Introduction
Chile has been working towards bringing reforms to prevent anti-competitive practices and punish those institutions that indulge in such practices. The new law introduced a lot of changes to Decree-Law 211 on 31st August 2016.
Decree-Law 211 establishes the antitrust regulation (Law 20,945) in Chile. Apart from increasing financial penalties and cracking down the cartels, the legislation has brought forth many changes, some of which are as follows-
- Interlocking directorates have been banned
- An M&A review by FNE (National Economic Prosecutor’s Office) is mandatory
- Notification of cross-ownership (premerger) between firms is mandatory
It can be said that the change in laws will impact the firms in many ways. The new duties listed in the law align Chile’s antitrust regulations with global practices. The preventive nature of the laws is to keep the institutions from indulging in wrong practices.
M&A Review is Mandatory
Chile did not have any specific procedures to handle M&A (Merger and Acquisition) transactions. Rather, the general antitrust procedural rules were applied here as well. This led to an unsatisfactory and half-hearted review of concentrations. This could be done by consulting the Competition Court or by using an adversarial mechanism. An adversarial mechanism is here a complaint or a lawsuit is filed by a private part to investigate the transactions.
But this system was hardly effective. In fact, it received a lot of criticism for being defective and not being able to detect the operations that threatened the competition in the related markets. Also, the parties that voluntarily agreed to a review got no incentives or advantages over those who did not.
This lack of a structural system led to less-than-satisfactory reviews and also caused trouble to the agents who managed the mergers. They had no clarity about the issue.
The new rule is all set to be effective from May 2017 and requires a mandatory M&A review. It has the recommendations mentioned in the Organisation for Economic Cooperation and Development’s report.
Along with that, the new rules have set an administrative procedure in which the firms must notify FNE. The notification is made mandatory for those firms which meet the latest conditions in Resolution 664. This change was made on 24th November 2016.
- If a firm has made appx. $70 million before the notification period (in the Chilean market)
- If at least two of the firms involved in the M&A have separately generated $11 million or above before the notification period (in the Chilean market)
The latest review will be covering M&A, asset purchase, and other transactions that result in the acquisition of decisive managerial influence. It does not matter if the firms are not in direct competition with each other.
Every transaction has to be notified and cannot be executed with the approval of the FNE. The transaction has to stay suspended until the final judgment is received from the regulator. Firms that breach the obligations are subjected to penalties and a daily fine.
- A fine of up to 30% obtained from relevant sales can be levied or an amount that’s an equivalent of the twice the benefits obtained from the transaction can be levied
- The acts and contracts related to the transaction can be terminated or modified
- The firms, agents, etc. involved in the transaction can be terminated or modified (legally)
- The firms might have to pay a fine of appx. $49 million for failing to determine the previous point (in the transaction)
According to the new law, the FNE has a time of 6 weeks to approve the transaction. It can also extend the investigation time for another 18 weeks. If it is the latter, the firms (interest parties) can take part in the procedure.
The decision to approve or reject the transaction lies with the FNE, based on what the involved parties suggest or based on whether the FNE concludes that the transaction might result in reducing competition in the market. This standard is much similar to the criteria mentioned in the EU Competition Law.
If a transaction is rejected, the involved firms can submit a review petition to the Competition Tribunal. This has to be done within 10 days of receiving the regulator’s resolution.
Cross-Ownership Notification is Mandatory
Another new obligation that has been introduced deals with the acquisition of 10% participation (either direct or indirect) in a competitor firm’s capital amount. The FNE has to be informed of the same within 60 days after the transaction has been completed. The sum includes both the participation of the firm and also the third-party accounts.
The notification is mandatory if the buying firm and the acquired firm had separately generated annual revenue of $4 million or more in the previous year.
However, the new rules do not provide any concrete definition of economic competitors. It is up to the FNE to determine the criteria for individual cases/ transactions. This can be done by using the same economic criteria that are usually used in antitrust laws. A breach of any of the rules will result in penalties.
Ban on Interlocking
The new law has successfully banned interlocking for the first time in the Chilean markets. A person cannot simultaneously participate as a board or an executive member in two or more competitor firms. Such actions are penalized under Decree-Law 211.
The ban applies to all directors and executives belonging to rival firms with annual revenue of $4 million or more in the previous year. If a person continues to maintain his/ her positions in both (or more) firms even after 90 days after the previous year ends, the latest rule is said to be breached and will attract penalties.
Contact Andrés Rioseco at González & Rioseco Abogados for more information.
Telephone : +56 228 400 400
Email: arioseco@gonzalezrioseco.cl
Or
Check out the González & Rioseco Abogados website: www.gonzalezrioseco.cl
