New Competition Law Focuses Attention On 'Group Of Persons'

It may be too early to judge whether Russia's new competition law, which took effect less than five months ago, will live up to its promise to modernize and streamline Russian antimonopoly review of mergers, acquisitions, and similar equity transactions. To be sure, the new law (Federal Law No. 135-FZ "On the Protection of Competition"), has in some circumstances eliminated altogether the need to obtain prior regulatory clearance of such transactions, and has at least lowered the hurdles to clearance in others. At the same time, the new law has also introduced a significant degree of ambiguity by elevating the importance of the "group of persons" (gruppa lits) of each party to an equity transaction, even as it fails to clarify exactly which persons belong to such a group. This article briefly describes the challenges facing companies and their counsel in determining the requisite degree of disclosure.

The Revised Consent and Disclosure Regime

The prior competition law was frequently criticized for requiring antimonopoly review of transactions and events unlikely to have any appreciable adverse impact on competition. A 2004 OECD report noted that Russia's competition regulator, the Federal Antimonopoly Service ("FAS"), suffered from "an unrealistically large workload" of cases that were "repetitive, small in scope, and unlikely to have a significant effect on competition." The new law has deleted some of the most intrusive regulatory requirements by, for example, eliminating the requirement for sizeable companies to obtain FAS consent upon their formation, increase of charter capital, or appointment of persons to executive bodies.

The new law does not fundamentally alter the structure of the old law, inasmuch as companies entering into a substantial equity transaction are still required either to obtain the prior consent of FAS or to notify it of the transaction after the fact. Unlike the prior law, however, where regulatory clearance was required both for any initial equity transaction exceeding a 20 percent stake and for any subsequent acquisition, the new law requires clearance only upon obtaining a blocking share (25% or 33% depending on corporate form), a controlling share (50%), and a supermajority share (75 % or 66%).

Assuming no party has been officially identified as a potential monopolist, FAS consent to an equity transaction is required if total assets of the parties exceed 3 billion rubles (or total revenue exceeds 6 billion...