Antitrust Commission imposes penalties for late filings

Since 1999, Argentina has had regulations regarding the control of certain merger and acquisition transactions. The Law for the Defense of Competition No 25,156 (the “Antitrust Law”) provides high fines, specially regarding the control of economic concentrations.

However, it was not until 2003 that the Argentine Commission for the Defense of Competition (the “Commission”) started to impose penalties on those parties that did not notify mergers and acquisitions subject to antitrust approval in due time.

Said activity is an improvement on the Commission’s work because the Commission started to verify timely notifications. Approximately 350 transactions were reviewed and analyzed by the Commission but the notifications were made voluntarily by the involved parties.

1. Control of economic concentrations - Fines

The Antitrust Law states that certain economic concentrations require notice and approval by the Antitrust Tribunal (presently the Commission) should the aggregate volume of business of the companies involved in Argentina exceed Argentine Pesos 200 million (approximately US$ 70,175,500[1]). Mergers, transfer of businesses, acquisitions of shares or equity interests, and acquisition of certain assets are considered as economic concentrations should they result in the assumption of control of one or more companies.

However, the following transactions are excepted from clearance: (i) acquisition if the purchaser already holds more than half the stock; (ii) acquisition of bonds, debentures, non-voting shares or debt securities of companies; (iii) first acquisition in Argentina by a foreign company with no previous presence; (iv) acquisition of liquidated companies; (v) acquisitions of assets or stock for a price lower than 20 million Argentine Pesos; (vi) gratuitous transfers of goods to the Federal Government, Provincial Governments, Municipalities and the City of Buenos Aires; and (vii) transfer of goods among mandatory heirs, by acts among living persons or by cause of death.

A transaction subject to clearance must be notified to the Commission within one week following the first to occur of (i) the date that any transfer effectively occurs, or (ii) the publication of any cash tender or exchange offer.

If the parties do not comply with this requirement, they will be subject to a fine of up to Argentine Pesos 1 Million (approximately US$ 351,000) for each day they fail to comply. This penalty constitutes an important barrier when doing business acquisitions in Argentina since material transactions must be notified to avoid the imposition of this outrageous fine. However, since the Antitrust Law went into effect the Commission has rarely applied it during the first years, as the Commission only started to impose sanctions in 2003.

The Commission’s decision to impose a penalty is subject to judicial review through appeal. The decision must be appealed within 15 business days from the date the Commission served the decision. The appeal must be filed with the Commission, which must send all the files to the Federal Court of Appeals on Civil and Commercial Matters within 5 business days. The appeal suspends the effects of the decision imposing the penalty until it is finally decided by the Court of Appeals.

2. Fines imposed by the Commission

The first fine was imposed at the end of year 2002. This case appears to be the starting point for the Commission in enforcing the rules regarding the control of time delays in the notification of certain economic concentrations.

The first case, “Air Comet S.A. y Sociedad Estatal de Participaciones de España s/ Notificación art. 8º de la ley 25.156”, related to the sale of the principal Argentine airline, was notified to the Commission as a consequence of an investigation carried out by the Commission to inquire the reasons for not complying in time with the control provisions. After the preliminary investigation, the parties decided to make the filing.

Resolution Nº 331 of November 13, 2002 stated that the parties did not comply with the terms of Section 8 of the Antitrust Law because they notified the transaction 157 business days after the expiration date and imposed a fine of Argentine Pesos 471,000 (approximately US$ 165,263) on each of the notifying parties. In calculating the amount of the penalty, the Commission took into consideration (a) the fact that the parties were forced to make the notification due to an investigation conducted by the Commission; and (b) the fact that the transaction did not raise any competition concerns.

The rest of the cases were decided in 2003. According to the information publicly available at the Commission, penalties have been imposed for late filings in four other cases.

In the “EG3 S.A. e Hipólito Perez S.R.L. s/notificación art. 8 de la ley 25.156” case, in Resolution No 336/2003 of February 13, 2003 the Commission imposed a penalty of Argentine Pesos 10,000 (approximately US$ 3,500) on the seller and Argentine Pesos 30,000 (approximately US$ 10,500) on the buyer for making the filings after the expiration of term provided in Section 8 of the Antitrust Law.

The buyer in this transaction, one of the most important fuel and gas oil expenders through service stations in Argentina, acquired a gas station from seller as a consequence of a debt the seller had with the buyer. Both the buyer and the seller complied with the notification obligation after the expiration of the time limit. The buyer performed the notification 9 days after the expiration date and the seller did so 101 days after the expiration of the term. Notwithstanding that, the highest fine was imposed on the buyer, which seems to evidence that the prevailing criteria would be a “deep pocket” one.

The Commission further stated that in applying a penalty for late filing, it understood that the following principles should apply: (a) the liability of each of the parties to non-compliance; (b) the knowledge of the obligations due to the regularity of performing filings; (c) the economic situation of each party; and (d) the amount of the notified transaction. In this case the only parameter that the Commission considered was the economic situation of the parties, since the buyer, who performed the filings before the seller did, was sanctioned with a fine higher than the seller’s.

In the “EG3 S.A. y Juan Carlos Ibarguren s/ Notificación Art. 8 de la ley 25.156” case, in Resolution No 338/2003 of February 20, 2003 the Commission imposed a fine of Argentine Pesos 10,000 (approximately US$ 3,500) on the seller.

The buyer in this transaction is the same company mentioned in the previous case. This transaction involved an acquisition of assets through the acquisition of a gas station from the seller. The buyer performed the filing in due time but the seller filed his notification to the Commission 35 days after the expiration of the term. The Commission further stated that in applying a penalty for late filing, it understood that the following principles should apply: (a) the liability of each of the parties to the non-compliance; (b) the knowledge of the obligations due to the regularity of performing filings; (c) the economic situation that each party has; and (d) the amount of the transaction notified.

For this specific case the Commission understood that since the buyer complied in term with its obligation, the amount of the penalty to be applied to the seller was low due to the small size of the transaction and the fact that it did not affect competition significantly.

In the “BBV Adeslas Salud S.A. y Agbarex S.L. s/Notificación art. 8 Ley 25.156” case, Resolution No 341/2003 of March 20, 2003 imposed a penalty on each of the buyer and the seller of Argentine Pesos 348,000 (approximately US$ 123,000 on each of the parties) at a rate of Argentine Pesos 3,000 per day.

The Commission stated that parties failed to notify the transaction for 116 days. It also pointed out that, in order to evaluate the amount of the penalty, the Commission considered the following parameters: (i) competition impact of the transaction; (ii) net assets of the involved parties; (iii) term of delay; (iv) existence of a preliminary presentation such as the request for a consultative opinion; (v) total amount of the transaction and/or the assets involved; and (vi) regularity of the parties in performing filings with the Commission.

Based on these parameters, the Commission indicated that the transaction reported was a material one, performed by companies with important assets but without much experience in doing these types of filings. It also pointed out that the transaction did not raise any competition issues.

Resolution Nº 343/2003, in the “Aeroandina S.A. y Fexis S.A. (C.0383) s/ Notificación art. 8 Ley 25.156” case, imposed a penalty of Argentine Pesos 147,000 (approximately US$ 51,580) to Aeroandina S.A. and Argentine Pesos 222,000 (approximately US$ 78,000) to Fexis S.A. These penalties were afterwards reduced to Argentine Pesos 73,500 (approximately US$ 25,790) to Aeroandina S.A. and Argentine Pesos 111,000 (approximately US$ 39,000) to Fenix S.A. by the Secretary of Competition, Deregulation and Defense of Consumer.

In its decision the Commission stated that Aeroandina S.A. filed the notification 49 days late and Fexis 74 days late. In applying the same parameters as the case mentioned above, the Commission interpreted that the transaction did not raise competition concerns and in applying a similar case by analogy, the amount of the penalty for each day of delay was Argentine Pesos 3,000.

However, the Secretary of Competition, Deregulation and Defense of Consumer did not accept determining the amount of a penalty by applying cases by analogy and confirmed that the amount of the penalty must be determined according to the mentioned parameters in each specific case. The Secretary further pointed out that the economic situation of the specific industry must be also considered. It therefore reduced the penalty to Argentine Pesos 1,500 (approximately US$ 526) per day of delay to both Aeroandina S.A. and Fexis S.A.

3. Parameters for calculating the amount of the penalty for late filings

As mentioned in the cases analyzed, the Commission took into account certain considerations at the moment of calculating the amount of penalties for late filings. Those considerations were related to:

(i) competition impact of the transaction;

(ii) net assets and economic situation of the parties performing the notification;

(iii) period of delay;

(iv) liability of each of the parties in the non-compliance with the notification obligation;

(v) knowledge of the administrative proceedings and regularity of the parties in performing filings with the Commission;

(vi) existence of a preliminary presentation such as the request of a consultative opinion in the event of doubts about the filing obligation and/or a preliminary investigation conducted by the Commission to assess the reasons for failing to notify;

(vii) total amount of the transaction and/or the assets involved; and

(viii) specific economic situation of the industry or the relevant market.

All the parameters mentioned were indicated by the Commission as key issues for deciding the penalty amounts for late filings. However, it is worth mentioning that the parameter that was taken into account in all the mentioned cases was the economic situation of the parties. In this respect the Commission increases the amount of the penalty if the total assets of any of the parties are material in comparison to the other one. In one of the cases discussed, buyer performed the notification 92 days before the seller and 9 days after the expiration of the term; however, a fine two times higher than the one imposed to the seller was imposed.

Amounts were lower than Argentine Pesos 500,000 (approximately US$ 175,500) for delays that did not exceed 110 days since the expiration of the term. On a daily basis, the penalty was never higher than Argentine Pesos 3,350 (approximately US$ 1,180), amount which is low but evidences a very formalistic approach to the matter since in most cases the Commission stated that the concentration did not raise any antitrust concerns.

4. Conclusion

Antitrust provisions must be carefully analyzed when doing mergers and acquisitions in Argentina. The maximum penalty provided in the Antitrust Law for late filings is Argentine Pesos 1 Million (approximately US$ 351,000) per day of delay. This amount is very high although in the past experience has shown that the Commission has never imposed the maximum fine.

From the cases analyzed, and in conclusion, the following matters should be underlined:

(a) the Commission is currently enforcing the provisions that provide for the control of certain economic concentrations;

(b) the amounts of the monetary sanctions depend on the economic situation of the parties and the “deep pocket” rule has prevailed; and

(c) the total amount of the monetary sanctions decided during 2003 is lower than the amounts provided as a cap in the Antitrust Law but they exceed the average of fines provided by other regulations.