Latvia's Competition Law provides that enterprises whose turnover for the previous financial year was at least 40 million lats (57.1 million euros), or whose market share in a particular segment is at least 40 percent, have to submit a mandatory merger notification to the Competition Council before they acquire part or all assets/ right to use such assets of another enterprise.
In case an enterprise fails to submit merger notification to the competition authorities, the transaction resulting in acquisition of assets/right to use the assets is deemed to be illegal, and the Competition Council can impose a penalty up to 1,000 lats per day for each day which has passed since the assets/right to use the assets has been acquired.
Even though the liability imposed upon enterprises for failure to submit merger notification is, indisputably, a severe one, provisions of the Competition Law regarding acquisition of assets/right to use the assets are ambiguous and trigger a number of questions.
For example, what is deemed to be an asset? What kinds of assets must be acquired to trigger an obligation to submit a merger notification? How substantial does the part of assets acquired have to be to trigger an obligation to submit a merger notification? How long does the term of right to use the assets have to be to trigger an obligation to submit a merger notification?
Recently proposed amendments to the Competition Law attempt to define more precisely those instances of acquisition of assets/right to use the assets that are deemed to be a merger. Thus, proposed amendments of the Competition Law provide that acquisition of assets/right to use the assets will be deemed to be a merger if it results in an increase of market share of an enterprise acquiring the assets/right to use the assets in any particular market.
Nevertheless, the proposed amendments do not solve the ambiguities related to the necessity to notify of an acquisition of assets/right to use the assets 's we still have no definition for the term "asset"; we still do not know how long an asset must remain at our disposal to trigger an obligation to submit merger notification, etc.
Even more so, the proposed amendments have triggered additional questions. For example, to what an extent does the market share of an undertaking acquiring assets/right to use the assets have to increase to trigger an obligation to submit a merger notification?
Unfortunately, the Competition Council has not adopted any kind of guidelines that could assist enterprises in determining whether their intended acquisition of assets/right to use the assets amounts to a notifiable merger. As the result, analysis of the decisions adopted by the Competition Council reveals that interpretation of the particular provisions of the Competition Law differs greatly between enterprises and the Competition Council, and the latter makes its interpretation known when it imposes a penalty on an enterprise for not applying the Competition Council's interpretation.
Needless to say, this lack of certainty regarding the necessity to submit a merger notification places enterprises in an unenviable position where they either risk to be subject to a penalty or to spend a considerable sum of money for preparing a notification that actually is not needed.
European Union competition laws provide a much more detailed regulation of merger issues. Furthermore, the European Commission, which is the watchdog for compliance with EU competition laws, has adopted a number of guidelines on EU competition laws. Even though those guidelines are not binding, they nevertheless provide a valuable point of reference for enterprises when assessing their transactions within the light of European Union competition laws as well as render decisions of the European Commission predictable.
Considering the ambiguities surrounding an obligation to submit a merger notification when acquiring assets/right to use the assets, we would strongly advise you to always consult your lawyer before entering into any transactions regarding acquisition of assets.
Liene Abramovica is associate at Kronbergs & Cukste, a member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms which includes Teder, Glikman & Partnerid in Estonia and Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.
