September 18, 2020

Control of M&A transactions in Uzbekistan

1. The General concept of preliminary consent

1.1. Purpose of issuing preliminary consent and responsible State bodies

1.2. Legal basis for obtaining preliminary consent

1.3. The term “group of persons”

2. Transactions that require preliminary consent

2.1. General criteria for transactions requiring preliminary consent

2.2. Specific criteria for transactions requiring preliminary consent

3. The procedure for obtaining preliminary consent

3.1. Legal basis of the procedure for obtaining preliminary consent and the authorities responsible for providing the relevant service

3.2. Form of application and state duty

3.3. Required documents and period of their consideration

4. Refusal to issue preliminary consent

4.1. Grounds for refusal

4.2. Exceptions

5. Consequences of failure to obtain preliminary consent

6. Registration of rights in the Central Depository

6.1. The registration of rights to shares in the Central Depository

6.2. Disclosures related to the acquisition of shares

 1. The General concept of preliminary consent

1.1. Purpose of issuing preliminary consent and responsible State bodies

State control in the field of competition in relation to transactions involving mergers and acquisitions of business entities, as well as the acquisition of shares (participatory interest) in their charter fund (charter capital) is carried out by issuing a preliminary consent.

The Antimonopoly Committee and its territorial bodies are responsible for issuing preliminary consent.

Preliminary consent is issued by the Republican Antimonopoly Committee when:

  • purchasing shares in the charter fund (charter capital) of a business entity that operates in all regions of Uzbekistan or in several territories;
  • purchasing shares (participatory interest) in the charter fund (charter capital) of a business entity, if this entity and investors or investors who are considered as groups of persons are located in different regions of the Uzbekistan;
  • the shares (participatory interest) in the charter capital of an business entity are acquired by a foreign investor(s);
  • purchasing shares (participatory interest) in the charter fund (charter capital) of a business entity, the total book value of the assets of one of the parties participating in the transaction, or the net proceeds from the sale of goods for the last calendar year exceeds the amount of 200,000 basis of calculation.

Preliminary consent is issued by the territorial bodies of the Antimonopoly Committee if shares (participatory interest) in the charter fund (charter capital) of business entities operating in the relevant territory of Uzbekistan.

1.2. Legal basis for obtaining preliminary consent

This requirement is established by article 16-17 Of the law of Uzbekistan “On competition”. In addition, according to the law of Uzbekistan No.ZRU-341 “On licensing procedures in the field of business activity”, as well as the Cabinet Decree No.225 dated 15.08.2013, a special List of documents of a permissive character in the field of business activity was developed. This List also includes obtaining preliminary consent from the Antimonopoly Committee of Uzbekistan for mergers and acquisitions.

1.3.The term “group of persons”

A group of persons is a set of persons who have a single (common) economic interest and meet the following conditions:

  • two or more legal entities, one of which directly or indirectly, as well as in accordance with the powers received from other persons, owns more than fifty percent of the authorized capital of another legal entity;
  • two or more legal entities in which the same individual, as well as his or her spouse, parents (adoptive parents), children (adopted), blood and half-brothers and sisters (hereinafter — close relatives) have by virtue of their participation in these legal entities or in accordance with the powers received from other persons, more than fifty percent of the authorized Fund (authorized capital) of each of these legal entities;
  • two or more legal entities in which the same legal entity has, by virtue of its participation in these legal entities or in accordance with the powers received from other persons, more than fifty percent of the authorized capital of each of these legal entities;
  • two or more legal entities whose Executive body includes the same individuals and their close relatives;
  • two or more legal entities in which more than fifty percent of the number of members of the collective Executive body and (or) the Supervisory Board are the same individuals and their close relatives;
  • two or more legal entities, one of which, based on the legislation or constituent documents of these legal entities or agreements concluded between them, has the right to give these legal entities mandatory instructions;
  • two or more legal entities in which the same individual or the same legal entity has the right to give them mandatory instructions based on the legislation and constituent documents of these legal entities or agreements concluded with them.

It has to be noted that the aggregate share of a group of persons of a business entity and an investor in a certain market of goods (works, services) is calculated as the sum of their individual participatory interest, as well as the shares of other legal entities whose shares (participatory interest) or property rights are owned by the investor or business entity.

 2. Transactions that require preliminary consent

Preliminary consent is required for two types of transactions:

  • for the acquisition of shares (participatory interest) in the charter fund (charter capital) of business entities by person or groups of persons;
  • mergers and acquisitions of business entities.

2.1. General criteria for transactions requiring preliminary consent

General criteria for transactions requiring preliminary consent:

  • if, as a result of one or more transactions, the investor receives shares (participatory interest) in the charter fund (charter capital) of the business entity;
  • when purchasing shares (participatory interest) of a business entity in the form of contributions to the company’s charter fund (charter capital) as payment for an increase in the company’s charter fund (charter capital);
  • increase in the package of shares (participatory interest) owned by the founder of a joint-stock company, limited or additional liability company, if the initial charter capital is increased by issuing additional shares or increasing the nominal value of the participatory interest;
  • issue of shares (participatory interest) of a business entity in the form of a gift or debt repayment.

2.2. Specific criteria for transactions requiring preliminary consent

Preliminary consent of the Antimonopoly Committee is required for the following transactions for the acquisition of shares (participatory interest) in the charter fund (charter capital) of business entities by person or groups of individuals:

  1. If a person or group of persons receive the right to dispose of more than 50% of the shares (participatory interest);
  2. If the total book value of the assets of the persons participating in the transaction or their total revenue from the sale of goods for the last calendar year exceeds 100,000 basis of calculation;
  3. Or if one of the participants in the transaction occupies a dominant position in the commodity or financial market.

The preliminary consent of the Antimonopoly Committee is also required for mergers and acquisitions of business entities, if the above-mentioned criteria b and c are present.

The website of the Antimonopoly Committee of Uzbekistan has also launched the online services that allow to find out whether preliminary consent is required to transactions involving mergers and acquisitions of business entities, as well as the acquisition of shares (participatory interest) in their charter fund (charter capital).

This site also includes a list of entities that occupy a dominant position in the commodity or financial market, as well as the State register of natural monopolies.

 3. The procedure for obtaining preliminary consent

3.1. Legal basis of the procedure for obtaining preliminary consent and the authorities responsible for providing the relevant service

The administrative regulations (procedure) for issuing such preliminary consents are regulated by Cabinet Decree No. 338 of 28.05.2020 “On approval of certain administrative regulations for the provision of public services in the field of Antimonopoly regulation in the commodity and financial markets”. The same procedure is covered in less detail in article 18 of the law of Uzbekistan “On competition”.

The state service for submitting an application for issuing a preliminary consent is provided by the state service Centers. However, they do not make a decision on granting such consent, since this is the authority of the Antimonopoly Committee and its territorial bodies. Therefore, it should be remembered that public service Centers can only suggest the required documents and help you submit an application, but they cannot comment on the content of these documents.

3.2. Form of application and state duty

Application for preliminary consent can be submitted either in person or online using electronic encryption key (EEK).

In the case of an explicit application, the state duty for reviewing an application for the issuance of a preliminary consent is 10, and in the case of an online application via the EPIGU (unified portal of interactive public services) – is 90% of 10 basis of calculation.

The applicant (person or group of persons) may withdraw back the application at any stage of its review. However, it has to be noted that in this case, the paid state duty will not be refunded.

3.3. Required documents and period of their consideration

Applicants must submit the following documents:

  • application for issuing preliminary consent to perform actions (transactions);
  • passport data of the applicant — for an individual (series and number of the document, date and place of issue, issuing authority);
  • information about the types of activities, names of types of goods and their volumes produced and sold by the applicant during the two years preceding the date of submission of the application, or during the period of activity, if it is less than two years;
  • financial and statistical reports for the previous two calendar years;
  • information about the composition of a group of persons, indicating the reasons for which such persons are included in this group of persons, and other information related to the transactions under consideration for the acquisition of shares (participatory interest) in the charter fund (charter capital);
  • document confirming payment of the state duty.

The Antimonopoly Committee considers the application within 10 calendar days and informs the applicant of the decision in writing. In cases where the Antimonopoly Committee finds grounds for a more detailed study of the application, a decision may be made no later than 1 month.

 4. Refusal to issue preliminary consent

4.1. Grounds for refusal

The Antimonopoly Committee may refuse to issue preliminary consent to a transaction if:

  1. this may lead to the emergence or strengthening of the dominant position of the relevant business entity or group of persons in the commodity or financial market and / or restrict competition;
  2. false or unreliable information was identified in the submitted documents.

The applicant has the right to eliminate the reasons (grounds) for refusal and submit documents for their reconsideration, but only within at least ten working days from the date of receipt of the decision in written refusal to issue preliminary consent. If application is resubmitted, the state duty is not charged.

4.2. Exceptions

The law provides for cases when the Antimonopoly Committee can still issue its preliminary consent to transactions (even if there are grounds for refusal), but subject the consent to additional requirements to the applicant in order to ensure competition. All these requirements and deadlines for their implementation are specified in the written decision of the Antimonopoly Committee.

In cases when the conclusion of transactions involving mergers or acquisitions, as well as the acquisition of shares (participatory interest) in the charter fund (charter capital) of business entities, leads to the emergence or strengthening of the dominant position of the relevant business entity or group of persons in the commodity or financial market and (or) restrictions on competition, the Antimonopoly Committee may make an exception and issue a preliminary consent if the persons or group of persons prove that such a transaction provides tangible benefits to consumers.

In addition, preliminary consent is not required in the following cases:

  • to founders in the incorporation of a business entity;
  • for transactions involving the acquisition by a business entity of its own shares;
  • if the company retains the size of its charter capital during its transition to a different organizational and legal form;
  • when transferring shares (participatory interest) in the charter fund (charter capital) to fiduciary management, as well as acquisition of shares (participatory interest) by investment intermediaries for the purpose of their subsequent resale;
  • if shares (participatory interest) in the charter fund (charter capital) are acquired by a business entity in accordance with the decisions of the President of Uzbekistan or the Cabinet of Uzbekistan;
  • if transactions of acquisition of shares (participatory interest) of business entities in the charter capital (charter capital) are within the framework of state privatization programs;
  • transactions on the part of an individual to receive shares (participatory interest) in the charter fund (charter capital), if at the time of applying such an individual did not dispose of more than fifty percent of the shares (participatory interest) in the charter fund (charter capital) of a business entity.

5. Consequences of failure to obtain preliminary consent

Transactions, concluded without the preliminary consent of the Antimonopoly Committee that lead to the emergence or strengthening of the dominant position of a business entity or group of persons in the commodity or financial market and / or restriction of competition, may be declared invalid by the court. The Antimonopoly Committee has the right to apply to the court for invalidation of such a transaction. For more information about the relevant procedure for recognizing transactions as violating the requirements of the competition law, see Cabinet Decree No. 225 of 12.10.2005.

In addition, violators are liable under article 178-1 of the Code of administrative responsibility of Uzbekistan. After repeated violation (administrative prejudice), criminal liability is imposed under article 183 of the Criminal code of Uzbekistan.

6. Registration of rights in the Central Depository

6.1.The registration of rights to shares in the Central Depository

The procedure for registration of rights to securities is established by the Law of Uzbekistan “On the securities market“, Cabinet Decree No. 263 of 21.05.1999, as well as other by-laws.

Rights to securities are recorded in the custody accounts of the owners of securities, which are opened in the Central securities Depository and (or) with an investment intermediary, except for cases stipulated by law.

The investment intermediary keeps records of rights to non-documentary securities in the accounts of its clients, which are taken into account in total in its accounts with the Central securities Depository.

When performing the functions of maintaining registers of securities owners, the Central securities Depository has the right to request and receive information from investment intermediaries necessary for the formation of these registers.

6.2. Disclosures related to the acquisition of shares

A shareholder is obliged to disclose information about purchasing independently or together with affiliated persons as a result of one or more transactions of shares of joint stock companies, constituting in the aggregate 20 percent or more of the Charter capital of the joint stock companies.

Disclosure of information is made within two business days from the date of conclusion of the transaction (s) in the Republican newspaper or on the official website of the stock exchange.

In addition, significant facts that must be provided in the annual report of the joint-stock company are changes in the list of legal entities in which the issuer has 10 or more percent of the shares (participatory interest, units) of each such legal entity. The annual report must also contain information about the ownership of 5 or more percent of shares (participatory interest, units) of other legal entities, if the issuer’s shares are included in the stock exchange’s quotation list.