Economic Concentrations and Late Filing

1. Introduction

Section 8 of Law No. 25,156 (the “LDC”) establishes that all economic concentrations, when their volume of business originated in Argentina exceeds AR$ 200,000,000, must be notified before the Argentine Antitrust Commission (the “CNDC”) in order to obtain clearance, in a term that should not exceed one week after the effective takeover of the company and/or the asset object of the transaction.

In the present case, Mrs. Eugenio G. Schettini, Juan R. Seragopian and Jorge A. Young (the “Sellers”) sold 40% of their shares of Gramit S.A. to CFC Participaciones S.A. (the “Buyer”) and notified such transaction before the CNDC on July 22, 2011.

The Secretary of Domestic Trade (“SDT”), pursuant to the recommendation issued by the CNDC by means of the Opinion No. 974, ordered, by means of the Resolution SDT No. 14/2013 (03/01/13) (the “Resolution”), to impose a fine of AR$ 20,000 on CFC Participaciones S.A., Eugenio G. Schettini, Juan R. Seragopian and Jorge A. Young because the SDT considered that the notification pursuant to Section 8 of the LDC was performed in an untimely fashion.

The SDT concluded that the notification was filed with a delay of two days. The LDC establishes that the breach of the obligation of notification will be sanctioned with a fine up to AR$ 1,000,000 for each day of delay (Section 46, subsection d) of the LDC). To that respect, the daily fine imposed by the Resolution was of AR$10,000. Notwithstanding the sanction, the Resolution also granted the clearance to the transaction pursuant to Section 13, subsection a) of the LDC, this means that the Transaction was approved without any kind of conditions.

Both the Sellers and the Buyers appealed the sanction for late filing and the dockets were sent to the Tribunal “A” of the Economic Criminal Court of Appeals.

2. Analysis of the case

When appealing, the parties argued that (i) there was no late filing, since the term of one week, established by the LDC for the notification, must be counted in business days; (ii) the set of rules is confused in relation to the term for notification, so, the interpretation to such rules must be the one that cause lesser damage to the rights of the parties; (iii) the Resolution was based on an excessive ritualism, since the transaction obtained clearance (Section 13, subsection a) of the LDC - this is, unconditionally approved), and because of the supposed breach, no damage was caused. Finally, the parties also requested for the Resolution’s void.

They also required the reduction of the fines imposed.

The arguments of the parties were analyzed as follows:

Calculation of the legal term

On this particular issue, the Court of Appeals stated that the argument of the parties could not succeed because the legislator has been very clear, and because the term of one week does not admit different kinds of interpretations. To that regard, the Court of Appeals stated that the term of one week is the timeframe of seven consecutive days.

On the other hand, the Court highlighted the approach given by the specialized case law, which stated that “the term of one week pursuant to the Section 8 of the LDC is calculated according to natural weeks….” (Guillermo Cabanellas de las Cuevas, Derecho antimonopólico y de defensa de la competencia, Tomo II, page 129, Ed. Heliasta, second edition, 2005).

Excessive ritualism and lack of damage or prejudice

Since the parties closed the transaction on 07/12/2011, the term of one week for the notification expired at midnight of 07/19/2011. However, the parties performed the notification on 07/22/2011, so the judges considered that the delay in filing the notification was of two days and the decision of the SDT was correct.

Parties also argued that the notification was performed within the legal term provided by Section 164 of the National Code of Criminal Procedure. This argument was also rejected, because in this particular case, the grace period could only be used validly for the parties if the notification had been filed in the first two hours of 07/20/2011. It should be recalled that the notification was performed on 07/22/2011, thus, the grace period cannot be applied once the one week term has expired by two days.

Finally, the judges sustained that the sanction established in Section 46, subsection d) of the LDC is formal and that it was not necessary to prove that any damage was caused. Thus, the only requisite is for the legal mandate to have been breached. Therefore, the parties’ argument on these grounds has been also unsuccessful.

In order to reduce the fines imposed by the SDT, the judges highlighted that the appellants were right because neither the SDT nor the CNDC have performed a correct analysis regarding the lack of records of the parties (Section 49 of the LDC); thus, such sanctions must be reduced. For all the above mentioned reasons the fines imposed for the late filing (two days) were reduced by the Tribunal “A” to AR$ 5,000 to both the Sellers and the Buyer. In consequence, there was an average of AR$ 2,500 fine for each day of delay.

In addition, the appellants have requested for the Resolution’s to be declared void. To that respect, the Court of Appeals decided that this request cannot be accepted, since the LDC does not contemplate a void declaration. Moreover, Section 166 of the National Code of Criminal Procedure (that applies subsidiary) only authorizes such request for a void regarding a Resolution, only when there is an inobservance of express provisions that states such consequence. Finally, the Court of Appeals did not notice that some of the void requirements stated in Section 167 of the National Code of Criminal Procedure had been met.

3. Recent case law of the CNDC

Please find below a breakdown of the recent case law of the CNDC regarding fines for late filing.

3.1. Resolution SDT No. 9 (12/21/2011) and Opinion CNDC No. 917 (12/05/2011) – Conc. No. 682: in this economic concentration, the parties notified the transaction with the CNDC with two (business) days of delay. The SDT, pursuant to the recommendation of the CNDC, imposed a fine of AR$ 20,000 to the buyer (Argentine Breeders & Packers S.A) and of AR$ 20,000 on each seller (Mr. Santiago Martín Pérez and Newtabi S.A). The daily fine amount was of AR$ 10,000.

In this regard, the CNDC took into consideration that the consolidate business volume of the acquirer group plus the target reached AR$ 3,052,625,865.07, that the delay was of two business days and that the economic concentration notified did not generate any risk to competition.

3.2. Resolution SDT No. 137 (10/04/2011) and Opinion CNDC No. 902 (09/07/2011) – Conc. No. 829: in this economic concentration, the parties notified the transaction with 220 (business) days of delay. Therefore, the SDT, pursuant to the recommendation of the CNDC imposed a fine of AR$ 1,760,000 on Glaxosmithkline PLC and of AR$ 1,760,000 to Stiefel Laboratories Inc. The daily fine was of AR$ 8,000.

In that regard, the CNDC took into consideration (i) that the notified transaction did not violate the provisions set forth by Section 7 of the LDC; and (ii) that the notification was an spontaneous act of the parties without being required by the CNDC by means of a Preliminary Diligences, and, as aggravating circumstances, the CNDC took into consideration that (iii) the parties have already performed other notifications before the CNDC; and (iv) that the net sales of the involved companies for 2008 exceeded the amount of AR$ 500,000,000.

The parties appealed the fines but the Economic Criminal Court of Appeals (Tribunal A), on 07/06/2012, confirmed Resolution SDT No. 137/11.

3.3. Resolution SDT No. 47 (03/28/2011) and Opinion CNDC No. 962 (03/01/2011) – Conc. No. 803: in this economic concentration the parties notified the transaction with 39 (business) days of delay. Therefore, the SDT, pursuant to the recommendation of the CNDC, imposed a fine of AR$ 702,000 on the buyers (Latina de Infraestructuras, Ferrocarriles e Inversiones S.L) and of AR$ 702,000 to the seller (Mr. Ángel J. Antonio Calcaterra). The daily fine was of AR$ 18,000.

In order to moderate the application of this sanction the CNDC took into consideration (i) the collaborative spirit of the parties when receiving all the requests for information; and (ii) that the parties did not appeal Resolution SDT No. 967, dated 12/09/2009 (that ordered the notification of the transaction by mean of an Advisory Opinion – OPI No. 151); and as aggravating circumstances: (iii) that the transaction violated the provisions set forth by Section 7 of the LDC (that is why the clearance of the transaction was subordinated in accordance to Section 13, subsection b of the LDC); (iv) and that the business volume of the involved companies, in the last three years, exceeded the amount of AR$ 1,000,000,000.

The parties appealed the fines, but the Federal Court of Appeals on Civil and Commercial (Tribunal III), on 03/21/2013, confirmed Resolution SDT No., 47.

3.4. Resolution SDT No. 2 (01/06/10) and Opinion CNDC No. 775 (01/06/13) – Conc. No. 741: in this economic concentration the parties notified the transaction after the effective takeover of the company, and as a consequence of a Preliminary Diligence started by the CNDC. Therefore. the SDT, pursuant to the recommendation of the CNDC, imposed a fine of AR$ 104,692,500 to Telefónica S.A.; AR$ 17,437,000 to Mediobanca S.p.A.; AR$ 17,649,000 to Intesa Sanpaolo S.p.A.; AR$ 43,414,500 to Assicurazioni Generali S.p.A.; AR$ 17,264,000 on Sintonia Group, composed of the firms Sintonia S.p.A and Sintonia S.A.; and AR$ 35,520,000 on Pirelli & Co. S.p.A.

The parties appealed the imposition of fines but the Economic Criminal Court of Appeal (Tribunal A), on February 1, 2011 revoked (i) the sanction of the fine imposed to Mediobanca SpA, Intesa San Paolo SpA, Assicurazioni Generali SpA, S.A. Tuning, Tuning SpA and Pirelli & Co. SpA, and upheld the fine imposed on Telefónica S.A. but reduced its amount to AR$ 50,000,000.

4. Conclusion

Once again this case shows the importance of the notification of a merger within the timeframe (one week) of Section 8 of the LDC. While parties can and should analyze the case law of fines set by the CNDC, it is important to clarify that each case is different and, therefore both, the parties and the CNDC, should properly analyze the circumstances of each particular case.

The CNDC continues its practice of imposing such sanctions once it acknowledges the transgression regarding the obligation to notify within a week as provided by the LDC. It is important to note that, in addition of making this test once the economic concentration is notified (as in this case), the CNDC also initiates preliminary investigations to determine whether a transaction (not reported yet) should or should not be notified to the CNDC.

To avoid such penalties (which might be very expensive for the parties) it is essential that those parties involved in a merger, and their legal counsel, perform a correct analysis of the applicable deadlines.