The first article in this series introduced some common misconceptions and compliance issues for business operator concentrations. As a general reference for enterprises, this second part answers frequently asked questions regarding the issue, specifically filing rules, along with the consequences of illegal concentrations.
Q: If a transaction involving a business operator concentration has met the filing criteria, when does it need to be filed? Can a transaction be completed after the filing?
A: According to the Anti-Monopoly Law (AML), if the business operator concentration reaches the filing criteria stipulated by the State Council, the operator shall make a prior filing to the anti-monopoly enforcement agencies of the State Council, and the concentration shall not be implemented until it is filed.
According to the Guidance on the Filing of Operator Concentrations, the operator shall file to the State Administration for Market Regulation after signing the concentration agreement, but before implementing the concentration.
In the case of an acquisition of a listed company by a tender offer, the announced report of the transaction can be regarded as the signed concentration agreement.
In practice, to improve the efficiency of the filing and review process for business operator concentrations, enterprises are advised to start preparing filing materials for a concentration once the transaction intentions and agreement documents are nearly finalised, and submit them in a timely manner after signing the concentration agreement.
For a transaction involving a business operator concentration that has met the filing criteria, completion and implementation of the concentration can only be carried out after obtaining approval. If a business operator concentration is completed or partially implemented before approval – such as completing the registration of a new joint venture, or transfer of acquired shares during review – it may be deemed as “gun jumping” and in violation of the AML, with the operator obliged to file the concentration consequently becoming liable for administrative penalties.
Q: If a business operator concentration is implemented in violation of the law, what are the legal liabilities and consequences?
A: Before amendment of the AML, operators who illegally implemented a business operator concentration could be fined up to RMB500,000 (USD71,600). The amended AML currently in force drastically increases the penalties, making a distinction as to whether it has an effect of eliminating or limiting competition.
If it does or may have an effect of eliminating or limiting competition, it shall be ordered to cease implementation, dispose of shares or assets, and transfer business for a limited period of time, taking other necessary measures to restore operation to the state before concentration, as well as being fined up to 10% of the previous year’s turnover.
- If it does not have the effect of eliminating or limiting competition, the fine is up to RMB5 million. In addition, the amended AML introduced new circumstances that could drastically increase penalties, which may also apply to illegal implementation of a concentration. For example, if anti-monopoly enforcement agencies determine it “involves particularly serious circumstances, impact and consequences”, a fine may be up to 50% of the previous year’s sales. In addition, the penalty will be recorded in the credit record according to relevant regulations and made publicly available, resulting in reputational damage that may affect the entity’s listing, financing or other plans.
Q: If the turnover of the transaction parties (individually and/or collectively) does not meet the filing criteria for a business operator concentration, will the filing not be involved at all?
A: According to the AML, anti-monopoly enforcement agencies shall investigate an operator concentration that does not meet filing criteria but appears by facts and evidence collected in accordance with the prescribed procedures to have, or may have, the effect of eliminating or limiting competition.
Under current trends, anti-monopoly enforcement agencies are highly concerned about concentrations mainly involving startups or emerging platforms, and those in the platform economy field with low turnover due to the use of the free or low-price model, while relevant market concentration is high or the number of competitors is small.
Such transactions are considered “high-risk areas” for active investigation by enforcement agencies, especially transactions that may involve a “killer acquisition”, meaning giant enterprises in industries such as the internet that kill potential or actual competitors and impede market innovation and development by acquiring a large number of startups.
Q: What are the general review procedures and time limits for the filing of a business operator concentration?
A: Operator concentrations meeting filing criteria shall submit the filing materials to the anti-monopoly enforcement agencies. In the case of an operator concentration carried out by merger, all parties to the merger are obliged to file. In other kinds of concentrations, the operator acquiring control or able to exert a decisive influence has the obligation to file, with the co-operation of other operators.
Upon receiving a filing, the enforcement agencies will review whether the concentration has the effect of eliminating or limiting competition, then decide to approve it unconditionally or with restrictive conditions, or prohibit it.
There are two kinds of review procedures for an operator concentration: summary procedure and general procedure.
Generally speaking, the summary procedure takes one to two months from date of filing, and a general procedure takes three to five months (for cases not involving restrictive conditions).
The amended AML introduced a “stop the clock” mechanism for operator concentration review, where the enforcement agencies may decide to suspend calculation of the review period in any one of the following statutory circumstances:
(1) the operator fails to submit documents, preventing a review from being conducted;
(2) new circumstances or facts have a significant impact on the review of the concentration, without verification of which the review cannot be conducted; and
(3) additional restrictive conditions for the concentration need to be further evaluated, and the undertakings request a suspension.
Misconceptions, compliance for business operator concentrations
By Zhan Hao and Zhu Libo, AnJie Broad Law Firm
Zhan Hao is a partner and Zhu Libo is an associate at AnJie Broad Law Firm
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Beijing 100600, China
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