The hidden fourth phase of anti-monopoly reviews

With its effects-based approach, the Anti-monopoly Law (AML) is applicable to all concentrations, including foreign-to-foreign party transactions, which may eliminate or restrict competition in the Chinese market. A merger control filing with MOFCOM is required, when in the financial year preceding the transaction, firstly, either the worldwide aggregate turnover of all parties involved exceeded Rmb10 billion or the Chinese aggregate turnover of all parties involved exceeded Rmb2 billion, and secondly each of at least two of the parties involved had turnover in China in excess of Rmb400 million.

Based on the international common understanding, the term “concentration” covers a wide variety of transaction structures such as mergers, the acquisition of shares or assets, the creation of joint ventures and the acquisition of control or decisive influence through contractual arrangements.

Procedure and timeline

According to the AML, there are three phases to review a concentration, with clearance pos-sible in any phase. In Phase I, the review period takes 30 days and begins with the official acceptance of the notification by MOFCOM. During this period, the Ministry will conduct a preliminary review and decide whether the concentration merits an in-depth Phase II review.

However, it has become normal practice that even unproblematic cases enter into Phase II. In Phase II, the review period is extended by 90 days. In cases that give rise to substantial competition concerns Phase II can be extended by another 60 days, which is commonly understood as Phase III.

In practice, the pre-acceptance review effectively constitutes an additional phase. After the initial notification submission, MOFCOM will accept the filing only if it deems the accompanying documentation complete. The AML does not stipulate a time limit for this pre-acceptance review, thereby leaving it to the sole discretion of MOFCOM whether and when to accept a filing. Moreover, MOFCOM tends to request additional information from the par-ties at this stage. In particular, there are cases where parties were confronted with several rounds of such requests before their filing was accepted as complete. As the review timeline only begins with the official acceptance of the filing, some cases have already been delayed significantly at this stage. Parties should not underestimate the pre-acceptance review when it comes to the planning and timing of a reportable transaction. It is therefore advisable to file as soon as practicable in China to avoid missing the closing deadlines of the transaction.

In later stages, delays might be caused by MOFCOM's practice to conduct broad and some-times unnecessary consultations. The Ministry tends to obtain the opinion of various govern-mental agencies, trade associations, competitors and other players in upstream or downstream markets before rendering a decision. However, these approval delays are caused by the limited experience of MOFCOM and insufficient capacities.

Suspension and penalties

Similar to the EU merger control regime, the AML sets forth a mandatory filing obligation and a suspension obligation. The parties to a reportable transaction are prohibited to close the transaction before a clearance decision is obtained. An inf ringement of this obligation may result in penalties including fines, the suspension of the transaction or the restoration of the pre-closing status. Although MOFCOM has yet to make any ruling on a violation of the filing or suspension obligation, the increased determination of MOFCOM to enforce these obligations should be taken into consideration. In order to comply with the filing and suspension obligations, a proper closing mechanism, including programs regarding the exchange of sensitive information among the parties, need to be carefully designed and adhered. This will avoid any risk of pre-empting a decision..