New fast-track procedure for merger control in Ecuador

By: Luis Marín Tobar

Ecuador is a jurisdiction that has a merger control regime since the enactment of the Organic Law for the Regulation and Control of Market Power in October 2011. Merger control became effective with the implementation of the administrative structure of the Authority in September 2012, with the possession of the first Superintendent of Market Power Control, the integration of four investigative intendencies, including the Merger Control Intendancy and a first instance decision-making body, the First Instance Resolution Commission ("CRPI").

The local merger control regime has been characterized in recent years mainly by: a) the existence of two alternative thresholds, one economic and a market share threshold; b) a rigid term of 8 calendar days for the notification of transactions subject to control; and c) the absence of an abbreviated or “fast-track” procedure, contemplated in numerous jurisdictions worldwide, for transactions that despite being subject to control and prior authorization, do not present elements that warrant an exhaustive analysis, comparable to a Phase II before the European Commission. Without this abbreviated procedure, the approximate times for the approval of a merger control notification before the Superintendence of Market Power Control (SCPM), range from 4-7 months, during which time operators cannot execute acts of taking of control, subject to penalties of up to 12% of the parties' turnover in the previous year, if carried out.

The emergency decree and incoming economic crisis derived from COVID19 took the Authority and the operators by surprise, who found the Authority's terms and deadlines for investigation suspended, including notified merger control notifications. This emergency also led to the latent need for authorization from the SCPM for economic concentrations, as a necessary measure to face the crisis, and even avoid the bankruptcy of an entity in crisis, or failing firm. The current times involved in the analysis by the Administration are dictated mainly by the Authority's obligation to carry out an exhaustive analysis of the relevant market determination, in line with resolution No. 11 of the Regulatory Board of the Organic Law of Regulation and Market Power Control, in force since November 18, 2016. On the other hand, the SCPM’s Administrative Procedural Management instructive (1) issued in 2017 contemplates four phases of the merger control procedure: Document Reception Phase, Verification Phase, Investigation Phase, and Resolution Phase, with rigid procedural times, which generates a mandatory administrative burden for the Administration in all operations notified to the control entity.

Faced with this reality and the need to have dynamic tools to face the emergency, through resolutions SCPM-DS-2020-018 and 019 dated April 20, 2020, the Competition Authority resolved to accept a draft resolution for the reform of the Procedural Management Instructive, and replace the text of article 36, which provided for the four-phase procedure for analysis of mandatory mergercontrol notifications. Instead, it introduced a new Art. 36 in which, in addition to the regular analysis process, it adds a new Art. 36.1. with an "abbreviated procedure for prior mandatory notification of economic concentration operations", in which it finally admits the following alternative scenarios, to qualify for an abbreviated authorization process:

a. The takeover by foreign economic operators without activity in Ecuador (step-in or mere change of control)

b. Horizontal concentrations in which the participants have a participation of less than 30% in each of the affected relevant markets.

c. Horizontal concentrations in which the Herfindahl-Hirschman index (HHI) prior to the concentration is less than 2000 points, and whose variation as a result of the operation is less than 250 points.

d. Vertical concentrations in which the participants have a participation of less than 30% of the relevant vertically integrated markets.

e. Vertical concentrations in which the Herfindahl-Hirschman index (HHI) prior to the concentration is less than 2000 points.

f. Economic concentrations involving operators at risk of bankruptcy, which must be backed up with verifiable information and documents (“failing firm”)

For this abbreviated procedure, procedural times are significantly reduced, as follows:

It is worth mentioning that the final general provision of resolution 018 provides that the investigative and resolution cases in process at the date of issuance of the resolution, that is, on April 20, 2020, will be governed by the text of the previous instructions. A literal interpretation of the text makes it possible to determine that files which were notified, but not formally admitted for processing, could use the abbreviated procedure, since the limitation applies only to cases currently admitted to process. 

For its part, resolution 019 repeals resolution SCPM-DS-2020-15 of March 31, 2020, and lifts the suspension of terms and deadlines for the concentration procedures notified on a mandatory basis for prior authorization or for informational purposes, and where the SCPM already has the necessary information to form its criteria and issue a decision. This resolution also regulates the operations that must be notified during the health emergency, so that the Authority has the possibility of hearing and deciding, to the extent that it has the information and documents necessary for analysis. The resolution authorizes the electronic subscription of administrative actions by the Intendance of Economic Concentrations, enabling the virtual window [email protected] for the digital reception of documents, notwithstanding that these must be presented in physical form in a term of 10 days after the lifting of the work suspension and restrictions on mobility.

It is meritorious to see the reactive capacity of the Authority considering the requirements of economic operators and the growing possibility that companies increasingly incur in the scenario of a company in crisis. This abbreviated procedure will henceforth allow them to take advantage of a viable alternative to the abbreviated approval procedures, in addition to supporting authorization for concentrations that, if not for being in crisis, or failing firms, could generate competition concerns.

(1) Resolución No. SCPM-DS-012-2017 de 16 de marzo de 2017.