Questions & Answers: The Cyprus merger control legal regime

Mar 29, 2021 | Mergers, Q&A (EN)

MERGER CONTROL: THE CYPRUS LEGAL REGIME – QUESTIONS & ANSWERS

 

  1. Which is the relevant legal framework applicable to the control of concentrations between undertakings?

 The control of concentrations between undertakings in Cyprus is regulated by the Control of Concentrations between Undertakings Law of 2014 (Law 83(I)/2014) (“Law”).

 

  1. Which is the regulatory authority responsible for the enforcement of the Law?

 The competent authority responsible for enforcing the Law is the Commission for the Protection of Competition (“CPC”).

 

  1. What type of transactions are potentially covered by the Law?

According to the Law, a concentration occurs where there is a change of control on a lasting basis which is caused by:

  • the merger of two previously independent undertakings or parts of undertakings, or
  • the acquisition by one or more persons already controlling at least one undertaking, or by one or more undertakings, of direct or indirect control of the whole or parts of one or more undertakings, or
  • the creation of a joint venture that performs all functions of an autonomous economic entity on a lasting basis.

 

  1. How is the notion of “control” defined?

 According to the Law, control derives from rights, agreements, or other means, which either separately or jointly, and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking, by:

  1. rights of ownership or enjoyment of all or part of the assets of an undertaking, or
  2. rights or contracts conferring the possibility of exercising decisive influence over the composition, meetings, or decisions of an undertaking’s decision-making bodies.

 

  1. What are the jurisdictional thresholds for a concentration of undertakings to fall within the scope of the Law?

 A concentration falls within the scope of the Law when the following three conditions are cumulatively satisfied:

  1. The aggregate turnover of each of at least two of the undertakings participating in the concentration is over €3,5m, and
  2. At least two of the undertakings participating in the concentration achieve a turnover in Cyprus, and
  3. At least €3,5m of the aggregate turnover of all undertakings participating in the concentration is achieved in Cyprus.

A concentration satisfying the above conditions is considered of major importance.

Turnover  the amounts arising from the sale of goods or services during the last financial year, without discounts, VAT, and other taxes directly applicable to the turnover and excluding internal transactions. Furthermore, specific rules apply with regard to the calculation of turnover for credit institutions and insurance companies.

 

  1. Is it possible for a concentration which does not satisfy the above jurisdictional thresholds to be characterized as a concentration of major importance?

The Minister of Energy, Commerce, Industry and Tourism may issue an Order declaring a concentration between undertakings as a concentration of major importance, even though the above turnover thresholds are not satisfied.

 

  1. Do concentrations of foreign undertakings fall within the scope of the Law?

As long as two of the participating undertakings in the concentration concerned achieve a turnover in Cyprus and the relevant turnover thresholds are satisfied, the concentration falls within the scope of the Law. This holds regardless of the nationality of the undertakings or their country of incorporation or their headquarters’ location.

 

  1. Is it mandatory to notify a concentration which satisfies the above-mentioned thresholds? If so, are there any exceptions?

 The notification of concentrations of major importance to the CPC is mandatory. However, exceptions do exist. A concentration is deemed not to arise in the following cases:

  • Credit institutions or other financial institutions or insurance companies, the normal activities of which include transactions and dealing in securities for their own account or for the account of third parties, hold on a temporary basis securities which they have acquired in an undertaking with a view to reselling them, provided (i) that they do not exercise voting rights in respect of those securities with a view to determining the competitive behaviour of that undertaking or (ii) provided that they exercise such voting rights only with a view to preparing the disposal of all or part of that undertaking or of its assets or the disposal of those securities and that any such disposal takes place within one year of the date of acquisition. That period may be extended by the CPC on request where such institutions or companies can show that the disposal was not reasonably possible within the period set.
  • Control is acquired by an office-holder, according to the law relating to liquidation, bankruptcy, or other analogous proceedings.
  • The acquisition of the control is carried out by investment companies, provided that the voting rights in respect of the holding are exercised, in particular in relation to the appointment of members of the management and supervisory bodies of the undertakings in which they have holdings, only to maintain the full value of those investments and not to determine directly or indirectly the competitive conduct of those undertakings.
  • Property is devolved due to death by will or intestate succession.

 

  1. Who is responsible for the notification of a concentration of major importance to the CPC?

 The notification of a concentration derived from a merger or acquisition of joint control must be notified in writing jointly or separately by the undertakings participating in the concentration. In all other cases, the obligation to notify is borne by the person or undertaking acquiring control of all or part of an undertaking.

 

  1. Can the participating undertakings voluntarily notify a concentration which is not considered of major importance?

 The Law does not provide for voluntary notification regimes. However, even if such a transaction is notified, the CPC will declare that it does not fall within the scope of the Law and/or within the meaning of concentration.

 

  1. Is there a submission fee for the notification of a concentration to the CPC?

 The fee for the notification of a concentration is €1.000. When a concentration enters into a full investigation (Phase II), there is an additional fee of €6.000. The time limits for the decision of the CPC do not start unless the above fees are paid by the notifying party or parties.

 

  1. Will the notification be published?

 The notified concentration is published in the Official Gazette of the Republic of Cyprus indicating the names of the participating undertakings, the nature of the concentration, and the economic sectors involved. The publication considers the legitimate interests of the affected undertakings in protecting their business secrets.

 

  1. What is the deadline for the notification of a concentration to the CPC?

 There is no notification deadline. However, concentrations of major importance should be notified in writing to the Service of the CPC (“Service”) before they are implemented and following the conclusion of the agreement or the publication of the public bid or the acquisition of a controlling interest.

 A notification may also occur where the participating undertakings demonstrate to the CPC their intention to conclude in good faith an agreement or in the case of a public bid, where the intention or such final decision is announced.

 

  1. Is a concentration allowed to be concluded before being approved by the CPC? If not, are there any sanctions?

A concentration which falls within the scope of the Law cannot be implemented until the party under obligation to notify the concentration is informed by the Service either that the CPC has decided to clear the concentration, with or without conditions, or that the concentration will be approved by Order of the Council of Ministers.

Moreover, if the timeframe set out by the Law for such notice expires without the notice being forwarded by the Service to the notifying party, or if the timeframes set out by the Law in relation to the notification of the decision by the CPC are not kept, the concentration is considered to have been declared compatible with the market.

In the case where a concentration is implemented, partly or completely, prior to the clearance decision of the CPC, the latter can impose an administrative fine of up to 10% of the total turnover generated during the financial year immediately preceding the concentration of the undertaking which has the obligation to notify the concentration. Additionally, the CPC can impose an administrative fine not exceeding €8.000 for every day the infringement continues.

 

  1. What type of documents and information should be included in the notification of a concentration?

The notification of a concentration must contain the documents and information referred to in Schedule III of the Law.

The following documents must accompany a completed notification:

  • Copies of all final or most recent documents which caused the concentration, either by agreement or public bid.
  • In the case of a public tender, a copy of the document of the tender or the public announcement.
  • Copies of the most recent annual reports and audited financial statements of all the undertakings participating in the concentration.
  • Copies of reports or analyses which have been prepared for the purposes of the concentration.
  • A list and a short description of the contents of all other analyses, reports, studies and surveys which have been prepared for the purpose of assessing or analysing the proposed concentration, in regard to competition issues, competitors (actual and potential) and market conditions.

In short, the notification must contain the following information regarding the participating undertakings:

  • Their name and address.
  • The nature of the commercial activity which they are engaged in.
  • The name, address, telephone, fax number and position of the person responsible for communication with the undertaking.
  • A summarised description of the nature and scope of the concentration.
  • A description of the financial and structural details of the concentration.
  • Details of each participating undertaking’s turnover in the Republic of Cyprus and worldwide.
  • Details for every participating undertaking’s profits before the deduction of taxes and the number of its employees within and outside the Republic of Cyprus.
  • Ownership and control relationships details.
  • Personal and financial links details.
  • Description and analysis of the relevant markets.
  • Description and analysis of the affected markets.

The notification must be submitted in one of the official languages of the Republic of Cyprus (Greek and Turkish). The supporting documents can be submitted in the English language.

 

  1. How are business secrets protected?

The CPC and the Service have a duty of confidentiality and are bound not to disclose / publicise business secrets and information of confidential nature, which is in their knowledge, unless where necessary to prove either any infringement of the Law or for the implementation of the Law.

A violation of this duty is a disciplinary offense punishable under the relevant disciplinary provisions. A person which violates the duty of confidentiality commits a criminal offense punishable by imprisonment not exceeding 6 months or with a fine not exceeding €1.500 or with both such penalties.

 

  1. Which are the procedural stages in the substantive assessment of a notified concentration?

 The procedural stages in the substantive assessment of a notified concentration are the following:

  • Preliminary investigation (Phase I)

Upon ascertaining the compliance of the notification with the requirements set out in Schedule III of the Law, the Service carries out a preliminary assessment of the concentration, and prepares a written report for the CPC, regarding the compatibility of the concentration with the functioning of competition in the market. Considering the written report of the Service, the CPC examines the notification and issues its decision declaring the following:

  • the concentration does not fall within the scope of the Law and/or the meaning of concentration, or
  • the concentration is compatible with the functioning of competition in the market, or
  • the concentration raises serious doubts as to its compatibility with the functioning of competition in the market and full investigation proceedings are initiated.

Subsequently, the Service informs the notifying party with regards to the decision of the CPC.

The notifying party should be informed within a month from the date of receipt of the notification, or depending on the case, from the date of receipt of the additional information required in order for the notification to be compliant with Schedule III of the Law. Where the Service ascertains that it is unable to follow the said time frame, either due to the exceptional volume or complexity of the information relating to the concentration, it is obliged, in any case, and without delay, to inform the said party within 7 days at the latest before the due date, regarding the extension of the time limit by 14 days.

  • Full investigation (Phase II)

Where the CPC issues a decision for the commencement of full investigation proceedings, it orders the Service to:

  • Ensure the submission of the requisite information for the completion of the investigation either from the notifying party or other participant undertakings, or third parties.
  • Provide the opportunity to other, non-participating persons who have proven a legitimate interest with regard to the concentration, to submit their views on the concentration, while at the same time ensuring that the relevant time frames will be kept.

Upon completion of the above, the Service submits a report with its findings to the CPC at the latest within three months from the date of receipt of the notification or, depending on the case, from the date of receipt of the additional information required in order for the notification to be compliant with Schedule III of the Law.

Considering the written report of the Service, the CPC examines the notification and issues its decision declaring the following:

  • the concentration is compatible with the functioning of competition in the market subject to any specific terms and relevant commitments, or
  • the concentration is incompatible with the functioning of competition in the market.

The decision of the CPC must be forwarded to the notifying party within 4 months from the date of receipt of the notification, or depending on the case, from the date of receipt of the additional information required in order for the notification to be compliant with Schedule III of the Law.

 

  1. What is the substantive test applied by the CPC to assess the compatibility of a notified concentration under the Law?

 A concentration is declared compatible with the functioning of competition in the market, if it is deemed not to significantly impede effective competition in the Republic of Cyprus or in a substantial part of it, especially as a result of the creation or strengthening of a dominant position.

In doing so, the CPC takes into account the following criteria:

  • The structure of the affected markets and of other markets where the concentration might have significant implications, and the actual or potential competition from undertakings located within or outside the Republic of Cyprus.
  • The market position of the participating undertakings and any other undertakings connected to them.
  • The economic and financial power of such undertakings.
  • The alternative supply sources of the products and services which are the commercial object in the affected market or the other markets where the concentration might have significant implications, and their substitutes.
  • The supply and demand trends for the relevant products / services.
  • Any barriers to entry into the affected markets and/or the other markets where the concentration might have significant implications.
  • The interests of the intermediate and ultimate consumers of the relevant products and services.
  • The contribution to the development of technical and economic progress.

 

  1. What powers does the CPC have during the examination of a concentration in order to collect information?

 During the full investigation proceedings, and before the issuance of any decision, and subject to the timeframes determined by the Law, the CPC may, if it deems expedient, carry out negotiations, hearings or discussions with any person which it considers to be helpful in the appraisal of the concentration.

The CPC may collect the necessary information in order to carry out its duties by addressing a written request to the undertakings, other natural or legal persons, or public or private entities. The recipients of such requests are obliged to provide the requested information within the set timeframe.

Moreover, the CPC may carry out all necessary inspections, such as entering the premises of the undertakings or any other professional space (except residences) and inspect archives, books, accounts and any other records of business activities and receive or acquire copies of such documents. Additionally, the CPC may seal any of the premises of the undertakings for the duration of the inspection, to the extent that it is deemed necessary, as well as ask the executive staff and personnel questions or explanations concerning the facts or other information related to the subject matter and purpose of the inspection.

 

  1. In the case where the CPC finds that the concentration raises competition issues, is it possible to negotiate remedies? At which stage of the procedure?

 During the Full Investigation proceedings, the Service notifies the participating undertakings that they may amend the concentration or suggest commitments so as to alleviate the competition compatibility concerns. In the case where the competition concerns are not alleviated, and the Service establishes that certain amendments in the circumstances causing the concentration could result in the resolution of those issues, it undertakes to negotiate with the participating undertakings.

 

Before the issuance of any decision, and within the set timeframe, the CPC may, if it deems necessary, proceed to negotiations, hearings or discussions with any person which it considers helpful in the appraisal of the concentration.

 

  1. Can the CPC remedy competition issues arising from a concentration through disinvestment?

 The CPC may, after due investigation and submission of a relevant report from the Service, order the dissolution or partial dissolution of a concentration, so as to restore the functioning of competition in the market, and sets a reasonable timeframe for the participating undertakings to implement the measures it has ordered. The Service notifies the participating undertakings and any other interested party in writing, and takes all necessary measures to ensure compliance. It is noted that any measures imposed by the CPC must be reasonably necessary for the restoration of the competitive market.

Dissolution or partial dissolution of the concentration is achieved through the deprivation of any participations, shares, assets or rights acquired by anyone participating in the concentration, or by the cancellation of any contracts which created the conditions of the concentration or from which the concentration arose, or with the combination of the two ways.

 

  1. Can the CPC provide a temporary approval to a concentration? If yes, in which cases?

 The CPC may decide to grant temporary approval to a concentration, in whole or in part, on request by one or more of the undertakings involved in the notified concentration during the full investigation proceedings. The temporary approval may be accompanied by conditions imposed on the undertakings. The requesting undertakings must provide reasons and demonstrate that they are likely to suffer serious damages if the implementation of the concentration is further delayed.

A decision for temporary approval of a concentration does not affect the final decision of the CPC following the completion of the full investigation proceedings.

 

  1. Can a concentration be concluded before the implementation of the remedies?

 Unless otherwise stated by the CPC, the conclusion of a concentration before implementing the remedies imposed is not allowed. In a case of non-compliance with regards to the measure ordered by the CPC within the time frame set by the CPC, an administrative fine of up to 10% of the total turnover of the undertaking which has the obligation for notification may be imposed. In addition, an administrative fine of up to €8.000 may be imposed for every day during which the infringement continues.

 

  1. Can the CPC revoke or amend its decision regarding the compatibility of a concentration?

 The CPC may, at any time, revoke its decision regarding any concentration’s compatibility with the functioning of competition in the market or it may amend the terms of its decision, if it ascertains:

  • That false or misleading information has been supplied or that necessary information in relation to the concentration has been withheld from the notifying party or any other participating undertaking or any other interested party.
  • Any term which has been imposed on the participating undertakings by the said decision has not been satisfied or has ceased to be satisfied.

The CPC may order the dissolution or partial dissolution of the concentration, to ensure the restoration of the functioning of competition in the market.

 

  1. Can a decision of the CPC be appealed to a Court? Is there a deadline for an appeal?

A decision of the CPC can be brought before the Administrative Court for judicial review within 75 days from the date of receipt of the notification of the final decision of the CPC on the basis of Article 146 of the Constitution of the Republic of Cyprus. A right to recourse can be exercised by a person who proves the existence of a legitimate interest.

 

 

Trojan Economics can help:

 

  • Assess notification requirement and identify potential competition concerns
  • Delineate the relevant market (e.g., SSNIP test, Critical Loss Analysis)
  • Analyse the competitive effects (unilateral, coordinated and conglomerate)
  • Identify and analyse theories of competitive harm
  • Identify and quantify efficiency claims in competition proceedings
  • Conduct econometric analysis and merger simulation
  • Provide guidance and participate in negotiations during the process of negotiating remedies with the competition authority
  • Monitor and ensure compliance with commitments attached to the clearance decision

 

More information about our services could be found here.

 

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Disclaimer: This document is a guide to merger control in Cyprus and is intended for general information purposes only. It is not intended as and does not constitute legal and/or other advice.

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