Ecuador adopts expedited merger protocol amid covid-19 woes

Ecuador adopts expedited merger protocol amid covid-19 woes Credit: Shutterstock/Millenius

Ecuador’s antitrust authority has adopted a fast-track merger notification procedure in response to the coronavirus pandemic that has devastated the country’s economy.

The Superintendency for the Control of Market Power (SCPM) on 20 April passed a draft resolution that creates expedited reviews for certain deals that require pre-merger notification. According to local practitioners, covid-19 has caused widespread delays in the agency’s ability to review and investigate certain transactions.

The fast-track system is available to controlling companies that do not directly or indirectly conduct business in Ecuador; merging companies with less than a 30% combined market share in all relevant markets; and for deals with a credible failing-firm defence.

Under the normal pre-merger notification timeline, the authority has 50 days to send its findings to the First Instance Resolution Commission (CRPI) – the authority's decision-making body. The body has 60 days to issue a decision and in the case of complex mergers, it can request an additional 60 days to review a deal.

The new fast-track regime means a deal could be cleared within 40 days. The authority will have 15 days to send its findings to its decision-making arm, which will have 25 days to issue a final decision.

As the country’s economy and health system continues to struggle financially, the World Bank announced on 2 April the approval of a US$20 million loan to help the country battle covid-19. Ecuador’s vice-president Otto Sonnenholzner has reportedly said that economic losses are estimated to be roughly 2% of the country’s gross domestic product, adding that the government is contemplating deferred payments for basic services bills, taxes and contracts to provide economic relief.

Luis Marin Tobar, head of intellectual property and competition at Lexvalor Abogados in Quito, said that it takes the authority on average four to seven months to review and approve a “non-problematic” transaction. During this approval phase, parties cannot execute any acts of control, he said, adding that violators are subject to penalties of up to 12% of turnover for the previous year.

A fast-track procedure has long been awaited and requested by practitioners and companies alike, Marin Tobar said. He added that on certain multi-jurisdictional deals, Ecuador is typically a jurisdiction where many parties file first, but is also the last jurisdiction to authorise a transaction.

The country’s merger control framework was implemented in 2011, making it relatively young, and is governed by complicated regulations and internal administrative procedure rules that did not contemplate a fast-track procedure, Marin Tobar explained.

He said multiple deals have already been filed during the coronavirus pandemic, or are in the pipeline, that require expedited review and approval to avoid bankruptcy, or loss of supply capacity.

“There should be no negative impacts for the fast-track procedure, given that it constitutes a benefit for merger control notifications which fall under any one of the circumstances detailed in the resolution,” Marin Tobarsaid. Ecuador’s competition authority has the power to unwind consummated mergers if an infringement of merger control regulations is found, he added.

Diego Pérez Ordóñez, a partner at Pérez Bustamante & Ponce, said this new procedure is a “positive development” for the authority, noting the agency has submitted all deals to the same standard of review until now.

“The Ecuadorian agency did not have any type of procedure or exemption for transactions that did not pose a substantive risk to competition, which resulted in an inefficient expenditure of resources,” Pérez Ordóñez said.

He added that simple transactions were given too much attention while deals that may raise concerns were not scrutinised as thoroughly, resulting in long review periods for all deals, regardless of complexity.

“On the negative side, the creation of this procedure won’t come with additional funds or amendments to the law,” Pérez Ordóñez noted. The agency still has to deal with burdensome constraints, like defining relevant markets in all cases and will continue to be short-staffed, which may limit the effectiveness of these resolutions, he said.

Xavier Rosales, a partner at CorralRosales, said the implementation of a fast-track procedure “was long expected and is positive for the development of businesses.”

Rosales said the head of the antitrust authority, Danilo Sylva Pazmiño, has a more open approach toward easing the authorisation process for non-problematic transactions than previous heads.

Pazmiño has served as the head of the Ecuadorian agency since October 2018. He was previously chair of the agency’s first instance resolution commission, which is responsible for implementing corrective measures.

This article was first published by Latin Lawyer's sister publication Global Competition Review on 24 April.