By: Daniel Flores
Peru’s new Law 31112 establishes the prior control of business concentration operations.
The new legislation, published on January 7, 2021, repeals Emergency Decree 013-2019 and Legislative Decree 1510, by virtue of which certain modifications to that Emergency Decree were approved.
The purpose of the Law is to establish a prior control regime for business concentration operations in order to promote effective competition and economic efficiency in the market for the welfare of consumers.
Here are 10 key aspects of the Law.
- Business concentration operations
In accordance with the Law, prior control will be applicable to those acts of economic concentration that produce effects in all or part of the national territory. This includes those acts that are carried out abroad and directly or indirectly link economic agents that carry out economic activities in the country – which will thus be considered to be economic concentration operations, the acts or operations that imply a transfer or change of control of a company or part of it.
These operations may occur as a consequence of the following operations:
- A merger of two or more economic agents, which were independent before the operation, whatever the form of corporate organization of the merging entities or of the entity resulting from the merger.
- The acquisition by one or more economic agents, directly or indirectly, of rights that allow them, individually or jointly, to exercise control over all or part of one or more economic agents.
- The constitution by two or more independent economic agents, of a joint venture or Joint Venture, or any other analogous contractual modality, which implies the acquisition of joint control over one or more economic agents, in such a way that said economic agent permanently perform the functions of an autonomous economic entity.
- The acquisition by an economic agent of direct or indirect control by any means, of operating productive assets of another or other economic agents.
2. Thresholds to which a business concentration operation must be subject
For a business concentration operation to be subject to the prior control procedure, the following thresholds must be met concurrently:
- The total sum of the value of net sales or annual gross income or value of assets in the country of the companies involved in the economic concentration operation has reached a value equal to the fiscal year prior to the one in which the operation is notified or greater than 118,000 UIT[1] and
- The value of net sales or annual gross income or asset value in the country of at least two of the companies involved in the business concentration operation have reached a value during the fiscal year prior to the one in which the operation is notified. Equal to or greater than 18,000 UIT.
Notwithstanding the foregoing, the National Institute for the Defense of Competition and the Protection of Intellectual Property (Indecopi) may propose updated thresholds – as long as this is justified and is in accordance with the provisions of the Law. The updating of the thresholds will be carried out by means of a regulation which will have the force of law.
3. Ex officio action by Indecopi and voluntary notification
The Technical Secretariat of the Indecopi Free Competition Defense Commission may act ex officio when there are reasonable indications that allow it to consider that the concentration operation could generate a dominant position or affect competition in the relevant market. For their part, the companies involved in a business concentration operation which do not reach the thresholds established by the Law may voluntarily notify about it.
4. Procedure for prior control of business concentration operations
a. Before starting the prior control procedure, the agents participating in the operation may consult the Technical Secretariat to determine if the operation would be subject to the prior control regime; However, it is important to specify that the opinions of the Technical Secretariat are not binding.
b. The following is a brief summary of the phases of the prior control procedure for business concentration operations:
| Phase | Scenario | Resolution term |
|
First |
The Free Competition Commission must determine whether (i) the operation falls within the scope of the regulation; and (ii) if the operation could cause significant restrictive effects on competition in the market. If the business concentration is not within the scope of the regulation or its effects are not questioned by the authority, the procedure will end and the concentration will be approved. Otherwise, the Commission will continue with the second phase.
|
Less than or equal to 30 business days (from the admission to processing of the application) |
|
Second |
During the second phase, the Commission will carry out a substantive review of the business concentration and will conclude the procedure: (i) authorizing the concentration; (ii) authorizing it with conditions; or (iii) rejecting the concentration. |
Less than or equal to 90 business days, and may be extended for an additional 30 days, which must be duly motivated by the Commission. |
c. In analyzing the origin of a business concentration operation, Indecopi will take into consideration the following factors:
-
- The structure of the relevant market
- The actual or potential competition of the agents in the market
- The evolution of supply and demand for goods and services
- The sources of distribution and commercialization
- Legal or other barriers (technological, specific investments, horizontal or vertical restrictions) to market access
- The economic power of the companies involved
- The creation or strengthening of dominant positions and
- The generation of economic efficiencies.
d. The Commission may approve business concentrations that could generate a restriction of competition, provided that the applicants demonstrate the existence of economic efficiencies that can compensate and justify the possible restrictive effects caused by the operation.
e. The Commission may authorize business concentrations establishing certain conditions and obligations (for example, the sale of assets), with the purpose of preventing or mitigating the negative effects that the business concentration could cause in the market.
f. In the event that the Commission rejects the authorization, the parties will have the right to appeal to the Specialized Chamber for the Defense of Competition within a period of 15 working days. Appeals must be resolved within a period of no more than 90 business days.
g. Additionally, it is established that, in the case of business concentrations related to economic agents included in the scope of application of the Superintendency of Banking and Insurance or the Superintendency of the Securities Market, these will be evaluated by Indecopi, without prejudice to the prior control that corresponds to these regulators. Consequently, the business concentration operation proceeds if it has the authorization of both Indecopi and the corresponding regulatory entity, each within the scope of their powers.
5. Applicable sanctions
The Law divides offenses into the categories of minor, serious and very serious, specifying that the scale of fines provided for in the Law for the Repression of Anticompetitive Conduct, approved by Legislative Decree 1034, will be applicable.
Likewise, the Law contemplates the possibility of Indecopi ordering corrective measures in order to restore the proper development of the market, among which are the dissolution of the business concentration or the sale of all the shares or assets acquired.
It is appropriate to point out that infractions of the Law prescribe four years after the last act of execution of the offending conduct.
6. Publication of the Regulations
The Presidency of the Council of Ministers shall prepare and publish, at the proposal of Indecopi, the Regulations of the Law, within a maximum period of 15 days from the publication of the Law – that is, no later than late, January 22, 2021.
7. Amendments to the Regulations of the Law of Organizations and Functions of Indecopi
The Law establishes that, within a period of no more than 15 days from the publication of the Regulation, the pertinent modifications to the Regulation of the Law of Organizations and Functions of Indecopi and other management instruments of said entity are issued, with the purpose that these comply with the provisions of the Law (the Regulatory Adaptation).
8. Entry into force
The Law will enter into force 15 calendar days from the completion of the Regulatory Adaptation.
9. Concentration operations concluded before the validity of the regulation
Those concentration operations that, before the date of entry into force of the Law, have concluded with the closing acts necessary to make the transfer or corresponding change of control effective will not be notified.
10. Repeal
Finally, and as we mentioned previously, with the entry into force of the Law, both Emergency Decree 013-2019 and Legislative Decree 1510 will be repealed. Likewise, Law 26876, the Antitrust and Anti-oligopoly Law of the Electricity Sector, will be repealed, with the exception of article 13 which modifies article 122 of Decree Law 25844, the Electricity Concessions Law.
[1] The UIT (Unidad Impositiva Tributaria) is a reference unit set annually by Peru’s Ministry of Economy to determine factors such as taxes, penalties and deductions. The value of the UIT for 2021 is S 4,400, equivalent to approximately US$1,230.