Meaning, procedures and consequences of failing to submit a request for authorisation of a concentration to the Kosovo Competition Authority
Authors: Florin Lata & Urtina Shkreli
The Republic of Kosovo, through its Constitution and legislation, has adopted a market economy based on free competition as its economic model. State institutions must ensure that free competition is not restricted or distorted by the activities of undertakings operating in the Kosovo market or whose activities have an effect on that market. In Kosovo, this responsibility is exercised by the Kosovo Competition Authority (KCA).
One of the ways in which competition may be distorted or restricted is through the concentration of undertakings. Article 3, point 9, of the Law on the Protection of Competition defines concentration as the creation of a joint undertaking by independent undertakings which, on a lasting basis, performs all the functions of an independent economic entity.
The concentration of undertakings is often a complex process involving numerous factors and requiring the participation of professionals from different fields. A concentration must not adversely affect free competition; otherwise, it will not be authorised by the KCA.
Commonly associated with Mergers and Acquisitions (M&A), concentration is a widespread practice in the corporate world, with a significant impact on global markets, and is becoming increasingly common in Kosovo.
For Kosovo companies, mergers and acquisitions represent a particularly attractive opportunity. However, these companies must improve their corporate governance, financial transparency and management practices, and develop a strong asset base to attract potential investors.
To fully understand this process and the rules established by law, it is important to explain what constitutes a concentration, when a request for authorisation must be submitted, and the consequences of failing to submit such a request.
1. What Constitutes a Concentration?
A concentration occurs when two or more undertakings merge to carry out joint economic activities, resulting in the acquisition of direct or indirect control over all or part of an undertaking.
A concentration may also arise through the acquisition of shares or the acquisition of a majority of voting rights.
Control may be acquired through the transfer of rights, by contract or by other means that enable undertakings, individually or jointly, to exercise decisive influence over other undertakings on a lasting basis.
Control may be acquired through:
- The transfer of ownership or the right to use all or part of an undertaking’s assets;
- The transfer of rights or contractual arrangements that confer decisive influence over the composition, voting or decisions of an undertaking’s governing bodies.
2. When Must a Request for Authorisation of a Concentration Be Submitted?
Law No. 08/L-056 on the Protection of Competition establishes minimum turnover thresholds that trigger the obligation to submit a request for authorisation of a concentration to the Kosovo Competition Authority.
Under this law, undertakings are required to submit a request for authorisation if:
- The undertakings participating in the concentration have a combined worldwide turnover exceeding EUR 20 million, and at least one participating undertaking has a domestic turnover exceeding EUR 1 million; or
- At least two undertakings participating in the concentration each have a domestic turnover exceeding EUR 3 million.
Where these turnover thresholds are met, the undertakings must submit a request for authorisation to the Kosovo Competition Authority following the conclusion of the agreement through which control is acquired or following the public announcement of the concentration.
The request must therefore be submitted before the transaction is implemented.
Consequently, the agreement should expressly provide that its implementation is conditional upon obtaining authorisation for the concentration from the KCA.
3. Who Must Submit the Request for Authorisation of a Concentration?
The request for authorisation of a concentration must be submitted by the undertaking acquiring control over another undertaking.
Where this is not applicable, the request must be submitted jointly by all undertakings participating in the concentration, in accordance with their mutual agreement.
4. What Are the Consequences of Failing to Submit a Request for Authorisation of a Concentration?
If the Kosovo Competition Authority determines that a concentration has been implemented without the required authorisation, it may order measures aimed at restoring effective competition in the market.
Under Law No. 08/L-056 on the Protection of Competition, the Authority may:
- Order the sale or transfer of acquired shares;
- Prohibit or restrict the exercise of voting rights in undertakings participating in the concentration;
- Order the dissolution of a joint undertaking;
- Prohibit other forms of acquisition of control that result in an unlawful concentration;
- Impose fines in accordance with the law.
Law No. 08/L-056 classifies participation in a prohibited concentration and failure to submit the required request for authorisation to the Authority as serious infringements.
For such infringements, the law provides for fines of up to 10% of the undertaking’s total worldwide turnover in the most recent financial year for which the financial statements have been completed.
Furthermore, the responsible person within the undertaking may also be subject to a fine ranging from EUR 1,000 to EUR 4,000.
Conclusion
Kosovo companies must exercise particular caution, as failure to comply with the applicable legal procedures may result in serious consequences, considering both the substantial financial penalties and the potential reputational damage.
The Kosovo Competition Authority has announced that it has initiated investigations into several concentrations that were notified or implemented without following the procedures prescribed by law.
Therefore, although concentration is an essential aspect of corporate development and may generate significant benefits for the undertakings involved, it is equally important that companies comply with the applicable rules and submit the required requests for authorisation in accordance with the legislation of the Republic of Kosovo.
Companies should remain informed and exercise due diligence to ensure that all concentration transactions are carried out in full compliance with the applicable competition legislation.
