What are the penalties for failure to notify, late notification and breaches of a prohibition on closing?
Merger Control (2nd Edition)
Regarding failure to notify and late notification, no such penalties apply, as there is no obligation to notify and no notification deadline. There is no prohibition on closing unless the CMA has either issued an order to that effect (in which case failure to comply with the order would give rise to penalties of up to 10% of the worldwide group turnover of the party in breach), or has initiated a second phase investigation (in which case a breach of the automatic prohibition on share dealing may result in injunctions and damages claims).
If an undertaking fails to notify a concentration, the ICA can impose a fine up to 1% of the undertaking’s turnover achieved in the previous financial year.
In principle, the same sanction applies in case of late notification. Thus far, however, the ICA has imposed symbolic fines (generally between EUR 5,000 and EUR 20,000) if the concentration did not raise any competition concerns and the late notification was submitted on a voluntary basis.
A concentration executed in breach of a prohibition on closing, results in a sanction between 1% and 10% of the turnover of the business activities which form the scope of the concentration (i.e., in case of acquisition of an undertaking, of the target’s turnover).
Penalties for a failure to file a premerger notification, filing an incomplete premerger notification, or closing a reported transaction prior to expiration of the waiting period may result in civil penalties of up to $40,654 each day the person is in violation of the HSR Act. In practice, the agencies typically do not seek penalties for the first offense if parties inadvertently fail to file, but will seek penalties for a second mistake or for other types of violations. While $40,654 is the maximum daily civil penalty, the actual penalty will depend on the fact-specific circumstances of the case.
Failure to provide item 4(c) and 4(d) documents required by the HSR filing is taken very seriously by the FTC and DOJ. Substantial fines have been assessed to parties for failing to provide responsive required documents. In some instances, if the omissions impacted the reviewing agency’s investigation, the parties have been forced to restart the HSR waiting period.
Parties may not begin to consummate a transaction until the waiting period expires or is terminated by the agencies. If an acquiring person begins to exercise control over the operations or assets to be acquired before the expiration of the waiting period (referred to as gun-jumping) that person may face a civil penalty of up to $40,654 per day for a violation of the HSR Act. The FTC and DOJ have initiated several multi-million dollar civil penalty actions for gun-jumping violations.
By law, a late notification and failure to notify at all are not treated differently. As explained above, it depends what consequences may result from breach of an applicable prohibition on closing. At this point, a case of closing without valid clearance will be treated similarly to closing with no clearance at all.
Violations of prohibitions that may be enforced separately will result in fines. Undertakings implementing a transaction before clearance or without valid clearance may be fined up to 10% of the group turnover of the last fiscal year. The fact that an attempt to acquire valid clearance was made may be taken into consideration when calculating possible fines as well as in court proceedings in civil courts should such proceedings take place as a consequence.
Failure to notify, late notification and implementation of the transaction during the waiting period can trigger a criminal fine of up to JPY 2 million. It can be imposed on the party and its representative, director, and/or employee who implemented the transaction on behalf of the party. Such fine may be imposed regardless of the fact that a transaction has not brought a substantial restraint of competition in any relevant market.
If the parties implement the transaction without obtaining necessary clearance, the JFTC may file a suit with the court to nullify any relevant merger, corporate split or joint share transfer.
Concentrations which exceed the above mentioned thresholds have to be notified to the BWB and cleared before being implemented. In case of failure to notify or late notification that is after implementation, the prohibition on closing (also ban on implementation or standstill obligation) is violated.
If the concentration was only cleared by imposing certain restrictions or commitments, the concentration must not be implemented in a way differing from those restrictions or commitments.
Upon application by the official parties, the Cartel Court is to impose fines amounting to up to 10% of the concerned group’s turnover in the preceding business year in so called gun jumping cases (violations of the ban on implementation). The imposition of a fine largely is a discretionary decision. When assessing the fine, the gravity and duration of the infringement, level of fault involved and economic performance of the infringing undertaking(s) is (are) considered.
According to Austrian jurisprudence, violations of the prohibition on closing before clearance are generally regarded as a serious infringement. So far, fines in the range of some thousand Euros (following later notification in the undertakings’ own initiative) to EUR 1.5 million have been imposed.
Other sanctions such as cease orders do not play a significant role in practice. However, it should be noted that the law also foresees a nullity sanction in cases of infringements of the ban on implementations. This does not concern agreements preparing the concentration, but legal acts implementing the concentration or taken after an illegal implementation.
Failure to notify is a criminal offence, punishable by a maximum fine of CAD $50,000 under the Act. To date there have been no convictions for failure to notify. In 2015, the Bureau published a news release identifying a party that had voluntarily informed the Bureau of its inadvertent failure to notify two transactions; the Bureau required that party to adopt a compliance policy that would prevent similar oversights from occurring in the future. If a party realizes that it has inadvertently failed to notify a transaction, it should consult Canadian legal counsel immediately to discuss how to proceed.
The Commissioner can apply to the court for a range of remedies against parties who close prior to the expiry of the waiting period, including fines of up to CAD $10,000 per day for each day the parties closed in advance of being legally permitted to do so.
The Competition Act establishes that the general sanctions for infringement to the Act Law, as well as those preventive, corrective or prohibitive measures that may be necessary, may be applied to those who:
(i) violate the obligation to notify;
(ii) implement an operation that has been notified to the FNE and whose materialization is suspended;
(iii) fail to comply with the remedies under which an operation has been approved;
(iv) implement an operation against the resolution or judgment that has prohibited the same; and,
(v) notify a concentration providing false information.
General sanctions for infringement to Competition Law, which may be applied by the TDLC, are the following:
(i) Modify or terminate acts, contracts, covenants systems or agreements contrary to the provisions of DL 211. This fine can be imposed on the legal entity concerned, its directors, its managers, and every other person that has intervened in the execution of the infringement.
(ii) Order the modification or dissolution of partnerships, corporations and other legal entities that could have intervened in the acts, contracts, covenants, systems or agreements referred to in the previous letter.
(iii) Fines of up to 30% of the sales of the offender corresponding to the line of products or services associated with the infringement, during the term of the infringement or up to the double of the economic benefit gained by the infringement. If this amount cannot be determined, a fine of up to 60,000 Unidades Tributarias Anuales is the maximum (“UTA”, which is equivalent to CLP $560,316 as of September, 2017. Therefore, it is approximately equivalent to EUR $44 million and USD$ 52 million).
Moreover, the Competition Act establishes that failure to notify can be sanctioned with a daily fine up to 20 UTA (approximately USD$ 17,000 and EUR$14,788) for each day of delay, starting from the materialization of the transaction.
There are no guidelines or –as the mandatory merger regime is recently in force– precedents on sanctions for failure to notify or gun-jumping. It is moreover uncertain whether or not the daily fine for failure to notify is complementary to the general sanctions described above.
There are moreover no precedents or guidance to date whether and if so, under which conditions, the FNE is willing to allow a ‘local carve out’ or warehouse construction in case of global operations or cases with exceptional urgency.
Administrative fines of up to ten per cent (10%) of the aggregate turnover achieved by the notifying undertaking apply where a concentration is either partially or entirely implemented:
- Prior to its notification to the CPC
- Prior to its clearance by the CPC following notification
- Prior to the lapse of the timeframe within which the Service ought to inform the notifying undertaking of whether the concentration is cleared or shall be fully investigated but the Service has not so informed.
The administrative fine of up to ten per cent (10%) of the aggregate turnover achieved by the notifying undertaking is applied on the turnover of the immediately preceding financial year and may be followed by additional administrative fines of €8,000 for each day the infringement persists.
The CPC also has the power to order the partial or total dissolution of a concentration that has been implemented prior to obtaining clearance by the CPC.
The parties will be punished with fines if they;
- fail to notify a merger;
- fail to submit a full-form notification within ten business days upon request from the DCCA when the DCCA revokes an approval of a merger filed under the simplified procedure due to the parties’ submission of incorrect or mis-leading information;
- implement a merger despite a prohibition against implementation;
- implement a merger prior to clearance;
- fail to comply with a condition imposed or order issued by the DCCA as a precondition for approving the merger; or
- fail to comply with a requirement to separate undertakings or assets that have been taken over or merged or a requirement of cessation of joint control or any other measure capable of restoring competition when the DCCA has decided to prohibit a merger which has already been implemented.
In regard to the prohibition against merger implementation prior to clearance – so-called “gun-jumping” – a Danish court has, on 7 December 2016, lodged a request for a preliminary ruling before the European Court of Justice.
The main question in the case, which involves a merger between EY and KPMG Denmark, is whether the termination of a cooperation agreement constitutes an implementing action covered by the prohibition and, in addition, if it makes any difference whether the termination in the case gave rise to market effects relevant to competition law.
For a failure to notify the Commission may impose a fine of up to 10% of the aggregate turnover of the undertaking(s) responsible for the filing, irrespective of whether the failure was intentional or due to negligence. For late notifications the Commission may impose a fine of up to 1% of the aggregate turnover of the undertaking(s) concerned. These fines are of an administrative law nature (not criminal law).
The Commission’s powers to impose fines for a failure to (timely) notify concentrations also apply to foreign-to-foreign mergers. However, to date there are no examples of such sanctions having been imposed in case of foreign-to-foreign mergers.
While fines for a failure to (timely) notify concentrations can be imposed irrespective of whether the concentration is compatible with the internal market, the Commission can require the undertakings concerned to dissolve the concentration or to take any other measure to restore the situation prevailing prior to the implementation of the concentration, in cases where the undertakings have implemented a concentration declared incompatible or contravened a condition attached to a decision declaring the concentration compatible. The Commission can also order interim measures to restore or maintain conditions of effective competition.
Failure to file a reportable transaction or to wait until clearance is obtained (so called gun jumping) exposes the notifying party to a risk of i) being obliged to file or demerge subject to a daily fine of maximum 5% of the average daily turnover, and/or ii) a fine amounting to up to 5% of the previous financial year's French turnover (for legal entities) or € 1.5 million for individuals.
In practice, the FCA uses such powers and has imposed sanctions on several entities for both practices. As regards gun jumping, the FCA notably imposed a record € 80 million fine on Altice Luxembourg and SFR group in November 2016.
In the event of a failure to notify, late notification or the supplying of incorrect, insufficient or misleading information, the DG may impose on the undertaking an administrative fine of between €1,000 and €10,000. Where an undertaking intentionally or negligently puts into effect a suspended concentration or one which has been declared unlawful, an administrative fine of up to 10% of the total turnover of the undertaking in the preceding financial year, shall also be due.
Where a concentration has already been implemented, the DG may also require the undertakings or assets brought together to be separated, the cessation of joint control or any other action that may be appropriate in order to restore effective competition.
The following penalties may be imposed for breaching the standstill obligation:
- Administrative fine of up to 10% of the infringing party’s annual aggregate turnover, provided that the infringement of the obligations was grossly negligent or intentional. Several companies have been fined for violations of this prohibition, with fines in the later years ranging from NOK 250,000-700,000. However, fines can be significantly higher as was demonstrated in a case relating to the Norwegian groceries sector where the NCA issued a fine of NOK 25 million on Norway’s largest grocery chain for carrying out the acquisition of several leases for shop spaces from a competitor without filing a formal notification and thereby breaching the standstill obligation.
- Individuals can be subject to criminal fines and/or imprisonment for up to 3 years, provided that other conditions set out in criminal law are fulfilled. The likelihood that criminal proceedings will be brought is low and this faculty has, so far, never been used.
There is no specific penalty for failure to notify.
In case of notifiable economic concentrations, the failure to notify or the implementation of the concentration prior to being cleared by the Competition Council may result in payment of a fine ranging from 0.5% to 10% of the total turnover achieved by the sanctioned undertaking in the financial year preceding the sanction. The fine may be applied to the undertaking(s) having the obligation to notify (the notifying party/parties). Newly established undertakings which have not achieved any turnover in the financial year preceding the sanction may be sanctioned with a fine ranging from RON 15,000 (approximately EUR 3,260) to RON 2,500,000 (approximately EUR 543,500).
If an economic concentration is implemented before clearance, the Competition Council may also impose interim measures for restoring or maintaining effective competition. The Competition Council may compel the undertakings to comply with such interim measures by applying daily penalties of up to 5% of the average daily turnover achieved by the sanctioned undertaking in the financial year preceding the sanction. In case of newly established undertakings which have not achieved any turnover in the financial year preceding the sanction, the daily penalty may range between RON 500 (approximately EUR 110) and RON 10,000 (approximately EUR 2,175).
Therefore, in case the concerned parties wish to proceed with closing before competition clearance, they must priory obtain a derogation from the Competition Council in this respect (based on a well-founded request), in order to avoid to be sanctioned for implementing the concentration prior to clearance.
The validity of economic concentrations (including those implemented before clearance) depends on the analysis and on the decision adopted by the Completion Council with respect to the concentration in question. In case an economic concentration not cleared by the Competition Council is implemented and thereafter a decision prohibiting that concentration is adopted, the Competition Council may take any measures in order to cancel the concentration and to restore the situation preceding its implementation.
The fact that a transaction is foreign-to-foreign does not alter the above considerations.
KN: In foreign-to-foreign merger the risk of fine is relatively low and the Competition Commission is unlikely to go after such transactions. In local mergers the risk of fines cannot be mitigated and the risk of fines is realistic.
Implementing a concentration that was not notified or cleared can result in a fine of up to 10% of the filing parties’ total annual turnover generated in the previous fiscal year on the Serbian market. The applicant is liable for paying this fine. The Competition Law provides for a general statute of limitations of five years concerning concentrations that have been implemented without clearance or that are otherwise exposed to fines.
If the filing party does not file a notification with the Competition Commission within the prescribed deadline (15 calendar days), the Commission may issue a procedural penalty ranging from EUR 500 to EUR 5,000 for every day of late filing provided that the maximum amount of fine cannot exceed 10% of the infringer’s turnover realized in the year preceding the year in which the Competition Commission initiated its investigation.
The Competition Commission can cancel an already implemented concentration (de-merger), which can be effected by way of a split-off, sale of shares, cancellation of the agreement or any other action that would lead to restitution of the status prior to implementation of the concentration.
The Competition Commission may impose both behavioural and structural measures on the merging entities in order to alleviate antitrust concerns. As far as we are aware, the Competition Commission has not implemented any de-merger to date, but has imposed both behavioural and structural measures as conditions to merger clearances.
The Serbian Criminal Code contains a wide provision which could be used to interpret a concentration resulting in the creation or strengthening of a dominant position as the "abuse of a monopolistic or dominant position." In this case, the person responsible for intentionally implementing a prohibited concentration could be criminally prosecuted. The maximum sanction is five (5) years of imprisonment; however, this provision has never been used in practice.
Implementing a notifiable merger prior to approval being obtained or failing to notify the Commission of a merger is a contravention of the Act, and exposes each of the merging parties to administrative penalties of up to ten percent (10%) of turnover, as well as potential injunctions on implementation. Penalties have been applied by the authorities for prior implementation. The level of penalties applied has varied, depending on the circumstances.
It is possible to put in place hold-separate or ring-fencing arrangements or both to allow merging parties to close a transaction outside South Africa, if this can be done, without implementing the merger in South Africa. While authorities have not provided an official statement in support of this, hold-separate and ring-fencing arrangements have been successfully put in place in practice.
The Tribunal may also order divestiture where a merger is implemented without notification although divestiture would be a remedy of last resort. To date, the Tribunal has imposed penalties as a sanction for failing to notify a notifiable merger or implementing a notifiable merger prior to securing approval.
In February 2017, the Commission published for comment “Draft Guidelines for the Determination of Administrative Penalties for Failure to Notify a Merger and Implementation of Mergers Contrary to the Competition Act” (“Draft Guidelines”).
Among other things, the Draft Guidelines provide that, in determining an appropriate penalty for the failure to notify a merger or for the pre-implementation of a merger, the Commission will look first to the nature of the conduct which gave rise to the contravention. Next, it will look at the “range amount”.
For intermediate mergers, the minimum range amount will be double the amount of the applicable filing fee and the maximum range amount will be 5 million rand. For large mergers, the minimum range amount will be double the amount of the applicable filing fee and the maximum range amount will be 20 million rand.
Once the range amount is determined, the Commission will adjust this figure by taking into account aggravating or mitigating factors. Aggravating factors may include the fact that the failure to notify or the pre-implementation was negligent or deliberate, that the transaction resulted in the substantial lessening of competition, or that the merging parties were trying to avoid regulatory scrutiny.
Mitigating factors may include the fact that the merging parties were bona fide in their failure to notify the transaction and were proactive in dealing with the Commission. Finally, the Commission will consider the statutory limitations that apply in respect of penalties for contraventions of the Act. The Draft Guidelines are not effective until they are made final. The Draft Guidelines also state that they do not fetter the Commission’s discretion in seeking a maximum penalty provided for in terms of the legislation in exceptional circumstances.
Monetary fines for failure to notify or close before the Board’s approval
In the event that the parties to a merger or an acquisition which requires the approval of the Board realise the transaction without the approval of the Board, a turnover-based monetary fine of 0.1 per cent of the turnover generated in the financial year preceding the date of the fining decision would be imposed on the incumbent firms, regardless of the outcome of the Board’s review of the transaction. The minimum amount of this fine is set at TL 18,377(approximately EUR 5,500 or US$ 6,085) for 2017, and is revised annually.
Invalidity of the transaction
A notifiable merger or acquisition which is not notified to (and approved by) the Board would be deemed as legally invalid with all of its legal consequences.
Termination of infringement and interim measures
Pursuant to Article 9(1) of the Law No.4054, should the Board find any infringement of Article 7, it shall order the parties concerned, by a resolution, to take the necessary actions to restore the same status as before the completion of the transaction, and thereby restore the pre-transaction level of competition. Similarly, the Law No.4054 authorises the Board to take interim measures until the final resolution on the matter in cases where there is a possibility for serious and irreparable damages to occur.
Termination of the transaction and turnover-based monetary fines
If, at the end of its review of a notifiable transaction that was not notified, the Board decides that the transaction falls within the prohibition of Article 7, the undertakings could be subject to fines of up to 10 per cent of their turnover generated in the financial year preceding the date of the fining decision. Employees and managers (of the undertakings concerned) that had a determining effect on the creation of the violation may also be fined up to five per cent of the fine imposed on the undertakings as a result of implementing a problematic transaction without the Board’s approval.
In addition to the monetary sanction, the Board is authorised to take all necessary measures to terminate the transaction, remove all de facto legal consequences of every action that has been taken unlawfully, return all shares and assets (if possible) to the places or persons where or who owned these shares or assets before the transaction or, if such measure is not possible, assign these to third parties; and meanwhile to forbid participation in control of these undertakings until this assignment takes place and to take all other necessary measures.
Under Turkish merger control regime there is no criminal liability and/or imprisonment for failure to notify and implementation ahead of Board’s approval decision.
If the parties to a notifiable transaction violate the suspension requirement, the statute of limitation regarding the sanctions for infringements is eight years pursuant to Article 20(3) of Law on Misdemeanours No. 5326.
As explained above in detail, foreign-to-foreign mergers are covered by Law 4054 on Protection of Competition to the extent that they affect the relevant markets within the territory of Turkey. Regardless of the parties’ physical presence in Turkey, sales in Turkey may trigger the notification requirement to the extent that the turnover thresholds are met. To that end, penalties for failure to notify, late notification and breaches of a prohibition on closing do not differ in terms of foreign-to-foreign mergers.
The foreign-to-foreign nature of the transaction does not prevent imposition of any administrative monetary fine (either for suspension requirement or for violation of article 7) in and of itself. In case of violation of suspension requirement (i.e. closing before clearance or not notifying the transaction at all), foreign-to-foreign mergers are caught under Law No. 4054 so long as one of the alternate thresholds is exceeded (which is the case for our transaction at hand.)
For the sake of completeness, in the Simsmetal/Fairless decision (09-42/1057-269, 16.09.2009), where both parties were only exporters into Turkey, the Board imposed an administrative monetary fine on Simsmetal East LLC (i.e., the acquirer) subsequent to first paragraph of article 16 of Law No. 4054, totalling 0.1 per cent of Simsmetal East LLC’s gross revenue generated in the fiscal year 2009, because of closing the transaction before obtaining the approval of the Competition Board. Similarly, the Competition Board’s Longsheng (11-33/723-226, 02.06.2011), Flir Systems Holding/Raymarine PLC (10-44/762-246, 17.06.2010) and CVRD Canada Inc. (10-49/949-332, 08.07.2010, ) decisions are examples whereby the Board imposed a turnover based monetary fine based on the violation of the suspension requirement in a foreign-to-foreign transaction.
Irrespective of the national scope of transaction (whether foreign-to-foreign, Turkish to Turkish or foreign to Turkish – vice versa), pursuant to Article 16 of Law No. 4054, if the parties to a notifiable transaction violate the suspension requirement (i.e., close a notifiable transaction without the approval of the Board or do not notify the notifiable transaction at all), a turnover-based monetary fine (based on the local turnover generated in the financial year preceding the date of the fining decision at a rate of 0.1 per cent) will be imposed on the acquirer in straight forward acquisitions. The wording of Article 16 of Law No. 4054 does not give the Board discretion on whether to impose a monetary fine in case of a violation of suspension requirement. In other words, once the violation of the suspension requirement is detected, the monetary fine will be imposed automatically.
For a failure to obtain the merger control clearance before closing the transaction, the AMC may impose penalties of up to 5% of the turnover of parties to the transaction from their worldwide sales for the year preceding the year when the penalties are imposed.
As a matter of practice, the AMC usually imposes penalties only on the purchaser.
If a JV is formed without a merger control clearance, the AMC will impose fines on all founders.
As a matter of the latest practice, the AMC imposes fines in accordance with its guidelines on the calculation of fines for violations of the competition law initially adopted in 2015. The guidelines, although non-binding, set a two-level system of fine calculation: basic amount and aggravating/extenuating factors. We are unaware of any cases when the AMC imposed the maximum permitted fines – the fines are usually of a much less scale.
Furthermore, a failure to obtain a merger control clearance of the AMC before closing the transaction may also result in the transaction being held invalid through the court proceedings, only if the transaction has resulted in the monopolisation or substantial restriction of the competition. To the best of our knowledge, the AMC has never resorted to this remedy in practice.
Failure to notify or ignoring a prohibition on closing is considered gun jumping, which is expressly forbidden by the Brazilian Antitrust Law. CADE may declare the concentration control act as invalid, open an administrative procedure against the involving parties and impose a fine that ranges between 60,000.00 Brazilian Reais and 60,000,000.00 Brazilian Reais.
There is no such thing as a late notification once the law does not estipulate deadlines for sending a notification to the antitrust authority.