the Competition Council within the specified time, the transactions will be considered proper.
If the pre-merger application is not submitted before the transactions, the Competition Council can investigate and study the activities of the company by itself or after receiving a complaint any time after the completion of the transaction or during the merger activity. Once the anti-competitive activity is being proved by the Competition Council's investigations and searches, they can enforce penalties and other remedies on the company. They can even announce the merger activity null and void in some serious cases. The decision of the Competition Council can be appealed to the Retrial Board by the beneficiary. The deadline for appealing the decision is 20 days for Iranian residents and two months for those residing outside Iran. The decision of the Retrial Board is deemed final.
10. Who is responsible for filing a notifiable transaction (noting also whether there is a specific form / document used and an applicable filing fee)?
Article 49 of Privatization Act says the firms and companies can apply for the confirmation of the Competition Council before the merger. The person responsible can be managing director , or a person who is responsible for submitting the request by the minute of the meeting in which the principles of merger is agreed and a letter of intent is signed .
Pursuant to the Merger Control Executive Law , ratified by the Competition Council in 2018 , persons seeking inquiry in line with article 49 of the Privatization Law, should submit to the below information to the Council in the specific forms ( along with the latest financial statements and a comprehensive feasibility study report regarding the impact of merger on the relevant market ) :
- Definition of the market of the merger, most active members of such market and shares of the market belongs to each of them.
- List of the long term supply agreements signed with other competent in the production chain in the vertical merger
- Export process of the companies in last three years
- New plan for Article of Association , methods of determination of number of shares or contributions of each party
- Other information required by the Competent Council.
The applicable filing fee is not recognized for the pre-merger inquiries by the Bylaw. However, in the event of submitting a complaint against an anti-competitive merger activity or agreement, the expenses of the procedure until issuing the final decision is beard by the National Competition Council. (The bylaw on implementing method of search and investigation, handling the complaint and enforcing decisions of the Competition Council 2016).
11. Please confirm/comment on the penalties for failing to notify or suspend transactions pending clearance and the Competition Council record/stance in terms of pursuing parties for failing to notify relevant transactions (commenting, if relevant, on any statute of limitations regarding sanctions for infringements of the applicable law).
As it is mentioned before, the merger control regime in Iran is not mandatory, therefore, no penalties are prescribed for failing to notify or suspend transactions. But, it is worthy to mention that if the Council finds any infringement of the competition regulations after receiving complaint or by deciding to investigate the merger company's acts, it can decide on one of the following remedies and penalties:
- Order the stoppage of any anti-competition procedures and their repetitions.
- General information dissemination in order to make market more transparent
- Order ceding shares or capitals of the companies secured
- Order the firm or company not to be active in any specific field or special region
- Mandate firms and companies to observe minimum supply and range of price under monopolized condition
- Set a cash penalty of ten million Rials up to 1 billion Rials in case of violation of prohibitions envisioned in Competition Law.
- Order the parties reaching accords or relevant accords to stop continuing intended anti-competition procedure.
- Order the removal of directors
- Order the return of extra income or confiscation of properties secured through anti-competition procedures by competent judicial experts.
- Order cancellation of any contract, agreement and understanding that incorporate anti-competition procedures.
- Order the amendment of the by-law, company or notes of the general assemblies or board of directors of companies or extension of necessary proposal to government to emend articles of association of public sector companies and institutions.
In addition to above remedies, the most severe punishment the Council can consider in the serious cases is mandating suspension or ordering annulment of any sort of merger deemed contrary to the Competition Law, or mandating disintegration of the merger companies.
12. Are there any other 'stakeholders' other than the Competition Council (for example, any 'sector regulators' who might have concurrent powers)?
According to the privatization act, in general, the Competition Council is the only responsible body regarding merger control regime. However, in some specific areas, there are other regulatory bodies that have specific duties according to the relevant provisions.
For example, beside the Council, there is The Communications Regulatory Authority, that has the specific duty to control the merger system according to the relevant provisions in the telecommunication industry. Furthermore, Central Bank of Iran in some cases has the authority to issue the license for merger of companies in the banking and finance industry.
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