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INNOVATIONS IN ESTABLISHING A JOINT VENTURE IN AZERBAIJAN-MERGER FILING CONTROL

Azerbaijan offers diverse investment opportunities and stands as one of the most appealing destinations for businesses looking to expand into the Caucasian region. Incorporation of a joint venture (“JV”) in Azerbaijan can be a convenient way for foreign companies to access a rapidly developing market and broaden investors’ portfolio. Nevertheless, while establishing JV in Azerbaijan, certain essential steps must be taken to ensure effective and smooth business operations. Along with legal requirements related to establishment process of JV, it is crucial to highlight the importance of merger control and filing procedures (“Merger Filing”) in Azerbaijan which have been recently introduced in Competition Code enacted in December of 2023.

This article focuses primarily on Merger Filing requirements and aims to give the readers better understanding on this rather complicated process.

Newly adopted Competition Code defines certain cases when business entities involved in concentrations are subject to merger control filing by State Service for Antimonopoly and Consumer Market Control under the Ministry of Economy of the Republic of Azerbaijan.

The definition of “concentration” itself is also reflected in the Article of 1.1.47 of mentioned Code - merger of one or more business entities, certain segments (areas of activity) thereof, or acquisition of a business entity, its certain segments (areas of activity, stakes, shares) and rights, or establishment of a joint business entity according to the procedure established by the Code.

As it is clearly visible from the definition above, JV incorporation, for the purposes of this Code is considered concentration, therefore, it is essential to highlight the importance of evaluation and comprehensive assessment of potential market concentration prior to forming of JV. By conducting an assessment, businesses can decide if a Merger Filing is needed to stay compliant.

Considering the legislative requirements, major importance must be given to concentration types as well as thresholds which might be potentially subject to Merger Filing in the assessment phase.

For instance, Competition Code provides for cases when economic subjects must apply to Antimonopoly Authority for approval of concentration:

  • when one of the economic subjects participating in the concentration holds a dominant position in the relevant market;
  • if the total turnover of one of the economic entities participating in the concentration in the relevant market or the economic entity that will be emerged after the concentration exceeds 25 (twenty-five) million manats;
  • if the total turnover of economic entities participating in the concentration exceeds 35 (thirty-five) million manats in the last reporting year within and outside the country;
  • if the turnover of one of the economic subjects participating in the concentration exceeds 15 (fifteen) million manats in the country in the last reporting year, and the total turnover of the other(s) in the last reporting year exceeds 5 (five) million manats

It also must be highlighted that Antimonopoly Authority defines specific timelines on the Merger Filing process depending on transaction nature. For instance, considering JV establishment, whichever occurs earlier, after the conclusion of concentration agreement/approval of relevant decision, an application for merger clearance must be made within 30 (thirty) days to Antimonopoly Authority. The consideration period of such applications is 30 (thirty) business days with the possibility of its extension for the same period up to 2 (two) times.

In case of failure or late submission of an application to the Antimonopoly Authority regarding concentration approval, businesses may be subject to the penalty for up to 5 % of their total turnover from the previous financial year; or in case of impossibility of calculation of previous year’s turnover - from considerable 50.001 (fifty thousand and one) up to 200.000 (two thousand) manats.

Indeed, the prompt assessment of concentration by businesses is crucial to ensure compliance, avoid potential legal implications and minimize disruptions to business operations.

Considering the recent adoption of Competition Code with no specific directions on application of requirements, in order to minimize the level of uncertainty for businesses navigating compliance in Merger Filing process, it is advisable to consult experienced professionals regarding the process.

 

Please feel free to contact us should you have any questions related to article. We will be happy to provide legal support with regard abovementioned procedure.

09 Dec, 2024