Procedure of Foreign Investment in Bangladesh | Law, Policy, Direct, Angel, Rules, Policy- Everything you need to know in 21st century

Procedure of Foreign Investment in Bangladesh | Law, Policy, Direct, Angel, Rules, Policy- Everything you need to know in 21st century

Procedure of Foreign Investment in Bangladesh 2020| Law, Policy, Direct, Angel, Rules, Policy- Everything you need to know about Foreign Investment in 21st century Bangladesh

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Tahmidur Rahman
 Director and Senior Associate, Counsels Law Partners

17 Jan 2020

Procedure of foreign investment in Bangladesh: Leading up to initiating a major investment , investors needs to navigate the basic legal policies on investment law in Bangladesh. Bangladesh is one of the easiest countries in the world to do business with straightforward regulation, a well-respected legal system and low entry barriers. Entrepreneurship is also massively respected and encouraged in the country.

Despite this welcoming atmosphere and a lack of red tape, difficult choices and decisions need to be taken at an early stage, and this article describes everything you need to know about the Procedure of foreign investment in Bangladesh.

Foreign Investment Policy in Bangladesh & Procedure of foreign investment in Bangladesh

 

The Government of Bangladesh has put in place a wide range of policies aimed at bringing substantial socio-economic changes to the citizens of Bangladesh and, eventually, self-reliance to the country, which would in turn pave the way for seamless procedure of foreign investment in Bangladesh.

In recognition of the capacity of the private sector to contribute to the achievement of these objectives, the government has recently initiated a number of major policy reforms, which are planned to create a more transparent and competitive environment for foreign investment in Bangladesh.

In order to achieve the goal of accelerating industrial growth and increasing the share of industry in the Gross Domestic Product ( GDP) and to make industrial policy sensitive to changes in the global economy, the current government announced an Industrial Policy in 1999. 

 The core characteristics of the 1999 industrial strategy are as follows: 

  • To draw foreign direct investment in Bangladesh,  both export and domestic market-oriented industries to compensate for the lack of domestic investment opportunities and to acquire emerging technology and to gain access to export markets, so that the Procedure of foreign investment in Bangladesh bangladesh gets even easier.
  • To ensure the sustainable growth of industrial jobs by promoting investment in labour-intensive manufacturing sectors, including investment in productive small and cottage sectors.
  • Diversifying and increasingly increasing the production of manufacturing.
  • Coordinate economic and fiscal policies to inspire a growth in foreign investment in Bangladesh.
  • Promote the competitive strength of import substituting industries for catering to a rising domestic market.
  • To increase the production base of the economy by increasing the pace of industrial investment to ease the procedure of foreign investment in Bangladesh .
  • Promote the private sector to drive the development of industrial production and investment and making the Procedure of foreign investment in Bangladesh way easier.
  • Emphasis on the role of the government as a facilitator in creating an enabling environment for the expansion of private investment and the procedure of foreign investment in Bangladesh.

Investment Structures in Bangladesh and Procedure of foreign investment in Bangladesh

Bangladesh offers generous opportunities for investment under its relaxed Industrial Policy and export-oriented, private sector-led growth strategy. Except for the previously stated reserved sectors, foreign investors are free to make investments in Bangladesh in industrial enterprises.

In regards to Procedure of foreign investment in Bangladesh, Foreign companies wishing to do business or establish a presence in Bangladesh have a number of options.

1.  Foreign Direct Investment in Bangladesh

FDI (foreign direct investment in Bangladesh) in industrial or construction projects must be registered with the Bangladesh Investment Development Authority (BIDA).

BIDA, formerly known as the Investment Board, was formed by the Bangladesh Investment Development Authority Act 2016 to deal with issues related to FDI and to promote investment in Bangladesh.

The foreign direct investment (FDI) inflow at the end of June 2018 amounted to USD 2.58 billion (foreign investment in Bangladesh stats, Bangladesh bank).

The Bangladesh Investment Development Authority (BIDA) announced an impressive 13.34% rise in FDI in the third quarter of 2018, receiving proposals worth USD 3.23 billion over the same period, suggesting strong interest on the part of foreign investors.

The key objective of BIDA is to encourage domestic and foreign investment as well as improve Bangladesh’s international competitiveness. BIDA also provides the necessary facilities and assistance for the establishment of industries.

In regards to the Procedure of foreign investment in Bangladesh, determining the route of investment usually depends on the specific sector and the policy of the FDI adopted by the Government in regards to foreign investment in Bangladesh. 

2. Wholly owned subsidiaries in Bangladesh

Foreign companies are allowed to create wholly-owned subsidiaries in Bangladesh. Such companies may be known as private limited or public limited companies. Foreign equity ownership can be up to 100% in most sectors, including construction, information technology and production.

Foreign entities can acquire an existing Bangladeshi company or incorporate a new company that complies with the requirements of the Registrar of Joint Stock Companies and Firms (RJSC). Subsidiaries are entitled to remit dividends reported on income after tax.

3. Joint Ventures in Bangladesh (Foreign Investment in Bangladesh)

As with wholly-owned subsidiaries, international companies can have joint venture companies with Bangladeshi partners. The equity ownership of a foreign corporation would depend on the sector in which it is invested.

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4. Setting up a Branch or Liasion offices in Bangladesh for foreign investors

International companies can also create a presence in Bangladesh through a representative office, liaison office or branch office for the purpose of foreign investment in Bangladesh.

Typically foreign companies that do not have local earnings in Bangladesh may choose to set up representative offices, liaison offices or branches.

The operations of these organizations are limited to those set out in their BIDA approvals and are subject to strict compliance with the foreign exchange regulations.

Generally, no outward remittance of any kind from Bangladesh is allowed unless expressly approved by the Foreign Exchange Regulations or the Bangladesh Bank.

fSuch offices are expected to pay inward remittances of at least USD 50,000 within two months from the date of establishment as a cost of establishment.

One of the requisite approvals for the establishment is that security clearance must be obtained from the Ministry of Home Affairs of the Government of Bangladesh. (foreign investment in Bangladesh)

5. Option of Participating in an existing Bangladeshi company by purchasing shares (procedure of foreign investment in Bangladesh.)

In regards to foreign investment in Bangladesh, Foreign investors are free to invest in local companies in Bangladesh unless expressly prohibited (as stated above).

Shares can also be given to foreign investors against capital machinery brought by them to Bangladesh (subject to confirmation by the Customs and Excise Office of the import documents, Procedure of foreign investment in Bangladesh).

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  • Step by Step Process of Registering a Company in Bangladesh
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Right to Issue and Transfer Shares in Bangladesh – Procedure of foreign investment in Bangladesh.

 

There is no need for permission from the Bank of Bangladesh to set up such ventures if the entrepreneurs use their own funds. Prior approval of the Central Bank is not necessary for the issuance of shares in favor of non-residents against foreign investment in BD.

 

Shares may be issues relating to freely convertible foreign exchange brought in from abroad via the banking channel or to the importation of capital machinery or the combination of both.

 

Foreign exchange thus entered must be paid out in taka before the issuance of shares, except in the case of Type A (full foreign owned) and Type B (joint venture) units of EPZ and EZ, where FC ‘s foreign bright equity of be held in the FC accounts of the units concerned.

 

Transferring shares and securities in Bangladesh from one shareholder to another shareholder regardless of their nationality / residence does not require approval from Bangladesh Bank.

 

In the event of a transfer of private / public (non-listed) shares between resident-non-residents or vice versa, a general intimation to Bangladesh Bank is required by the Approved Bank within 14 days of such a transaction.

 

As there is no established marketplace for such investment in Bangladesh, Bangladesh Bank will accept fair value of the shares as on the date of sale based on a reasonable combination of three valuation approaches (NAV; FMV and DCF), depending on the nature of the company in regards to the Procedure of foreign investment in Bangladesh.

 

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Full Repatriation of Dividend, Investment and Income for foreign investors in Bangladesh.

It will enable complete repatriation of the capital invested from free sources in regards to the Procedure of foreign investment in Bangladesh. Profits and dividends accruing to foreign investment can likewise be transferred in full (Procedure of foreign investment in Bangladesh).

Those would be considered as new investment if foreign investors reinvest their reparable dividends and/or retained earnings. Foreigners living in Bangladesh have the right to remit up to 50 percent of their income and can enjoy facilities for complete repatriation of their savings and pension benefits. (Procedure of foreign investment in Bangladesh.) 

 

Laws for the Protection of Foreign Investment in Bangladesh

 

For a seamless procedure of foreign investment in Bangladesh, the government guarantees immunity from nationalisation and expropriation through the 1980 Foreign Private Investment Act that involves repatriation of capital and dividend for foreign investors.

In addition, to facilitate the Procedure of foreign investment in Bangladesh, Bangladesh has made ample legal provisions to secure intellectual property rights. In addition to the 1980 Foreign Private Investment Act , the government has developed an FDI Policy (Foreign Direct Investment Policy for the Procedure of foreign investment in Bangladesh), which supports easy but efficient investment mechanisms in Bangladesh.

 

The policy encourages the establishment of enterprises by simplifying the leasing and purchasing process of private property, forming an agency, enabling corporate tax holidays for 7 years (15 years in the power sector) and in some respects introducing an exemption of foreign employees’ income tax for up to 3 years.

 

 

 

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Disputes Settlement in regards to the procedure of Foreign Investment in Bangladesh

In dispute cases alternative conflict settlement is possible under the 2001 Arbitration Act. The Bangladesh International Convention on the Recognition and Compliance of Foreign Arbitral Awards was signed. Bangladesh is also a member of International Centre for Investment Dispute Settlement (ICSID).

The new law also provides for the implementation without much hindrance of international arbitral awards. Although venturing in a company may be overwhelming, Bangladesh offers investors a safe and resourceful environment suitable for establishing or expanding any company, and it can be said that Bangladesh is in fact a “dream investment destination,” after much consideration.

 

Visa, Work Permit, Citizenship in Bangladesh (Procedure of foreign investment in Bangladesh)

For periods ranging from one month to five years prospective foreign investors may apply for visas. Foreign workers must get BIDA / BEZA / BEPZA work permit.

In an industrial organization the number of expatriate workers can not exceed the ratio of 1:20 (foreign: local) for industrial settings and 1:5 (foreign: local) for commercial establishments.

Citizenship in a scheduled bank may be subject to investment of USD 1 million or a fixed deposit of USD 2 million. Investors can also get ‘NO Visa Requirement’ exemption for investment of more than USD 10 million.

 

If you want to know more in details about Visa obtaining process in Bangladesh

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Incentives offered to Foreign Investors in Bangladesh

Bangladesh is keen to boost the economy in a short time and turn the poverty-stricken economy into a developed one. Government investment strategy provides competitive stimulus packages to attract foreign investment. These incentives are updated annually and new incentives are announced, too.

These installations are subject to certain conditions and are issued by the BIDA. Moreover, Bangladesh gives international investors citizenship, permanent residency and multiple entry visas for their ease of business and ease of the Procedure of foreign investment in Bangladesh.

 

Investing in the Stock market in Bangladesh

International investors are eligible to engage in Initial Public Offerings ( IPOs) without regulatory restrictions. In addition , capital gains from listed securities are tax-exempt for private investors and lower tax rates apply to corporations and other organizations.

 

Import Duty exemption in Bangladesh (Procedure of foreign investment in Bangladesh)

No import duties are applicable for export-oriented sectors. There are duty exemptions also for some preferred sectors. General exemption of import duties is also available in respect of import of specific Plant & Machinery and spares.

 

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Allowance of Capital repatriation in Bangladesh

Full repatriation of invested capital, profits and dividends is allowed, subject to applicable taxes to make the process seamless in regards to the Procedure of foreign investment in Bangladesh.

 

Tax holiday facility in Bangladesh (THF) for seamless procedure of foreign investment in Bangladesh

Tax holidays are granted to industries subject to the relevant rules and procedures laid down by the National Revenue Board of Bangladesh (NBR). This may vary from 3 to 7 years depending on the location of the establishment. For example, industries located in the Dhaka and Chittagong Divisions (excluding three Hill Tract districts of the Chittagong Division) are exempted for a period of five years.

This tax holiday scheme, which was scheduled to end in 2015, was extended until June 2019 to create an investor-friendly atmosphere in Bangladesh. Tax holiday facilities are also available to manufacturing units and economic zone developers for a period of 10 years and 12 years respectively, and once again it makes it more seamless, the procedure of foreign investment in Bangladesh.

 

Special Tax Exemption for the foreign investors in Bangladesh

Tax exemptions are commonly permitted in the following cases:

  • There will be scope of tax exemption on royalties, technical know-how fees earned by any international partner, business, company and expert;
  • Reasonable income tax-upto-threeyearsforeign technicians working in industries as defined in the respective schedule of income tax regulations;
  • Relevant revenue of a private corporation conducting public infrastructure projects;
  • In regards to capital gains from the sale of shares of limited public company listed on the stock exchange;
  • NGO reported with the NGO Affairs Bureau;
  • Reasonable profits of companies and other sectors defined in the income tax Ordinance

Depreciation allowance in regards to Tax (Procedure of foreign investment in Bangladesh)

Depreciation allowance shall be allowed in respect of any house, equipment, factory, furniture, bridge, road or overhead used in any company or industrial undertaking in the measurement of income or gains.

The third schedule of the Income Tax Ordinance 1984 sets out a list of various types of properties and their corresponding depreciation allowance rates, which usually range from 10 % to 30% of costs.

The plan also sets out the overview of the usual rate of depreciation allowance, the original rate of depreciation allowance and the accelerated rate of depreciation allowance for various asset groups.

 

If you want to know more in details about tax submission in Bangladesh click here!

 

Avoidance of Double Taxation for Foreign Investors

 

Double taxation for international investors can be avoided on the basis of the Bilateral Double Taxation Avoidance Treaties (DTTs). NBR is responsible for negotiating Double Taxation Agreements (DTAs) with foreign countries to facilitate FDI in Bangladesh.

The DTA is an arrangement between two countries that aims to prevent double taxation by specifying the taxing rights of each country with respect to cross-border income flows and providing for tax credits or exemptions to remove double taxation for the ease of the Procedure of foreign investment in Bangladesh.

It also allows for the exchange of information between treaty partners on tax evasion. For instance, Bangladesh has double taxation treaties with  Denmark, France, Germany, Belgium, Canada, China, India, Italy, Japan, Poland, Romania, Singapore, South Korea, Sri Lanka, Sweden, Thailand, The Netherlands, The United Kingdom and other countries.

 

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Remittance of profits for foreign investors in Bangladesh

Remittance of income of subsidiaries of foreign companies / companies, dividends / capital gains, wages and savings of expatriates, royalties and technical fees, training and consulting fees, receivables obtained by shipping companies and airlines for freight and transit can be made by approved dealers without the prior approval of the Bangladesh Bank.

In addition to that the Procedure of foreign investment in Bangladesh are placed in such a way that global entrepreneurs are also entitled to the same facilities as domestic entrepreneurs with regard to tax holidays, dividends, technological know-how fees, etc.

Business profits and tax exemption for foreign investors in Bangladesh

The income of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein.

If the enterprise carries on business as mentioned above, the benefit of the enterprise may be taxed in the other Contracting State, but only in so many cases as is due to that permanent establishment. (Article 7 of the Double Taxation Agreement).

Dividends and tax exemption for foreign investors in Bangladesh

Dividends paid by a company resident in a Contracting State to a resident in the other Contracting State may be taxed in the other State.

However, such dividends may also be taxed in the Contracting State in which the corporation paying the dividends is resident and in compliance with the laws of that State, but where the beneficiary is the beneficial owner of the dividend, the tax paid shall not exceed 10% of the gross sum of such dividends (Article 10 of the Double Taxation Agreement).

Interest arising from contract state for investors

Interest occurring in a Contracting State and charged to a citizen of the other Contracting State may be taxed in another State.

However, such interest may also be taxed in the Contracting State in which it exists and in compliance with the laws of that State, however if the beneficiary is the beneficial owner of the interest, the tax so paid shall not exceed 10% of the gross sum of the interest.(Article 11 of the Double Taxation Agreement).

Capital gain derived by a foregin resident in Bangladesh

Gains obtained by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other Contracting State. (Article 13 to prevent a double taxation agreement, Procedure of foreign investment in Bangladesh)

Foreign Investment In Bangladesh-Formal Sectors In Bangladesh

Repatriation of investment in Bangladesh – Foreign Investment Law in Bangladesh

Full restitution of the capital accumulated from foreign sources is permitted. Likewise, the gains and dividends accrued on foreign investment can be transferred in full.

If foreign investors reinvest their repatriable dividends and/or retained profits, they will be considered as new assets. Foreigners living in Bangladesh are required to pay up to 75% of their wages and will benefit from complete repatriation of their savings and retirement benefits.

In order to allow full repatriation of the capital invested, benefit and dividend, foreign investors will have to apply for repatriation approval from the Bangladesh Bank through an approved bank. 

Foreign Private Investment (Promotion and Protection) Act, 1980, section 8 also states:

(1)  In respect of foreign private investment, the transfer of capital and the returns from it and, in the event of liquidation of industrial undertaking having such investment, of the proceeds from such liquidation is guaranteed.

(2)  The guarantee under sub-section (1) shall be subject to the right which, in circumstances of exceptional financial and economic difficulties, the Government may exercise in accordance with the applicable laws and regulations in such circumstances.

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List of online portals for potential investors in Bangladesh (Procedure of foreign investment in Bangladesh)

Foreign direct investment (FDI)

 

www.bida.gov.bd

BIDA
Investing in economic zones www.beza.gov.bd  BEZA
Trade-related Information https://www.bangladeshtradeportal.gov.bd/ Bangladesh Government
Company name Clearance

http://app.roc.gov.bd:7781/psp/nc_ search?p_user_id=

 

Office of the Registrar of Joint Stock Companies and Farm (RJSC)

 

Registration of Company http://www.roc.gov.bd/

Office of the Registrar of Joint Stock Companies and Farm (RJSC)

 

VAT Registration http://www.nbr.gov.bd/

National Board of Revenue

 

Issuance of Certificate for using standard mark

http://www.bsti.gov.bd/Form_Online.html

Bangladesh Standards and Testing Institution (BSTI)

 

If you want to know how to Obtain a Trade License in Bangladesh click here!

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Elimination of Taxation treaty in Bangladesh

 

In double taxation the following shall be eliminated:

 

(a) If a resident of China receives income from Bangladesh, the amount of tax on that income payable in Bangladesh in compliance with the terms of this Agreement may be credited against the Chinese tax levied on that resident.

 

However, the amount of the credit shall not exceed the amount of Chinese tax on that income determined in accordance with China’s tax laws and regulations.

 

(b) where the revenue received from Bangladesh is a dividend paid by a company resident in Bangladesh to a company resident in China and holding not less than 10 per cent of the shares of the company paying the dividend, the credit shall take into account the tax paid to Bangladesh by the company paying the dividend for its revenue.

 

Bilateral Investment treaties in Bangladesh

Bangladesh has with many nations, including China, signed Bilateral Investment Treaties (BIT) and Trade Agreements (TA). Typical provisions contained in BITs are clauses on foreign investment protection and treatment standards which usually address issues such as fair and equal treatment, full protection and security.

Provisions on reimbursement for damages suffered by foreign investors as a result of expropriation or as a result of war and dispute are typically a central part of such agreements as well. Most IIAs also control the moving of funds across borders in connection with the Procedure of foreign investment in Bangladesh.

The BITs also contain a clause on dispute resolution between investor and state. Usually this allows investors the right to bring a lawsuit to an international arbitral tribunal if a dispute occurs with the host country (Procedure of foreign investment in Bangladesh).

The International Center for Settlement of Investment Disputes (ICSID), the United Nations Commission on International Trade Law ( UNCITRAL) and the International Chamber of Commerce (ICC) are common places in which arbitration is sought.

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Funding options for foreign investors in Bangladesh

Foreign entities can conveniently access funding for short- and long-term investments from local financial institutions, including working capital loans, syndication, and trade finance. In addition, some of the Foreign Institutions (FIs) at home and abroad have access to on-shore and off-shore funding.

There are currently 58 planned commercial banks in the financial sector, as well as a host of Non-Bank Financial Institutions (NBFIs) and specialized financial institutions.
In addition to raising debt-based funding, investors may also consider securing equity-based capital-market financing from the country.

Raising Capital from the Equity market in regards to the Procedure of foreign investment in Bangladesh

International companies can start raising capital from the stock market, subject to fulfillment of certain terms and conditions. The government is keen to increase the number of companies listed on the local stock exchange, and offers regulatory incentives to attract profitable businesses and facilitate the Procedure of foreign investment in Bangladesh.

Listed firms pay 25 per cent corporate taxes on non-listed entities, excluding those markets, compared with 35 per cent tax limit.
Formal approval from the Bangladesh Securities and Exchange Commission (BSEC) is required for the fundraising process. Companies may use either the fixed price, or the option of constructing books.

The appointed merchant bank and auditor help prepare a prospectus under the fixed-price process, valuing the business based on current assets and prospects for future growth. The indicative stock price is determined and has to be certified by the regulator.

The method of book building involves a designated merchant bank to prepare an indicatively priced prospectus. The contending business then holds a series of road shows in which institutional investors are invited to bid on their stocks. IPO share price is dependent on input from other institutional investors and their interests. 

The DSEX listing process has the mandatory requirement that an Issue Manager be employed or named (approved by the DSEX). The way IPOs are determined needs support from the approved Issue Manager.

The draft prospectus shall be prepared in compliance with the Regulations of an Issue Manager and the Securities and Exchange Commission (Public Issue for the Procedure of foreign investment in Bangladesh ), 2015. IPOs can be issued by either book building or fixed-price system.

Debt capital from local commercial Banks in Bangladesh

International investors have access to financing for the local debt. Trade finance, term loans, and working capital are readily accessible to large foreign investors, in particular.

Interest rates are low for such loans and between 9-16 per cent. Bangladesh has a very large number of  State and commercial banks (as stated in the preceding section), and bank loans can be obtained against collateral secured in regards to the Procedure of foreign investment in Bangladesh.

Private Foreign Commercial borrowing in Bangladesh

To secure long-term foreign currency loans, a request must be sent to BIDA, which will then be forwarded to the Central Bank for further review.
To secure the loans, a business case supporting the loan condition must be included in the application. The proposal, along with the business case, is submitted for evaluation and decision by a committee chaired by the Bangladesh Bank Governor including members from BIDA, PMO Ministry of Finance.

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Regulatory institutions facilitating investment in Bangladesh

The investment route depends on the business sector and on the FDI policy introduced by the Government of Bangladesh. The following government and trade agencies would oversee and encourage investment in most sectors;

The Bangladesh Investment Development Authority (BIDA), Formerly known as the Investment Board (BOI), has been set up to deal with local and foreign investment issues. All incoming investments must be pre-approved by BIDA.

The regulatory body aims to encourage domestic and foreign investment by simplifying the bureaucratic complexities of entering the Bangladesh market in regards to the Procedure of foreign investment in Bangladesh. 

Bangladesh Bank ( BB) is the central bank of the country. The central bank must be officially informed of any foreign transactions, including equity investments made on the stock market. All incoming investments shall be reported to BB via commercial banks.

Relevant trade bodies and chambers in Bangladesh

The Dhaka Chamber of Commerce and Industry (DCCI) is a non-profit, service-oriented chamber serving as the first point of contact for small and medium-sized enterprises. DCCI offers market-oriented inputs to imports , exports and investments throughout the government’s policy formulation period for the Procedure of foreign investment in Bangladesh.

The Chamber periodically publishes guidebooks to promote trade and investment. DCCI also has its own training facility to facilitate the growth of capability of professionals associated with member organizations.

The International Investment Chamber of Commerce and Industries (FICCI), founded in 1963, is made up of 188 members across the mining, service and manufacturing sectors. Classified as Class ‘A’ Chamber of Commerce, FCCI is affiliated with the FBCCI, the International Trade Center (Geneva) and the World Trade Organization (Paris).

The Metropolitan Chamber of Commerce and Industry (MCCI) is a leading chamber body made up of representatives of major local and multinational corporations. The MCCI maintains frequent ties with major international trade organizations and global private sector organizations. (procedure of foreign investment in Bangladesh)

Exit policy for foreign investors in Bangladesh

An investor can terminate an investment either by a decision of an annual or an extraordinary general meeting. Once a foreign investor has completed the formalities to leave the country, he or she can repatriate the net proceeds after obtaining proper authorisation from the central bank (Bangladesh Bank, Procedure of foreign investment in Bangladesh).

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Frequently Asked Questions about Foreign Investment in Bangladesh

In regards to Foreign Investment in bangladesh people also ask these questions frequently, hence this FAQ content block is dedicated to answering your questions.

General Questions about Foreign Investment in bangladesh

Which Countries invest the most in Bangladesh?

The country’s major investors are China, South Korea , India, Egypt, the United Kingdom , the United Arab Emirates and Malaysia. According to the most recent data available from Bangladesh Bank, FDI flows increased by 5.36% to USD 1.65 billion in July-October 2019 per year. -Procedure of foreign investment in Bangladesh

How is the Investment Scenario in Bangladesh in 2020?

Bangladesh is already recognized as a thriving investment hub, reflected in influxes of foreign direct investment ( FDI) from the region. Bangladesh ‘s FDI amounted to USD 2.58 billion at the end of June 2018.

According to the Bangladesh Investment Development Authority (BIDA), there was a 13.34% rise in FDI in the third quarter of 2018, with proposals worth USD 3.23 billion in the basket. Mega-projects by the government is seen as the primary explanation for significant FDI investments in  Transportation, transportation , and communications. Exports from the country are also growing amid domestic consumption.

What is an example of Foreign Direct Investment in Bangladesh?

Examples of foreign direct investment in Bangladesh include, but are not limited to, mergers, acquisitions, retail, utilities, logistics, and development. Foreign direct investment and the laws that regulate it can be critical to the growth strategy of a business.

What are the types of foreign Investment?

Examples of foreign direct investment in Bangladesh include, but are not limited to, mergers, acquisitions, retail, utilities, logistics, and development. Foreign direct investment and the laws that regulate it can be critical to the growth strategy of a business.

What is the current trend of foreign investment in Bangladesh?

35.4 per cent of the FDI came from the manufacturing industry in 2016-17. The country witnessed phenomenal Y-o – Y growth of 11 per cent 2017 In this area. Experts in industry are optimistic this development will be maintained in the years to come. The sectors of transport , storage and communications ranked second with FDI inflows of 25 per cent.

This may be due to the mega projects being initiated and executed by the government at the present time. Over the time, electricity, accompanied by gas and petroleum, attracted FDI of 19 per cent. Over the years, the power sector has steadily drawn foreign investments due to the Government ‘s attractive tax incentives. (Procedure of foreign investment in Bangladesh)

How Foreign investors can enter into Bangladeshi Market?

Foreign investors may either form a wholly / partially owned subsidiary, or set up a branch or liaison office for Bangladesh operations. The type of organization that was created will rely on the medium- and long-term strategy of the investor for market penetration. Hence the three conventional ways of entering the Market in Bangladesh:

  • Wholly owned subsidiaries
  • Limited liability by purchasing shares in an existing Bangladeshi company
  • Joint ventures
How to get work permit and visa as a foreign investor in Bangladesh?

For investors planning to become resident in Bangladesh by taking a full-time position or for the company’s expatriate employee, branch office, liaison office, work permit is required.

Upon arrival in Bangladesh for a short period of time under two types of visa, the person is required to apply for a work permit with BIDA and an extension from the Passport and Visa Department, subject to effective completion of the security clearance.

If not treated skillfully, the process can be very hectic, and time consuming. We help our customer make it easy and hassle-free. We also help our client locate commercial addresses needed for trade license and clearance of protection.

How to open a Liaison or Branch office in Bangladesh?

Opening Liaison office requires some critical preparatory work and documentation work which requires experience. We have significant experience of getting BIDA  registration for both liaison and branch office for several foreign principals.

Legal documentation involves authentication of parent company’s Memorandum and Articles of Association, list of directors etc. Often the authentication process is cumbersome.

We try our best to make the process smooth and hustle free. In recent time we have opened several branch and liaison offices for construction and engineering companies whose principal is located in Italy, UK, China, Singapore and other neighboring countries.

What is SEZ or Special Economic Zone in Bangladesh?

In Bangladesh, economic zone is a relatively new term. The government intended to establish 100 economic zones in various geographical locations.

However, as the land is still under development process, only a handful of economic zones are currently allocating property, or will do so in the near future. Mirsarai Economic Zone for example.

Our customer can take our service from the Bangladesh Economic Zones Authority (BEZA) to conduct due diligence on land in the economic zone. We also provide legal due diligence services for lands adjacent to the Mirsarai Economic Zone which is ready for immediate investment

How to get permits and consents as a foreign investor in Bangladesh?

Often the client carries out due diligence on the number of permits and approval necessary and the time period. The type of permits and consent required depends largely on the type of industry, the business venture, its location and the planned Bangladesh activity.

The Chambers offers all basic licensing services such as business registration, liaison office approval, branch office approval, trade authorization, export and import permit, chamber and trade membership, work permit, bank account opening, IRC, ERC, ad hoc IRC, BIDA registration, BIDA recommendation, etc.

We can help with other licenses or permits. We either do it ourselves or outsource it from our established service providers and vendors

What is EPZ or Export Processing Zone in Bangladesh?

Export Processing Zone is ideal for wholly owned export-oriented companies, if it is a Joint Venture, etc. 08 (eight) EPZs are geographically diversified in various locations within Bangladesh.

Depending on the nature of the company, availability of utilities, rental rates, transportation, availability of qualified man power, etc. Customer may choose acceptable EPZ to invest.

Interested customers can take advantage of our services to locate, lease, or move existing land leases from Bangladesh Export Processing Zone Authority (BEPZA).

How to do share acquisitions as a foreign investor in Bangladesh?

Share acquisition requires many paperwork works in an unlisted private and public corporation, e.g. signing Form 117, affidavits etc. In addition, in conjunction with the Memorandum and Articles of Association, several resolutions are required along with the drafting of the Share Purchase Agreements.

For the whole process, we counsel clients so that the transition is done smoothly. We also recommended buyer as well as seller to take over some businesses. We have also advised individual shareholder in the purchasing and sale of shares. Our service involves not only supporting documentation work, but also helping to actually record and receive a certified copy from RJSC

Foreign Direct Investment in Bangladesh at CLP:

The Barristers, Advocates, and lawyers at CLP in Gulshan, Dhaka, Bangladesh are highly experienced at dealing with foregin direct investment, where we assist clients in setting up of the complete business irrespective of whether it is within a specialized zone or any other part of Bangladesh. In Counsels Law Partners, our experience helps us to efficiently execute local and cross-border global transactions while helping you at all stages of the process and offering you cost-effective, realistic business solutions. In addition to handling various issues related to domestic clients on a regular basis, it also has experience in consulting and assisting numerous international clients with utmost care and attention throughout their legal exploration in Bangladesh. For queries or legal assistance in regards to the Procedure of foreign investment in Bangladesh, please reach us at:

 E-mail:tahmidur@counselslaw.com
Phone:+8801727983838

Address: House 39, Road 126 (3rd Floor) Islam Mansion, Gulshan 1, Dhaka.

 

Have a Different Question?

Email us anytime : tahmidur@counselslaw.com

Or call — +8801727983838

Tahmidur Rahman | Law Firm in Dhaka

Affiliated with Counsels Law Partners, A full service multi-directional law firm in Dhaka.

© 2018-2020 Tahmidur Rahman Matte IT Ltd.

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Mergers and Acquisitions process | A complete overview with 14 simple steps

Mergers and Acquisitions process | A complete overview with 14 simple steps

Mergers and Acquisitions in Bangladesh: A Complete guide with 14 steps

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Tahmidur Rahman
 Director and Senior Associate, Counsels Law Partners

27 Dec 2019

Our clients profit from a leading global M&A practice that has worked on more M&A transactions than any other law firm over the last 2 years. In Counsels Law Partners, our experience helps us to efficiently execute local and cross-border global transactions while helping you at all stages of the process and offering you cost-effective, realistic business solutions. This post explains in details about the mergers and acquisitions process in Bangladesh.

What are Mergers and Acquisitions? 

 

Mergers and acquisitions ( M&A) refer to transactions which are combined in some way between two entities. While the use of mergers and acquisitions ( M&A) is synonymous, they come with different legal symbolic meanings. Two similar-size businesses unite in a merger to form a new corporate company.

On the other hand, an acquisition is when a larger enterprise acquires a smaller enterprise, thereby absorbing the smaller business. M&A transactions can be friendly or aggressive, depending on the board approval of the target firm. (Mergers and Acquisitions in Bangladesh)

Types of Mergers and Acquisitions (M&A) Transactions

 

1.  Horizontal M&A

A horizontal merger occurs between two firms operating in related industries which may or may not be direct competitors.

2. Vertical M&A

A vertical merger takes place in the supply chain between a business and its supplier or a client. The business intends to shift up or down the supply chain, thus consolidating its role in the market.

3. Conglomerate M&A

This form of transaction is typically performed in different industries for purposes of diversification, and is between businesses.

Legal Framework of a  Mergers and Acquisitions (M&A) Transactions in Bangladesh

 

Bangladesh does not have a specific or a single piece of legislation dealing solely with mergers and acquisitions. Instead there are various statutes and by-laws in Bangladesh that govern acquisitions and mergers. The main laws are the Companies Act 1994, the Securities and Exchange Ordinance of 1969, the Bangladesh Securities and Exchange Commission Act of 1993, the Foreign Exchange Management Act of 1947, the Competition Act and the By-Laws rendered under those Statutes. Additionally , there are various rules that deal with particular aspects of mergers and acquisitions. For example,the Insurance Act 2010 for insurance companies and the Bangladesh Telecommunication Regulation Act 2001 for the telecommunication sector.

Mergers And Acquisitions In Bangladesh_Best Law Firm In Bangladesh

Step by Step process for Mergers and Acquisitions  in Bangladesh

 

While contemplating game changing strategic transactions, companies regularly seek Counsel Law Partners to plan, negotiate and close their deals. As an integrated team, the mergers and acquisitions lawyers from our law firm work through the broad spectrum of practice areas involved in strategic M&A transactions. Our mergers and acquisitions lawyers are committed to attaining the ambitions of our clients and offering innovative ideas and industry-focused legal advice. And here are the conventional steps by steps procedure of a mergers and acquisitions in Bangladesh:

 

Step 1: Proposal of a Merger

Any company proposing to carry out merger first have to get suitable resolutions passed by their Board of Directors. By passing the resolution, the Board of Directors will agree in principle, to proceed in accordance with such resolution.

During the planning stage of the merger, key executives in both merging entities’ supply chain should create dedicated integration, project management office, and steering committee teams with specific job descriptions, meeting cadence, and coordinated deliverables and status updates templates.

A timely, detailed organizational viewpoint can be introduced into a phase of M&A integration where there is a collective participation of the supply chain leadership.

This partnership becomes possible at all levels of the organizations work together during the integration process; however, the position of the operations and production staff varies depending on the phase.

The resolution passed may be treated as Price-sensitive Information (i.e. the information if published is likely to materially affect the price of securities of the company).

Step 2: Negotiations

After producing some of the target company’s valuation models, the acquirer should have sufficient information to allow him to ensure a fair offer; once the initial offer has been made, the two companies will discuss terms in more detail

Step 3: Due-Dilligence for the Merger

To enable Bangladesh Bank to consider the effectiveness of merger, the transferee company have to seek prior approval to commence financial and legal due-diligence of itself and also of that company they are intending to merge with.

Due diligence is a systematic procedure that starts when the offer is accepted; due diligence seeks to validate or correct the acquirer ‘s estimation of the target company’s worth by conducting a thorough evaluation and examination of any aspect of the target company’s operations – its financial results, assets and liabilities, clients, human resources, etc.

In order to seek the approval for due diligence the transferee company need to submit certain documents.

Documents:

  1. Credentials of the company (background, resources, net worth etc.) and
  2. Information about the team of Lawyers, Financial Advisors, Chartered Accountants, Valuers etc. for conducting due-diligence of the asset and liability of both the companies.

    The transferee company have to ensure that none of the team members engaged in due diligence are actively dealing in shares or have any conflict of interest with either of the companies intending to merge together.

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Step 4: Disclosure and Confidentiality

a)Disclosure

Disclosure plans are an important part of any agreement involving merger or acquisition (M&A), and it is no exception in Mergers and Acquisitions in Bangladesh. The disclosure schedules include details provided by the acquisition agreement — typically a list of relevant contracts, intellectual property, employee records, and other specific matters, as well as exceptions or conditions to the selling company’s comprehensive representations and warranties in the acquisition agreement.

An incorrect or incomplete disclosure plan may result in the selling company or its stockholders being infringed by the purchase agreement and potentially serious liability. Whenever a person/company intends to own, acquire or control 10% or more voting shares in a company listed on any stock exchange in Bangladesh, there is a mandatory obligation of disclosure.  Meaning, both the companies are under an obligation to disclose information about the companies among themselves.

b)Confidentiality

However, there is also an obligation of confidentiality as well. Upon obtaining approval from Bangladesh Bank for conducting due-diligence, the transferee company shall submit an undertaking to Bangladesh Bank.

Such an undertaking confirms that all information, in particular all non-public domain information and documents etc. shall be kept strictly confidential. In addition, such confidential information shall not be disclosed to any person or organization unless advised by Bangladesh Bank or legally required or required to comply with the regulatory requirements. However, this confidentiality requirement does not apply for the due diligence team.

 In Mergers and Acquisitions in Bangladesh, it is to be noted that the members of the due-diligence team will also be bound under the aforesaid undertaking to keep the information, document etc. confidential. In addition, the due-diligence team shall not demand any information/observations made by Bangladesh Bank in relation to the affairs and the business of concerned companies from the transferee or transferor companies.

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Step 5: Due diligence report submission

Upon completion of the task of due diligence, the team will have to submit a copy of the report to Bangladesh Bank. (Mergers and Acquisitions in Bangladesh)

The due diligence report must include the following information:  

  • Debts that are secured and unsecured and in the case of secured debts particulars of the securities and their value.
  • The value of the property and the assets of the transferor and the transferee company calculated.
  • The seller’s M&A counsel also should endeavor to limit disclosures to lists of documents or matters rather than descriptions of the contents of documents or matters (such as requiring a list of pending litigation rather than a description of each pending lawsuit); again, this approach lessens the work involved in preparing the disclosure schedules.
  • The liabilities of the transferor and the transferee companies.
  • In view of the above clauses, the financial impact of the merger proposal on the two companies and their creditors, shareholders and depositors.

Step 6: Shareholders’ and creditors’ consent

The next step would be to prepare a scheme of merger by the transferor or transferee companies based on the due diligence report. The Board of Directors of the respective companies will have to pass a resolution in this regard.

While passing the resolution the scheme shall be considered as so drawn and then, in accordance to the provisions of Companies Act -1994, hold meetings of their respective members to consider and approve, the concerned scheme.

If a majority in number representing three-fourth in value of members present in the meeting, either in person or by proxy, approve the scheme, the same shall be deemed to have the approval of the members.

Mergers And Acquisitions In Bangladesh _Tahmidur Rahman

Step 7: Scheme Submission to Bangladesh Bank

Thereafter, an application will have to be submitted to Bangladesh bank by the transferee company.  In addition to the application, a copy of the Scheme of merger/amalgamation, together with such other documents will have to be submitted.

Other documents include:

  1. Name, address and occupation of the Directors of the transferee company as proposed to be reconstituted after the amalgamation,
  2. Details of the proposed Chief Executive Officer of the transferee company after the amalgamation,
  3. Post-merger Branch Plan, Technology Plan, Human Resource Plan and proposal to address Corporate Governance issues.

    Information relevant for consideration of the scheme and the swap ratio including the following:

  • Valuer Report explaining the method of valuation and the justification for it. If market value of shares has been considered in computation of swap ratio, the value so considered,
  • Last three years annual report of each of the companies,
  • Financial results, if any, published by companies covering the periods subsequent to the Annual reports
  • Significant anticipated changes in service and products.
  • Pro forma combined balance sheet of the transferee company as it will appear following the amalgamation,

    Computation based on pro forma balance sheets of the following items:

  • Tier I Capital
  • Tier II Capital
  • Risk weighted assets
  • Gross and net Non-Performing Loans
  • Ratio of tier I capital to risk weighted assets
  • Ratio of tier II capital to risk weighted assets
  • Ratio of tier I capital to total assets
  • Ratio of total capital to risk weighted assets
  • Ratio of gross and net NPLs to advances.

    Any other information or explanation as sought by Bangladesh Bank.

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  • Step by Step Process of Registering a Company in Bangladesh
Mergers And Acquisitions In Bangladesh _Top Law Firm In Bangladesh

Step 8: Draft Scheme Examination

After receiving the draft Scheme, Bangladesh Bank will satisfy itself that the Scheme as proposed by the transferee company can be implemented successfully. In deciding such, Bangladesh Bank will consider various factors through examination of the scheme. The factors that may be considered are the capital of the merged entity, valuation of assets and liabilities, the impact on the profitability etc.

Step 9: Assets and liabilities valuation 

It is upon the merging companies to mutually agree the valuation of the assets. Bangladesh Bank does not generally interfere in this regard except where there are reasons to believe that the valuation is not fair and reasonable. If mutual agreement is not possible in relation to certain items then any of the parties to the merger can seek advice of Bangladesh Bank.

The Bangladesh Bank plays the role of a mediator and help resolve the differences. In case the mediation fails, the Bangladesh Bank will decide the value and the decision of the Bank in this regard shall be binding. The cost of obtaining such advice will be borne by the transferor company.

In a case where mutual agreement has not been possible in relation to certain items for example:

(a) valuation of a particular asset
(b) classification of any advance
(c) determination of any liability or any like issue, the bank / financial institution, shall highlight those areas and seek advice of Bangladesh Bank.

Mergers And Acquisitions In Bangladesh_Best Commercial Law Firm In Bangladesh

Step 10: Transaction Price in Mergers and Acquisitions in Bangladesh

 Again the transaction cost/price is a matter to be mutually agreed between the transferor and the transferee on the basis of fair valuation of assets and liabilities proposed to be transferred.

Parties have the option to fix the price at a premium or discount to valuation. However, Bangladesh Bank have a right to be satisfied that the mutually agreed price is fair and reasonable. 

For this purpose, Bangladesh bank may ask for pricing rationale to examine the same and accept or suggest alteration. In order to do so Bangladesh bank will seek explanatory note on price mechanism along with supporting documents.

Step 11: Bangladesh Bank approval in Mergers and Acquisitions 

At this stage, Bangladesh bank will approve the Scheme as proposed if two conditions are satisfied. It can be implemented:

  • to the benefit of the company and/or the financial system of the country and
  • the scheme is not detrimental to the interest of the depositors

Thereafter, Bangladesh Bank may give its approval to the said Scheme with or without such modifications as deemed necessary.

Mergers And Acquisitions In Bangladesh _Best Corporate Law Firm In Bangladesh

Step 12: High court petition in regards to Mergers and Acquisitions in Bangladesh

After the scheme of merger/amalgamation has been permitted by Bangladesh Bank, the transferor and the transferee now must comply with other formalities required under the Companies Act 1994. As such they need to file an application before the High Court and submit the scheme for the merger/amalgamation.

In addition, the transferee company will mark a copy of the application as filed before the Court together with annexure, if any, to Bangladesh Bank and will keep the Bank informed from time to time as the progress in the matter.

If the company, after obtaining approval of the Scheme from the Bangladesh Bank, fails to take these steps within the next three months from the date of approval, the approval so granted lapses, unless otherwise extended on justifiable consideration.

The high court will hear the application for merger/amalgamation and considering the objections if any, raised by any of the stakeholders. As such, based on that the Court may with or without such modification as it deems fit approve the Scheme.

Step 13: File certified copy of High court order to RJSC

After the scheme of merger/amalgamation has been permitted by Bangladesh Bank, the transferor and the transferee now must comply with other formalities required under the Companies Act 1994. As such they need to file an application before the High Court and submit the scheme for the merger/amalgamation.

In addition, the transferee company will mark a copy of the application as filed before the Court together with annexure, if any, to Bangladesh Bank and will keep the Bank informed from time to time as the progress in the matter.

If the company, after obtaining approval of the Scheme from the Bangladesh Bank, fails to take these steps within the next three months from the date of approval, the approval so granted lapses, unless otherwise extended on justifiable consideration.

The high court will hear the application for merger/amalgamation and considering the objections if any, raised by any of the stakeholders. As such, based on that the Court may with or without such modification as it deems fit approve the Scheme. (Mergers and Acquisitions in Bangladesh)

Mergers And Acquisitions In Bangladesh

Frequently Asked Questions about Mergers and Acquisitions in bangladesh

In regards to Mergers and Acquisitions in bangladesh people also ask these questions frequently, hence this FAQ content block is dedicated to answering your questions.

General Questions about Mergers and Acquisitions in bangladesh

What sort of Experience does CLP have in regards to Mergers and Acquisitions in Bangladesh?
  • public company takeover bids and responses;
  • private company acquisitions and disposals; 
  • joint ventures; 
  • reorganisations including schemes of arrangement;
  • venture capital and private equity;
  • management buyouts; and 
  • share buybacks and capital reductions

Why we are considered as one of the best M&A firms?

We combine our transactional skills with specialist experience across a number of fields to advise our clients on M&A transactions, including employment, tax benefits, financial services, regulatory services, real estate, intellectual property and business. Given the often rapid speed of transactions, we appreciate the need to provide expert advice efficiently and expeditiously. Our sector teams work closely with our transaction lawyers to offer a streamlined service to clients. Good knowledge of the market, gained from many years of working with clients across our industries, enables us to bring a strategic approach to our work and a comprehensive understanding of the issues of the industry.

How many types of Mergers are there?

3.

The three main types of mergers are horizontal mergers that increase market share, vertical mergers that exploit existing synergies and concentric mergers that expand the product offering.

Why sometimes Mergers fail?
  • Mislead Investment Value – Investments on assets may look good on paper, but they may not be revenue-generating areas after the deal has been concluded.

  • Lack of clarity in the integration process – post-merger, disintegration of factors such as key employees, processes, major projects, policies, etc., leading to failure in the implementation process.

  • Mismatch in culture – If the M&A agreement fails to develop a strong strategy focused on the difference in the cultural aspects of the two companies, a low productivity of the employees of both companies is observed.

What happens to the Stocks after the Merger?

Companies in stock-for-stock mergers agree to exchange shares on the basis of a fixed ratio. For example, if companies X and Y agree to a 1-for-2 share merger, Y shareholders will receive one X share for each of the two shares they currently hold. Y shares will cease trading and the number of outstanding X shares will increase after the merger has been completed. The post-merger X share price will depend on the market assessment of future earnings prospects for the new entity.

What is a reverse Merger?

A reverse merger occurs when a public company — usually a shell company with limited operations — acquires a private company that secures access to capital markets without having to go through an expensive initial public offering process. Shareholders and managers of the acquired company exchange their shares for a controlling interest in the public company, hence the terms “reverse merger” or “reverse acquisition.”

What happens to the Cash-for stock after the Merger?

In the case of cash mergers or acquisitions, the acquiring company agrees to pay a certain dollar amount for each share of the shares of the target company. The target’s share price would rise to reflect the takeover bid. For example, if Company X agrees to pay 100 BDT for each share of Company Y, the share price of Y would increase to about 100 BDT to reflect the offer.

The price could rise even further if additional companies were interested in acquiring Y. However, the price of the X share could initially fall if investors are unconvinced about the strategic value of the merger. After the companies merge, Y shareholders will receive 100 BDT for each share they hold and Y shares will cease trading.

How long does a Mergers and Acquisitions normally take in Bangladesh?

Mergers and Acquisitions may take a long time to market, negotiate and close. Most mergers and acquisitions can take a long time from start-up to completion; a period of 3 to 6 months is not unusual.

What are the advantages of doing Mergers and Acquisitions?

 

1. Mergers and acquisitions can come with various tax advantages

2. New possibilities offered by a new market

3. Obtaining easier access to a skilled labor force

4. You can diversify your portfolio

5. Buying or merging with another company is usually cheaper

6. Better access to a larger market

7. Mergers and acquisitions can mean greater financial power and more influence

 

What Tahmidur Rahman CLP Lawyers will do in a M&A?
  • Negotiate and draft agreements – this will be done in conjunction with the client, the business that is being purchased or sold, other consultants and any financial institutions.
  • Carry out due diligence – this is an investigation to verify the accuracy of the information passed from the seller to the purchaser. It sets out the financial strength of the company; the complete ownership of all assets; whether there are outstanding debts or other claims against the company; any environmental or other liabilities that could reduce the value of the business in the future.
  • Arrange financing – this could come from banks or other types of investors; they would like to have some kind of investment security. e.g. participation in the shareholding, taking out a mortgage over property or other collateral.
  • Gather all parties to complete the transaction, ensuring that all assets have been properly covered by written documents that are properly signed and documented. Company law requires decisions to be taken at properly convened board meetings and recorded in written resolutions.
  • Finalize all registrations and procedures after completion.
How are Mergers Financed?

Mergers do get generally financed by Exchanging stocks. This is the most common way to fund a merger or acquisition. If a company wishes to acquire or merge with another company, it must be assumed that the company has a large stock and a solid balance sheet. Here, the buyer will receive more stock from the seller than if they had paid in cash.

What is the largest Mergers and Acquisitions deal in the history?

Vodafone and Mannesmann. This merger, which took place in 2000, was worth over $180 billion and is the largest merger and acquisition deal in history.

Mergers and Acquisitions in Bangladesh, M&A at CLP:

The Barristers, Advocates, and lawyers at CLP in Gulshan, Dhaka, Bangladesh are highly experienced at dealing with Mergers and Acquisitions, In Counsels Law Partners, our experience helps us to efficiently execute local and cross-border global transactions while helping you at all stages of the process and offering you cost-effective, realistic business solutions. In addition to handling various issues related to domestic clients on a regular basis, it also has experience in consulting and assisting numerous international clients with utmost care and attention throughout their legal troubles.  For queries or legal assistance, please reach us at:

 E-mail:tahmidur@counselslaw.com
Phone:+8801727983838

Address: House 39, Road 126 (3rd Floor) Islam Mansion, Gulshan 1, Dhaka.

 

Have a Different Question?

Email us anytime : tahmidur@counselslaw.com

Or call — +8801727983838

Tahmidur Rahman | Law Firm in Dhaka

Affiliated with Counsels Law Partners, A full service multi-directional law firm in Dhaka.

© 2018-2020 Tahmidur Rahman Matte IT Ltd.

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Why Greta Thunberg and co is the only ray of hope for developing countries like Bangladesh

Why Greta Thunberg and co is the only ray of hope for developing countries like Bangladesh

Greta Thunberg Lawsuit, Climate Change and Bangladesh

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Tahmidur Rahman

As a country, Bangladesh has taken quite a few admirable steps in recognizing the threat of climate change and taking appropriate steps to address it from our point of view— such as formulating the Climate Change Strategy and Action Plan— at the end of the day, it is up to developed nations to pay the price for climate change.

To this end, a welcome first move is the latest UK commitment of some 6 billion pounds to assist Bangladesh and other fragile nations fight climate change.

That said, it sounds paltry, let alone for a couple of nations, the figure of 6bn pounds to help even one nation fight climate change.

It goes without stating, but advanced nations like the United Kingdom— whose fast industrialization has done more to damage the environment in recent decades than that of emerging countries like Bangladesh— need to do more in terms of both action and financing.

Greta Thunberg and 15 other young individuals lodged a climate complaint that could possibly change worldwide on Monday. The group of teenagers cranked the heat even further on an abnormally steamy day in New York, when sweat constructed on the brows of the dark-suited diplomats funneling into the UN for a significant climate summit.

They announced they are suing five of the world’s main carbon polluters on the basis that their rights as kids are being violated by nations. The United Nations would describe the climate crisis as a crisis of children’s freedoms if the suit is effective. More importantly, it would force Argentina, Brazil, France, Germany, and Turkey— the five countries named in the suit— to work with other nations to forge binding emission reduction objectives, a sharp shift from present global attempts that have essentially rearranged the Titanic deck chairs so far.

“This is all wrong, I shouldn’t be up here,” Thunberg said, addressing the General Assembly and shaking with rage. “I should be back in school on the other side of the ocean. You have stolen my dreams, my childhood with your empty words. We will not let you get away with this. Right here, right now is where we draw the line.”

Over the previous year, the movement for youth climate activism has exploded previous ideas of what is feasible in the climate politics domain. Every Friday beginning last August, Greta Thunberg’s solitary strike outside the Swedish parliament has created a worldwide motion. An approximately 4 million young adults and their followers have taken to the streets around the globe to demand climate action this previous Friday.

“Above all, young people — young people provide solutions, insist on accountability, and demand urgent action,” said UN Secretary-General António Guterres opening the Climate Action Summit. “They’re right.” “We’re going to take up the challenge, we’re going to hold those who’re the most responsible for this crisis accountable, and we’re going to create the world rulers behave,” Thunberg said at the New York strike on Friday prophetically. “We can and we will.” The suit, filed by the international law firm Hausfeld on behalf of the youth, claims that under the UN Convention on the Rights of the Child, world governments are violating the rights of children. The Convention adopted in 1989 is the most signed human rights treaty ever drafted, setting out children’s inalienable rights. Among other things, they include the right to life, health, and peace, all with unique provisions for indigenous groups. They’re all up climatic change stuff as well. Climate change is already making children and adults ill, killing them, and eradicating their life.

Alexandria Villaseñor, one of the U.S. climate strike movement’s plaintiffs and officials, informed Earther that she went to climate activism after a toxic smoke cloud from last year’s Camp Fire fell on Davis, California, while visiting the family. She was forced to finish her visit early, leaving a changed person. She has been and counting on strike outside the UN for 41 weeks.

“I decided to be part of this case because we still haven’t got the enough action we need after the learners were hit,” she informed Earther. “So we’re going to the next step.” The stifling effects of climate change have been addressed by each of the 16 complainants on the complaint. Ayakha Melithafa, a Cape Town 17-year-old, had to leave in fear of running out of water during the drought fuelled by climate change in the city. Debbie Adegbile, a 12-year-old from Lagos, Nigeria, saw her asthma worsen during increasingly serious heat waves, one of the clearest climate indices, as well as more serious flooding and waterborne disease risk. In a brief given to journalists, many of the youth— all under the era of 18—used phrases such as “frightened,” “sad,” and “angry” to define their emotions about climate change and the hellscape it creates.

 

“I sometimes see Ebeye sinking in my mind and many individuals drowning,” said Ranton Anjain, a low-lying Marshall Islands complainant, in a declaration. Ebeye, which measures only 80 acres, has an estimated 15,000 population, most of which are under 18 years of age.

“The sea swallows our homes, the places where memories are created,” said Carlos Manual, a Palau-based 17-year-old, at a press conference to announce the suit. “Because I care about my generation, I’m standing in front of you.” Teenagers are from all over the globe, including four of the five named nations. Their complaint represents the absence of boundaries in the atmosphere. Carbon pollution from Brazil’s human-ignited fires changes the climate just as much as Turkey’s coal-fired plant emissions. What the five countries all have in common is that they belong to a group of 51 nations that have signed what is known as the Convention’s Third Optional Protocol. This protocol enables kids from all over the globe to sue the countries that have signed on to the protocol. A commission of 18 global specialists on children’s rights will now hear the complaint lodged on Monday. Juliane Kippenberg, Associate Director of the Children’s Rights Division of Human Rights Watch, informed Earther that the suit utilizes a system that has only been around since 2014 and has “not earned so much attention yet” for climate relief.

If the commission discovers that climate change impedes the freedoms of the 16 complainants, the five nations named in the suit must either leave the convention or take the necessary radical action to tackle climate change.

Davies said the situation would probably be “successful,” but it also shows the intrinsic weakness of international laws, many of which were drafted before the seriousness of the climate crisis became apparent.

“The issue with most international law tools, such as the Convention on the Rights of the Child, is that they were drafted in advance of science affirming climate change threats,” she said. “Therefore, the challenges posed by climate change to the law must be’ refitted’ into legal frameworks that have not been drafted for this purpose.” The best available science in the world demonstrates that governments need to quickly reduce their emissions in order to maintain a climate that is somewhat similar to that which allows beings to flourish. The destiny of millions of children and unborn generations is hanging in the balance, and how quickly the globe will determine their destiny. Yet, despite commitments to the Paris Agreement, last year’s global carbon emissions grew.

Children have prosecuted the U.S. government in a landmark case called Juliana v. U.S. that has been walking its way through federal courts for years. Sébastien Duyck, a senior lawyer at the Center for Environmental Law, pointed out as another precedent a case lodged previously this year by Torres Strait Islanders against Australia. The low-lying islands on which they reside are consumed by increasing waters, and for failing to decrease their emissions, they lodged an global human rights case against Australia. Take these two instances and mash them together, and the fresh case introduced by Thunberg and her fellow plaintiffs is roughly approximated.

“These instances assist reveal the hypocrisy of nations claiming to be fully committed to realizing human rights while undermining those rights by lacking adequate intervention to address climate change,” Duyck told Earther in an email.

If the case succeeds, it may set fresh international law precedents. While the five nations account for 6.12 percent of total global carbon emissions, the complaint’s executive summary suggests the children are requesting them “to participate instantly with other states in binding global collaboration to mitigate the climate crisis,” which could (and should) include other nations not listed in the complaint.

The world’s history of climate treaties has been checked. The Kyoto Protocol, a treaty laid down in 1997, was binding and, as a consequence, the U.S. endorsed the treaty. Much of the treaty was a failure. The more latest Paris Agreement is non-binding in an attempt to take the U.S. on board. That has not yet prevented President Trump from attempting to leave it, and so far the treaty has turned out to be more words than real behavior. And nations ‘ obligations to decrease carbon pollution are nowhere near sufficient to prevent catastrophic climate change.

But just because governments fail does not imply that people need to take it lying down. If the strikes were the start of a new era of climate action, the complaint opens up more and more possibilities.

“As the human rights effects of climate change are progressively affecting people around the globe,” Duyck said, “one can only expect that more individuals wishing to safeguard their communities ‘ freedoms will try to hold states responsible for their (in)action — including through the use of global human rights bodies.”

With the recent rise of student protests around the world to urge their governments to take swift action against the global climate crisis, developed nations have never had a better time to take the necessary action to help smaller countries deal with the crisis themselves.

092

“Our homes are being swallowed by the ocean, the places where memories are made

Carlos Manual

Procedure Of Foreign Investment In Bangladesh | Law, Policy, Direct, Angel, Rules, Policy- Everything You Need To Know In 21St Century

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Vertical agreements under Article 101(1) TFEU and Regulation 330/2010

Vertical agreements under Article 101(1) TFEU and Regulation 330/2010

Vertical agreements under Article 101(1) TFEU and Regulation 330/2010

Article: LA2024/SG10/BC14-28/AN04

The economic interpretation of Article 101(1) TFEU relates primarily to vertical agreements. The notion of vertical agreements has been described by the Commission in its Vertical Restrictions Guidelines (hereinafter referred to as the Vertical Guidelines) as’ contracts or concerted procedures concluded between two or more firms, each of which works at a distinct stage of the manufacturing or delivery chain for the purposes of the contract and relating to the circumstances under thereof.

It should be noted that only vertical agreements with significant effect on trade between Member States fall within the scope of Article 101 TFEU. Furthermore, the ECJ held in Case C-260/07 Perdo that vertical agreements pursuant to Article 101(1) TFEU should not be assessed if they meet the requirements of Regulation 330/2010 or fall within the scope of the de minimis rule.

The Vertical Guidelines of the Commission provide the methodology for assessing whether a vertical agreement infringes Article 101(1) TFEU and, if so, whether it can be justified in accordance with Article 101(3) TFEU.2840 Paragraph 110 of the Vertical Guidelines sets out nine factors relevant to the assessment under Article 101(1) TFEU. They are:

  • the nature of the agreement;
  •  the current position of the sides;
  • the market position of the rivals;
  • the position of the consumers of the contract goods;
  • entry obstacles;
  • the strength of the market;
  • the level of trade impacted by the agreement;
  • the nature of the product;

The Vertical Guidelines provide clarification on the implementation of Article 101(1) TFEU to ten kinds of vertical contracts, i.e. single branding, exclusive distribution, exclusive client allocation, selective distribution, franchising, exclusive supply, up-front access payment, category management contracts, limitations on binding and resale. Analyzing them all is outside the scope of this book. However, as is the ECJ’s stance on export bans, the most common kinds of vertical agreements, i.e. selective distribution contracts, franchise agreements and exclusive buying agreements are discussed below.

Direct and indirect export bans in Vertical Agreements Article 101 TFEU

Only in the exceptional circumstances specified in paragraphs 60-4 of the Vertical Guidelines will the direct or indirect export ban imposed on distributors be permitted under Article 101(1) TFEU or benefit from the derogation provided for in Article 101(3) TFEU. The imposition of bans restricts competition by item and is therefore contrary to an integrated market goal as it avoids parallel imports and divisions of the internal market.

Selective distribution agreements in Vertical Agreements Article 101 TFEU

A provider agrees to sell products or services directly or indirectly only to a distributor chosen on the grounds of particular criteria in a selective distribution contract and the distributor undertakes not to sell such products or services to unauthorized retailers.

Manufacturers of high-tech or luxury branded products usually use selective distribution contracts. The very nature of distribution contracts means that such contracts can adversely influence business circumstances by enabling collusive behavior between providers and retailers, by decreasing or eliminating intra-brand competition (this refers to competition between retailers of a specified brand, for instance, between retailers of Rolex watches), by foreclosing access However, selective distribution contracts can also have pro-competitive impacts, such as ensuring higher distribution effectiveness and thus providing advantages to all interested parties, including customers.

In Case 26/76 Metro, the ECJ examined the implementation of Article 101(1) TFEU to selective distribution contracts.

THE FACTS:

Saba, an electrical and electronic equipment manufacturer, rejected Metro’s application to access its selective distribution network in Germany. The products of Saba outside Germany were marketed directly to single retailers dealing solely with authorized specialist retailers serving the public. The German selective distribution scheme was open to wholesalers who sold goods bought from Saba to authorized specialist retailers whose turnover had to be derived from the sale of electrical and electronic products. Metro served distributors and the public as a money and self-service company based in Germany. This was the primary reason for Saba’s rejection, although Metro did not meet other Saba’s demands in that it was not suitable to manage extremely advanced electronic products with its trading premises, its turnover or its staff’s technical skills. Metro complained to the Commission that the Saba selective distribution scheme in particular did not infringe Article 101(1) TFEU. Saba was entitled to ban direct supplies to customers by wholesalers or sole retailers, although specific provisions such as the prohibition of wholesalers, sole retailers and specialized dealers from exporting to other EU nations or the prohibition of “cross-supplies” (wholesalers to wholesalers or retailers to retailers) were condemned. Metro tried to annul the judgment of the Commission.

Held:

The ECJ held that a selective delivery scheme such as that established by Saba did not infringe Article 101 TFEU in so far as resellers were chosen’ on the grounds of objective qualitative criteria pertaining to the technical qualifications of the reseller and his employees and the suitability of his premises and that such terms were evenly laid down for all pots.

This is called the Metro test.

The Metro test is restated by the Vertical Guidelines. They distinguish between purely qualitative selective contracts and quantitative ones. Purely qualitative selective contracts are outside the prohibition of Article 101(1) TFEU given that three requirements are met:

  • the nature of the item concerned requires a selective distribution scheme (but this is no longer needed by Regulation 330/2010).
  • Resellers shall be selected on the grounds of objective qualitative criteria.
  • Objective criteria must not go beyond what is required.

With respect to the first condition, the ECJ indicated in Metro that selective distribution contracts were justified in “the industry covering high-quality manufacturing and technically sophisticated consumer durables.” The ECJ verified in subsequent instances that other kinds of products such as luxury or branded products and newspapers (due to their exceptionally brief lives) justified selective distribution apart from technically advanced products. It is essential to note that Regulation 330/2010 removed the requirement for a selective distribution scheme to be established for the item concerned.

With regard to the second situation, it needs dealers to be chosen on the grounds of objective qualitative critics that are consistently established for all prospective distributors and implemented in a non-discriminatory way. He should be prepared to become a dealer when a prospective dealer meets the qualitative requirements. It is not always simple to distinguish between qualitative and quantitative requirements. Nonetheless, quantitative restrictions ‘ more directly restrict the prospective amount of dealers by, for example, requiring minimum or maximum sales, setting the amount of dealers, etc.’ In Metro, the ECJ discovered that constraints on the reseller’s and his staff’s technical skills and the suitability of the reseller’s premises were qualitative.

With regard to quantitative restrictions, the following clauses were considered as such and were therefore in breach of Article 101(1) TFEU: in Metro, a clause requiring dealers to keep particular inventory quantities, to support the product of the manufacturer and to store a whole variety of products; in Case 31/80 L’Oréal and in Givenchy, a requirement that the distributor ensure a minimum quantity of products

Regarding the third condition, the ECJ made it clear in Metro that “qualitative criteria” should not go beyond what is necessary to preserve the quality of the goods or to ensure that they are sold under proper conditions. What is needed relies on the product’s nature. This is demonstrated in Case T-19/91 Vichy, where the requirement that Vichy’s cosmetics be sold in retail pharmacies where a skilled pharmacist was present in all EU nations except France (where this was not needed) was deemed disproportionate, taking into consideration the goals that Vichy wished to accomplish outside France (i.e. enhancing the quality of both of its goals). In Ideal-Standard, conditions imposed on wholesalers specialising in the sale of plumbing fittings and sanitary ware, and having a specialised department for their sale, were regarded unjustified on the floor of the product’s nature, i.e., plumbing fitting systems were not technically adequately sophisticated. In Case C-439/09 Pierre Fabre the ECJ ruled that in the context of the selective distribution of its cosmetic and personal care products, the de facto ban of internet sales enforced by a producer of dermo-cosmetic products could not be justified by the need to provide individual guidance to clients or by the protection of the brand image. Indeed, for the sale of its products, the producer needed a skilled pharmacist’s physical presence and thus de facto forbidden the sale of Internet.

Selective distribution contracts that fail the Metro test may be exempted under Regulation 330/2010 if they meet their market share requirements and do not contain the’ hard-core constraints’ laid down in Article 4 or the limitations laid down in Article 5. Regulation 330/2010 relates to these contracts irrespective of the nature of the products and the selection criteria. Furthermore, under Article 101(3) TFEU, a selective distribution contract not covered by Regulation 330/2010 may be justified.

Franchising contracts in Vertical Agreements Article 101 TFEU

Vertical Contracts Or Agreements Under Article 101(1)

Vertical Contracts Or Agreements Under Article 101(1) | Law Firm In Dhaka

The essence of franchising contracts is that they contain licenses for trademarks, symbols or know-how of IPRs for the use and distribution of products and services, and that the franchisor provides the franchisee with technical and commercial help during the existence of the contract. The franchisee shall practice the privileges in question and the franchisee shall pay a franchise fee in return for the use of the business method in question. Franchising contracts generally involve a mixture of distinct vertical restrictions on how to distribute the goods.

The leading case for franchise contracts is Case 161/84 Pronuptia.

THE FACTS WERE:

Pronuptia de Paris, specializing in the sale of wedding clothes and other wedding access-ories, concluded a franchise agreement with Mrs Schillgalis. In exchange for the exclusive right to use the trademark “Pronuptia de Paris” in three areas of Germany–Hamburg, Olden-burg and Hanover–Mrs Schillgalis was obliged to purchase 80% of the clothes she intended to sell directly from Pronuptia and a certain percentage of other clothes from sup-pliers approved by the franchisor in order to make the sale of wedding clothes her main business act Pronuptia pledged to refrain from opening any other Pronuptia store in the land covered by the contract and give its help from personnel training to marketing in all aspects of the company.

When Pronuptia sued Mrs Schillgalis for failing to pay “royalties,” she asserted that the franchise agreement was null and void contrary to Article 101(1) TFEU. A preliminary issue on the implementation of Article 101(1) TFEU to franchising contracts was referred to the ECJ by the German Supreme Court.

Held:

The ECJ held that the limitations enforced by the franchisor are outside the reach of Article 101(1) TFEU if they fulfil two circumstances: firstly, the lawful interests of the franchisor should be protected under EU law, that is, the franchisor should be shielded from the danger of using the know-how and the aid it provides to the franchisees to benefit their competitors. As a result, there was no breach of Article 101(1) TFEU of a clause preventing the franchisee from opening a shop selling the same or similar items outside its territory during and after the termination of the agreement and the requirement for the franchisor to approve a proposed transfer of the shop to another party.

Secondly, the franchisor has the right to safeguard its network’s reputation and identity and therefore maintain some control in this regard. Specifically, the shop’s location specifications, the shop’s layout and decoration, the proportion of clothes bought and supply sources were valid.

Price suggestions were not in violation of Article 101(1) TFEU if the franchisee was able to set its own rates and therefore there was no concerted practice on rates between the parties.

A clause limiting the franchisee from opening a second store in its exclusive land without the franchisor’s approval was in violation of Article 101(1) TFEU, having regard to the possibility of dividing the land of a Member State into a number of closed regions. Furthermore, this limitation would stop the franchisee from benefiting from its investment, bearing in mind that “a potential franchisor would not risk becoming part of a chain, investing his own cash, paying a comparatively large entry fee and having to pay a significant annual royalty, unless he could hope, thanks to a degree of competition protection on the part of the franchisee.

Such a clause should therefore be examined in accordance with Article 101(3) TFEU.

The EU organizations have taken a liberal attitude to constraints enforced by franchise contracts by considering their general positive impact on trade and the benefits offered to both the franchisee and the franchisee. Even a clause condemned in Consten and Grundig to ensure utter terrible protection may fall outside the prohibition of Article 101(1) TFEU if it is deemed necessary to cause the franchisee to conclude the contract.

 

Exclusive supply and buy contracts

As they enhance inter-brand competition, exclusive contracts between producers and distributors or between producers and distributors are usually legal. Potentially both sides profit from them. Manufacturers can calculate the demand for their product for the length of the contract and adjust their output accordingly; manufacturers and distributors receive advantageous rates, technical aid, supply preferences and so on in return for their commitment. However, if one party to an exclusive contract is in a dominant place on the relevant market, the arrangement can foreclose the market and discourage development of tiny undertakings, thereby harming customers. For instance, with regard to exclusive purchase contracts, i.e. contracts requiring multiple separate distributors each to buy all their individual demands from one supplier, a fresh supplier will not be able to get its products into sufficient stores with the consequence that customers will not be able to benefit from wider product selection and better prices. For this purpose, when evaluating exclusive contracts, the Commission takes into account whether the contract in question is part of a network of comparable agreements and, if so, assesses its cumulative impact on trade between Member States, i.e. assesses whether the cumulative impact of foreclosing the relevant market has. This is illustrated in Brasserie de Haecht (No. 1) Case 23/67.

THE FACT:

The owners of a café in Esneux, Belgium, promised to purchase all their beer, lemonade and other beverages from that brewery for the length of the loan and two more years in return for a loan produced by a brewery in Belgium. When the brewery sued the café owners for violation of the contract, they asserted that the arrangement infringed Article 101(1) TFEU as it limited trade between Member States by restricting the stores for breweries from other Member States in Belgium.

Held:

The ECJ held that, in its financial and legal context, the agreement should be evaluated, in specific whether there was only one agreement or whether the agreement was component of a network of comparable contracts. Its impact on trade between Member States was insignificant if it was a distinct arrangement. However, if it was part of a network of contracts, its general effect could lead in the opening of fresh stores making it hard or even impossible for new undertakings to join the market.

Comment:

Exclusive purchase contracts shall not fall within the range of Article 101(1) TFEU if the impact of such an arrangement has no “blocking” impact on prospective rivals, either separately or as part of a network of several comparable contracts.

It should be observed that the market share of the parties is not the only factor to be taken into consideration when evaluating an employee exclusive supply / purchase contract. Indeed, regardless of whether or not an individual contract contributes substantially to the cumulative foreclosing impact and therefore infringes Article 101(1) TFEU, its length may in itself be in violation of Article 101(1) TFEU if it is excessive compared to the average length of the contracts reached on the relevant market.

 

Concerted practices & Article 101 TFEU

Concerted practices & Article 101 TFEU

Concerted practices & Article 101 TFEU

Article: LA2024/SG10/BC14/AN03

The concept of Concerted Practices stems from the very nature of a concerted exercise that it does not have all the components of a con-tract, but represents a type of casual cooperation between undertakings.

Concerted procedures are hard to prove, given that they are implicit, secret arrangements that the participating undertakings will at all costs attempt to conceal from the public perspective. The significance of a concerted exercise has been described by three instances decided by the EU judiciary. Below, they’re discussed.

Case 48/69 ICI (Dyestuffs)

The ECJ ruled that a concerted practice referred to a type of collaboration between undertakings which, without having reached the phase where a correctly so-called contract was concluded, would knowingly replace the danger of practical collaboration between them in competition. Therefore, co-ordinationand collaboration between undertakings is an important characteristic in determining whether or not they were involved in a concerted exercise.

Suiker Unie:

The ECJ ruled that:'[ T]he co-ordinationand co-operation criteria must be understood in the context of the notion of competition intrinsic in the Treaty provision that each financial operator must separately determine the strategy he plans to implement on the Common Market.’ Such autonomy is called into question when competing undertakings exchange data deliberately, directly or indirectly, in order to impact the behavior of real or potential rivals or to reveal an adopted or envisaged course of behavior to such rivals.

No actual plan is required, but for a concerted practice to exist it is necessary that undertakings have direct or indirect contact, the object or effect of which is either to influence the behavior of an actual or potential competitor or to disclose to such a competitor the course of action that the colluding undertakings have agreed to adopt or envisage adopting on the relevant market.

Joined CasesT-25 to 104/95 The GC first distinguished between passive data reception and active data reception. It indicated that there must be an intention to transmit data to the other party to be a concerted exercise, and the latter must be conscious that it is getting such communication not accidentally, but purposefully. Information exchange must go beyond mutual understanding of what the other party is doing on the basis of ordinary sources of data, such as the terms and conditions provided to clients, which are simple to acquire and which will impact rates and policies taken by rivals.

Secondly, the GC indicated that:’ a concerted practice involves, in addition to joint undertakings, conducting on the market in accordance with these collusive methods and a cause-and-effect relationship between the two.’

The case law above can be summarized as follows.

In order for there to be a concerted practice, there must be direct or indirect contact between competing undertakings that influence the behavior of an real or potential competitor on the market, the object or impact of such interaction is’ to produce circumstances of competition that do not correspond to the ordinary circumstances of the market in question’ and a connection between cause and effect.

Any direct or indirect contact between rivals that undermines the independence requirement–that is, the requirement that each financial operator should separately determine the strategy it plans to implement on the appropriate market–is forbidden.

Article 101 Tfeu - Concerted Practice

Concerted Practice- Eu Competition Law

This requirement raises two issues that are discussed below.

  1. What kind of data between competing undertakings can be exchanged without infringing Article 101(1) TFEU?

Information can be exchanged directly through rivals (e.g. during a conference, by telephone), or indirectly through a common organization such as a trade association, or through a third party such as market research organizations, distributors, or distributors.

In its Guidelines on the Applicability of Article 101[ TFEU] to Horizontal Cooperation Agreements, the Commission’s stance on the exchange of data between undertakings is set out. The Guidelines reiterate the case law on this issue. They state, on the one side, that data exchange can produce different kinds of efficiency benefit (for instance, by benchmarking against each other’s best practices, it can enhance the inner effectiveness of undertakings) and, on the other, that data exchange can be detrimental to competition, as it can promote collusive behavior and lead to anti-competitive foreclosure.

The Guidelines recognize that data can be exchanged, for instance in the context of R&D or specialization contracts, in different situations. Such data exchange may be essential and essential for the execution of contracts and may therefore benefit from the applicable block exemption regulation (see Previous Article (Tahmidurrahman.com) No.9). It can also promote an illegitimate cartel, however, in which case it will be illegitimate.

The Guidelines set out two variables that will determine whether an data exchange can generate anti-competitive results:

1.  Market properties–whether the market is extremely focused, stable, transparent, complicated, symmetrical, etc.; and

2.  Types of information exchanged–that is, strategic data such as real orpro-priced rates, discounts, client lists, cost of manufacturing, quantity, turnover, sales, towns, characteristics, marketing plans, risks, investments, technology and R&D programs and their outcomes.

The Commission believes that data relating to rates and quantities is the most strategic in terms of the kinds of data exchanged, followed by data on expenses and request. However, if businesses compete in R&D programs, the most strategic for competition may be technology information. Data’s strategic utility relies on whether it is indi-vidualized or aggregated. If individualized, an anti-competitive result is more probable than aggregated information. Other significant variables are the information age (historical data exchange is unlikely to result in a collusive result), the market context, exchange frequency, and whether the information is public or non-public.

Information exchange may limit item or impact competition (see Previous Article(Tahmidurrahman.com) No.4). It restricts object-by-object competition when rivals exchange strategic data. The Guidelines state that the exchange of data on intended future prices or quantities should be con-sided with a restriction of competition by subject-matter which is unlikely to be exempted under Article 101(3) TFEU.2763 In Case C-286/13P Dole the ECJ discovered that the exchange of pre-pricing information between the three primary manufacturers of bananas occurred on a regular basis over a period of two years on Thursday. One of the manufacturers, Dole, asserted that the pre-pricing data could not eliminate uncertainty about the real prices, among other things. The ECJ held that the information exchanged on quotation prices was relevant to the market as it served as a market signal for the intended development of actual banana prices, i.e. as strategic information, as it reduced uncertainty about the predictable pricing strategy of other participants for each undertaking The ECJ also found that, in some cases, the actual prices were directly linked. Thus, the ECJ verified that in a comparatively focused industry such as the banana industry, not only the exchange of data pertaining to real or future rates or quantities, but also that relating to pricing variables may limit competition by item.

With regard to the restriction of competition by effect, the Guidelines provide that the economic divisions of the relevant market and the nature of the exchanged information will determine whether the’ pure exchange’ of information between competitors in itself infringes Article 101(1) TFEU.
  1. Will it be adequate to participate in competitive conferences to demonstrate the presence of a concerted exercise?

In some instances where the Commission was unable to establish the existence of any contract based on an undertaking’s involvement in an anti-competitive conference, it nevertheless had sufficient proof to demonstrate that a concerted practice existed. The GC ruled that the Commission was right in classifying a conference as either an arrangement or a concerted exercise in PVC Cartel.

The ECJ in Case C-8/08 T-Mobile eld that finding a concerted practice does not require customers to meet frequently over a period of time; a single meeting between rivals may provide them with a adequate basis to coordinate their business behaviour. The amount, frequency and type of conferences is therefore meaningless; what matters is whether a conference enables or enables the participating undertakings to take into account data exchanged with their rivals in order to impact future behavior on the relevant market. Obviously, when undertakings are regularly engaged in a concerted exercise over a lengthy period of time, the presumption is powerful.

Conduct on the basis of direct or indirect contact and the cause-and-effect relationship between a consultation and market behavior The first is that concertation is followed by anti-competitive behavior if an undertaking participating in the consultation remains active on the relevant market. It is almost impossible to disprove this presumption, bearing in mind that the GC indicated in AC-Treuhand that Article 101(1) TFEU does not require that the relevant market on which the undertaking which is the “perpetual rator” of competition limitation is active be precisely the same as that on which that limitation is considered to materialise. Therefore, as long as the appropriate undertaking exists, liability for involvement in a cartel is unlikely to escape. In T-Mobile Case C-8/08. The ECJ ruled that, when applying Article 101 TFEU, this presumption is substantive rather than procedural and must therefore be implemented by domestic judiciary.

Secondly, a concerted practice (as well as an agreement or a decision) falls within the scope of Article 101(1) TFEU, even in the lack of anti-competitive market impacts. It is not essential for the Commission to demonstrate anti-competitive impacts when a concerted practice imposes constraints on competition by item (see Previous Article(Tahmidurrahman.com) No.4.1); a potential adverse effect on competition will suffice.

The burden of evidence The burden of evidence in instances pertaining to cartels is particularly hard to discharge, bearing in mind that participating undertakings are conscious of their anti-competitive behavior and therefore organize their meetings in distant locations, falsify records and use contemporary technology to ensure that their operations are undetected. The leniency program is one of the primary ways of uncovering cartels. In exchange for self-reporting and co-operation in the Commission’s subsequent investigation, this offers immunity to undertakings participating in a cartel, or smaller fines than would have been imposed had the Commission discovered the cartel. The Commission is currently discovering most cartels through the leniency programme. As a consequence, in most instances the burden of demonstrating the presence of Commission-based cartels has been significantly alleviated (see Chapter 31.2.8).

It is always necessary for the Commission to demonstrate an alleged breach. The required legal standard consists of three requirements2781–i.e., the Commission must demonstrate I that there is a forbidden type of collaboration between undertakings, (ii) that has as its object or impact the avoidance, limitation or distortion of competition (a requirement examined in the preceding Article(Tahmidurrahman.com) No.4) and (iii) that has a significant impact on trade within the framework of that requirement.

The first requirement is for all types of forbidden co-operation to be captured. The dependence on the leniency program and the presence of presumptions attenuates the Commission’s need to infer from complex factual proof the presence of cartels. In Case C-199/92P Hüls(one of the instances of the Cartonboard Cartel), the ECJ ruled that it was the Commission’s job to create that Hüls took part in the conferences where price initiatives were decided, organized and controlled. However, it was Hüls responsibility to demonstrate that if that was the case, they had not sub-scribed to those projects. Consequently, the burden of evidence was not reversed. The ECJ stressed that one of the basic values of the EU legal order is the right to be presumed innocent and, as such, applies to competition processes.

The GC given significant clarifications in Case T-442/08 CISAC on the burden of evidence imposed on the Commission.

Facts:

The International Confederation of Authors’ and Composers ‘ Societies (CISAC–this abbreviation derives from its name in French, i.e. Confédération Internationale des Sociétés d’Auteurs et Compositeurs), a non-profit non-governmental organization whose primary mission is to promote mutual representation among gathering societies around the globe, brought trials before it.

Collecting societies handle the copyright of their members in their respective countries ‘ musical works. Each collecting society acquires the appropriate privileges, either through a direct transfer from the initial owners, or through a transfer from another collecting society of the same rights classifications in another nation. The collecting societies ‘ management of copyright implies that they enjoy the exclusive right to grant business users exploitation licenses, such as broadcasting undertakings and live show organizers. The cost of these licenses is the origin of the royalties for copyright owners after deducting the costs of the appropriate collecting society. Each collecting society pays to the owner of the works whose copyright it holds, regardless of the land in which those rights are utilized, the royalties for the exploitation of works.

In 1936, CISAC prepared a non-binding model agreement to effectively manage copyright, which was modified many times (“the model con-tract”). Collecting societies have adjusted this model to Reciprocal Representation Agreements (RRAs) whereby, for the purpose of their exploitation in the land of each collecting society, they confer on each other the right over their repertoires. Accordingly, each collecting society can offer business users a global portfolio of musical works, but only for use in their territory, thus limiting the capacity to participate in multi-territorial licensing (the domestic territorial restriction laid down in the RRAs). The RRAs cover both traditional copyright exploitation (i.e. concerts and radio) and exploitation through Internet, satellite or cable broadcasting.

Following complaints by radio and television broadcasting groups that members of the CISAC refused to grant them a license covering the entire territory of the EU for their music broadcasting activities, the Commission found, inter alia, that the national territorial limitation contained in the RRAs was the result of a concerted practice that restricted competition in the EU and was capable of restricting competition in the EU. The Commission’s opinion was that the presence of a concerted practice was evidenced, inter alia, by: omnipresent discussions between collecting societies on the standardization of their model agreements within the framework of the operations of CISAC; and omnipresent the presence of the Santiago Agreement, resulting from discussions between collecting societies.

The Commission had exempted the Santiago Agreement pursuant to Article 101(3) TFEU. However, on the grounds of the Commission’s objections, the exemption had not been renewed upon its expiry in 2004, resulting in the collecting societies having since returned to their domestic territorial constraints. The Commission had regarded in the disputed judgment that the abandonment of the Santiago Agreement showed that the collecting societies had coordinated their behavior regarding the granting of Internet licenses.

Furthermore, the Commission ruled that collusion was the only plausible explanation of the parallel behavior of the collecting societies in relation to territorial domestic constraints to which the collecting societies had returned after the expiry of the Santiago Agreement.

Held:

The GC held that a concerted practice had not been proven by the Commission.

Comments:

The GC confirmed that to establish the presence of an infringement, the Commission must provide accurate and coherent proof. The Court, however, took into consideration the Commission’s evidence-based problems in trying to demonstrate the presence of collusive behaviour. It held that:[ I]t is not essential for each item of proof generated by the Commission to meet those requirements with respect to every aspect of the breach. It is sufficient if the set of indicia on which the Commission has relied, viewed as a whole, meets that requirement. “The GC stressed the importance of the presumption of innocence principle, which requires the Court to interpret any doubt as to the evidence of an infringement in favor of the alleged perpetrator.

The GC indicated that it was necessary to distinguish between a scenario in which the Com-task seeks to demonstrate the presence of concertation based on papers in its possession and a situation based on a mere finding of parallel behavior.

In a situation where allegations of infringement are based on documents produced by the Commission, it is the burden on the applicants’ not merely to provide a further explanation of the facts found by the Commission, but to challenge the existence of those facts established on the basis of documents produced by the Commission.’ The GC ruled that any doubt on its part as to the presence of an infringement “must benefit the undertaking to which the decision finding an infringement has been addressed. It is argued that this state of affairs does not imply that the Commission must establish, beyond any reasonable doubt, the existence of an infringement if its evidence is based exclusively on parallel behavior, but indicates that the infringement.

It is not surprising, in view of this, that the GC did not discover that CISAC was involved in a practice that was con-certain. The Court accepted CISAC’s explanations that the national territorial limitations were necessary to ensure, first, that the fight against unauthorized use of musical works was effective and, second, that the amount of royalties received by the authors did not decrease. The Court discovered that the Commission’s proof did not make these explanations unplausible.

With respect to papers generated by the Commission, the GC discovered that neither the collecting societies ‘ conversations within the context of CISAC operations, nor the presence of the Santiago Agreement, provided proof of consultation on domestic territorial constraints. With respect to the collecting societies ‘ debates as part of the operations of CISAC, the GC established that they were essential to address significant problems jointly and did not have an anti-competitive goal. With respect to the Santiago Agreement, the GC found, inter alia, that the national territorial limitations were again applicable to the collecting societies after the expiry of the Agreement. The Court stressed that the col-lecturing societies did not return to domestic territorial constraints, contrary to the Commission’s claims, but returned to the status quo ante–that is, the scenario prior to the Santiago Agreement’s existence. The GC indicated that the collecting societies could not apply the domestic territorial constraints after 2004 in the lack of proof that the collecting societies acted in

Overview of Article 101 of TFEU EU Competition Law

Overview of Article 101 of TFEU EU Competition Law

Article: LA2024/SG10/BC14/AN02

Overview of Article 101 of TFEU EU Competition Law

 Article 101:

Violation of the prohibition laid down in Article 101(1) TFEU happens when an entity recognized as an undertaking enters into an agreement with another undertaking whose object or impact is the prevention, limitation or distortion of competition within the internal market and which is capable of having, or has, a significant impact on trade between Member States.

According to Article 101(2) TFEU, agreements and judgments infringing Article 101(1) TFEU that are not eligible for exemption under either a block exemption regulation or Article 101(3) TFEU are automatically void and as such unenforceable from the outset. The term “automatically” means that no decision is required by EU institutions or national courts to that effect. Concerted practices are not mentioned in Article 101(2) TFEU because they are informal arrangements and cannot be made void as such.

If it is feasible to sever offending provisions without destroying the substance of the contract, it is not appropriate to declare the entire agreement or decision null and void. Whether this can be done or not is a matter for domestic courts to decide.EU institutions sometimes help domestic courts in this assignment. For instance, the ECJ cut off the offending provisions of the contract in Joined Cases Grundig & Consten, which were those providing complete territorial protection. National judiciary have jurisdiction to apply Article 101(3) TFEU since the entry into force of Regulation 1/2003.

Overview Of Article 101 - Uol First Class Articles

Agreement, Concerted

Agreements, decisions and concerted practices

Meaning of the word Undertaking: any organization conducting a business or business activity (e.g., business, partnership, sole trader, cooperative) is subject to the laws of competition.

However, the EU judiciary have made it clear that state bodies purchasing products from government resources for use in Member States ‘ public health schemes are not undertakings and are therefore not subject to action pursuant to Article 101. In C-205/03 P FENIN[ 2006] ECR I-6295 the Court found that the purchase of goods is not an economic activity as defined in Höfner and Elserwhen the goods are not offered for resale but are used for public purposes (such as social welfare). The Court instead indicated that’ it is the activity of providing products and services on a specified market which is the distinctive feature of an economic activity.’

Parents and subsidiaries are also considered as a’ single venture’ within the same corporate group. In Joined Cases C-628/10 P and C-14/11 P Alliance One International and Standard Commercial Tobacco v Commission[ 2012],the Court ruled that the mere fact that, during a certain period of time, a parent business and its subsidiary exercised joint control over the subsidiary that committed the violation could fulfill a finding that those businesses created a business. This is given, however, that the parent businesses actually exercised decisive impact over the subsidiary’s commercial policy that committed the breach.

Article 101 involves either an agreement between undertakings, a decision by an association of undertakings, or a concerted exercise between undertakings in relation to the first requirement for breach.

Meaning of the word Agreement: a broad and flexible interpretation has been provided to this notion. In CasesC-56 and 58/64 Consten and Grundig v Commission[ 1966] ECR 299 [Facts : Grundig, a large German manufacturer of electrical equipment, entered into an exclusive distribution agreement with a French distributor, Consten, according to which Consten was appointed as Grundig’s exclusive distributor in France, Corsica and the Saar region. Under the contract Consten agreed not to sell outside its territory. Grundig undertook not to compete itself, not to deliver to third parties, even indirectly, products intended for the ter- ritory assigned to Consten, and to obtain assurances from its distributors in other Member States that they would not sell to buyers from outside their exclusive territories. This “air- tight” exclusive distribution agreement was reinforced by a clause allowing Consten to use the Grundig trademark “GINT” and emblem in its promotions. On the basis of this author- ity, Consten registered the Grundig trademark in France.

A French competitor imported a number of Grundig products from Germany and attempted to sell these in the French market. Consten raised an action for trademark infringement against this rival, relying on the earlier registration of the trademark. The Com- mission objected to these proceedings and commenced an investigation into the function- ing of the exclusive distribution agreement. The Commission found that the agreement was contrary to Article 101(1) TFEU, being an agreement which had the object of distorting competition within the EU by restricting trade. It found that the agreement could not be exempted under Article 101(3) TFEU as it failed to satisfy the condition that consumers should receive a fair share of benefits resulting from the agreement. Consten and Grundig brought an action before the ECJ contesting these findings. ] it was stated that the word should apply only to contracts between businesses working at the same point in the production / distribution chain (i.e.’ horizontal agreements’) as between competing television producers. The Court saw no reason to restrict its scope in this manner and held that it also applied to’ vertical contracts,’ i.e. agreements between parties working at distinct rates, such as between a television manufacturer and its distributor. There is no necessity for a contract to be concluded in writing or legally enforceable. This implies that an unofficial’ gentlemen’s agreement’ is covered in order to prevent businesses from evading Article 101 by, for instance, orally agreeing stuff. For example, see Cases 41, 44 and 45/69 NV v Commission[ 1970] ECR 661.

A deal does not necessarily need to be a one-off occurrence. It can also lead from a long-lasting process. In Polypropylene[ 1988] 4 CMLR 347 (maintained on appeal in C-51-92 Hercules Chemicals v Commission[ 1999] ECR I-4235), the Court ruled that the petrochemical cartel dealings were part of a single general contract. All 15 companies concerned were part of this contract, even those not attending every cartel conference.

See Case C-49/92 Commission v Anic Partecipazioni[ 1999]ECR I-4125 on the burden of proof, in which the Commission established that an agreement had been concluded at a meeting. The Court discovered that the burden of evidence was on the undertaking in question to demonstrate that it had no intention of participating in the execution of the contract.

The problem often occurs where a company unilaterally imposes on its distributors anti-competitive terms. Therefore, the Court must consider whether the distributors could be said to have tacitly’ agreed’ with the terms by merely continuing to cope with the supplier. The Court’s position is that if they (i.e. the distributor) consented to and continued to cope with the manufacturer, an arrangement exists (see Commission Decision IV/35.733 Volkswagen upheld in T-62/98 Volkswagen v Commission[ 2000] ECR II-2707.)

Article 101(1) TFEU prohibits all arrangements between undertakings capable of distorting competition within the internal market. It lists three types of arrangement:

  • agreements between undertakings;
  • decisions by associations of undertakings; and
  • concerted practices.

The EU Treaties do not define any of the above arrangements. The ECJ, when confronted with the need to define them, has embraced an expansive and flexible approach, rather than a narrow, legalistic one. It stated in Case C-49/92P Commission v Anic Partecipazioni SpA [1999] ECR I-4125, [3]; see also: Case T-62/98 Volkswagen AG v Commission [2000] ECR II-2707 that although Article 101 TFEU distinguishes between “concerted practices”, “agreements between undertakings” and “decisions by associations of undertakings”, its objective is to catch different forms of co-ordination and collusion between undertakings and, therefore, the GC had been correct in considering that “patterns of conduct by several undertakings were a manifestation of a single infringement, corresponding partly to an agreement and partly to a concerted practice”. Therefore the two concepts are not incompatible and certain conduct may be qualified as being, in the first place, a concerted practice, and, in the second place, an agreement, or as being at the same time an agreement and a decision of associations. Accordingly, under EU law, a joint classification is in conformity with the objectives that Article 101(1) TFEU seeks to achieve – that is, to distinguish between conduct of an undertaking on the relevant market that is collusive and thus prohibited, and that which is independent and thus lawful. The Commission stated in its Polypropylene decision:2700

“The importance of the concept of a concerted practice does not thus result so much from the dis- tinction between it and ‘an agreement’ as from the distinction between forms of collusion failing under Article [101(1) TFEU] and mere parallel behaviour with no element of concertation.”2701

The approach based on distinguishing between collusive and non-collusive conduct rather than on a formal distinction between various forms of collusion ensures that conditions of competition in the internal market are not distorted by collusive conduct of undertakings, irrespective of the form such conduct takes. Further, this expansive approach responds to the probatory difficulties of the Commis- sion in meeting the requisite legal standard to prove the existence of complex cartels of considerable duration involving many undertakings. It resulted in the establishment of the concept of a “single, overall agreement”. As the Commission stated in British Sugar plc, Tate and Lyle plc, Napier Brown and Co Ltd, James Budgett Sugars Ltd [1999] OJ L76/1.  in respect of complex cartels it would be artificial and unrealistic to subdivide continuous conduct, having one and the same overall objective, into several distinct infringements.

Notwithstanding this, each of “agreement”, “decision” and “concerted practice” has been defined, albeit, as the ECJ held in Case C-8/08 T-Mobile, those definitions “are intended, from a subjective point of view, to catch forms of collusion having the same nature which are distinguishable from each other only by their intensity and the forms in which they manifest themselves”. These definitions are examined below.

Unilateral Conduct:

One undertaking acting alone cannot be in breach of Article 101(1) TFEU. However, until the judgment of the GC in Case T-41/96 Case T-41/96 Bayer AG v Commission [2000] ECR II-3383. the concept of an agreement was being broadly interpreted so that even unilateral conduct could conceivably have come within it, for example, unilateral anti- competitive measures adopted by a manufacturer vis-à-vis its dealers, without account being taken of the actual conduct of the dealers with regard to those measures. The signature of the dealership con- tract was regarded as tacit acquiescence in subsequent anti-competitive initiatives of the manufacturer regardless of subsequent conduct adopted by the dealers [Case C-277/87 Sandoz Prodotti Farmaceutici SpA v Commission [1983] ECR 3151. ]

The GC in Bayerstated that the mere existence of a dealership agreement and a measure imposed unilaterally does not suffice. The Commission must establish to the requisite legal standard that such a measure has the express or implicit acquiescence of the other party. Find the Facts and Judgement of Bayer Case

THE FACTS WERE:

Bayer AG, one of the most important chemical and pharmaceutical groups in Europe, which has subsidiaries in all the Member States, brought proceedings before the GC challenging Decision 96/478/EC of the Commission in Adalatin which Bayer was found in breach of Article 101(1) TFEU.

Under the trademark “Adalat” or “Adalate” Bayer AG had manufactured and marketed a range of medicinal preparations designed to treat cardio-vascular disease. In a number of Member States the price for “Adalat” was directly determined by the national health authorities. Between 1989 and 1993 in France and Spain the price was 40 per cent lower than the price in the UK. The price difference had encouraged parallel imports of “Adalat” from France and Spain to the UK. According to Bayer, sales of “Adalat” by its British subsidiary fell by almost half between 1989 and 1993. In order to recover the lost profit Bayer AG decided to cease fulfilling all of the increasingly large orders placed by wholesal- ers in Spain and France with its Spanish and French subsidiaries. Some French and Spanish wholesalers complained to the Commission. Following its investigations the Com- mission found that Bayer AG was in breach of Article 101(1) TFEU. The Commission decided that the prohibition of the export to other Member States of “Adalat” from France and Spain agreed between Bayer France and its wholesalers since 1991, and between Bayer Spain and its wholesalers since 1989, constituted a breach of Article 101(1) TFEU. Bayer AG argued that the Commission went too far in its interpretation of the concept of an agreement and that in fact Bayer’s unilateral conduct was outside the scope of that Article.

Held:

The GC ruled that in order to establish whether or not there was an agreement between the parties, two elements should be considered:

  • the intention of Bayer to impose an export ban; and
  • the intention of the wholesalers to adhere to Bayer’s policy designed to reduce parallel imports.

In the light of the evidence submitted the GC held that the Commission had failed to prove to the requisite legal standard that an agreement existed.

The Court emphasised that:

“The proof of an agreement between undertakings within the meaning of [Article 101(1) TFEU] must be founded upon the direct or indirect finding of the existence of the sub- jective element that characterises the very concept of an agreement, that is to say a concurrence of wills between economic operators on the implementation of a policy, the pursuit of an objective, or the adoption of a given line of conduct on the market, irre- spective of the manner in which the parties’ intention to behave on the market in accordance with the terms of that agreement is expressed.”

Comment:

It was clear from the facts that there was no “concurrence of wills”, between the whole- salers and Bayer, bearing in mind that the wholesalers had tried by all means to obtain extra supplies whilst Bayer was trying to restrict them.

Uk &Amp; Eu Competition Law Article 101

Law Articles – University Of London Eu Prep

Article 101 TFEU states:

“1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings, and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which:

  1. (a)  directly or indirectly fix purchase or selling prices or any other trading conditions;
  2. (b)  limit or control production, markets, technical development, or investment;
  3. (c)  share markets or sources of supply;
  4. (d)  apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
  5. (e)  make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
  6. Any agreements or decisions prohibited pursuant to this Article shall be automatically void.
  7. The provisions of paragraph one may, however, be declared inapplicable in the case of:
    • any agreement or category of agreements between undertakings;
    • any decision or category of decisions by associations of undertakings;
    • any concerted practice or category of concerted practices which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:
      1. (a)  impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;
      2. (b)  afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.”

 

Article 101 applies to both horizontal and vertical agreements. The difference between them is explained below.

A horizontal agreement

This is an agreement entered into by undertakings that compete with each other at the same level of the production/distribution chain, for example, agreements between producers, manufacturers or retailers. Horizontal agreements which are in breach of Article 101 TFEU are the most harmful to competition because rival undertakings, instead of competing with each other, collude and therefore can act as one undertaking in the relevant market. An arrangement between rival undertakings is called a cartel. In a cartel participating undertakings considerably increase their market power and, in some cases, can monopolize the relevant market. As a result, they can reduce output to increase prices and are not subjected to pressure to improve the products they sell, to create new products or to find new ways of commercialization of such products. Thus, cartels stifle creative innovation, impose higher prices for lower quality goods and narrow the choice of products. Additionally, they harm consumers, who have to pay cartel prices. Further, they dampen opportunities for new undertakings to enter the relevant market. In short, the existence of cartels runs counter to the objectives of competition law, and adversely affects the competitiveness of the economy as a whole.

A vertical agreement

This occurs when two or more undertakings which operate at different levels of the production or distribution chain enter into an agreement, for example, agreements between producers and retailers. The under- takings involved do not in any event compete with each other because they operate at different levels of the market. The most popular vertical agreements are distribution agreements and franchising agreements.

Initially, there were some doubts as to whether Article 101 applies to vertical agreements, taking into consideration that the parties to such agreements are not on an equal footing. This question was examined by the ECJ inJoined Cases 56 and 58/64 Consten and Grundig. [Judgement : The ECJ confirmed that vertical agreements are within the scope of Article 101 TFEU in the following words:

“Article [101 TFEU] refers in a general way to all agreements which distort competition within the Common Market [internal market] and does not lay down any distinction between those agreements based on whether they are made between competitors operating at the same level in the economic process or between non-competing persons operating at different levels. In principle, no distinction can be made where the Treaty does not make any distinction.”

The ECJ considered it irrelevant that sides to a vertical agreement were not equivalent in terms of their economic situation and function. The Court upheld the judgment of the Commission that the arrangement did not meet the requirements laid down in Article 101(3) TFEU. Vertical agreements are handled less heavily under EU competition law than horizontal contracts. They are obviously less anti-competitive in particular than horizontal contracts. This is because, independently of any rival, each party to such an arrangement exercises its authority. Under Article 102 TFEU, if any party is in a dominant position and abusses that position, the matter will be dealt with. The only anti-competitive impact of such contracts is usually when there is inadequate inter-brand competition [Inter-brand competition relates to competition among competing brand providers. Competition within the brand concerns competition between the same brand’s retailers. ]. Many economists (especially those associated with the Chicago School) stress that vertical agreements give many competitive advantages. This is also the Commission’s present perspective, which, pursuant to Regulation 330/2010, introduced a rebuttable presumption of vertical agreements compatibility with Article 101(1) TFEU where each party to the vertical agreement has a share of less than 30 per cent in the appropriate product market. This is subject to certain exceptions and a restricted amount of “hard-core” constraints laid down in the Regulation.

Decisions by associations of undertakings The aim of Article 101(1) TFEU is to guarantee that undertakings do not escape the implementation of EU competition law in the manner in which they coordinate their anti-competitive behavior. That is why Article 101 TFEU includes not only direct forms of coordination, i.e. contracts and concerted procedures by undertakings, but also institutionalized forms of their collaboration, i.e. when they behave through a collective framework.

Trade associations can either engage actively in members ‘ collusive behavior or can be used as a means for members to exchange data on rates, outputs and other issues that will allow companies to be conscious of their rivals ‘ market situation and strategy and thus boost or even promote the likelihood of collusion. In such conditions, behavior of members of an enterprise association may be recognized as an arrangement or a concerted practice. However, Article 101(1) TFEU also catches behavior which is described as a “decision”–that is, behavior which can not be recognized as an arrangement or a concerted exercise in the strict sense.

Under EU law, both the “association” concept and the “decision” concept have been widely interpreted. Regarding the notion of an association, whether or not a group of undertakings is registered as an association is unimportant for the implementation of EU law; what matters is whether the group is an entity created to achieve its members ‘ financial goals. Accordingly, according to EU law, the notion of association covers: agricultural cooperatives; professional associations, including a statutory body with public tasks, whose members are designated by the government; international organizations such as the International Railway Union; groups such as the European Broadcasting Union, which coordinates the Eurovision scheme; In Case 123/83 BNIC the ECJ ruled that an agreement between two groups of traders must be considered as’ an agreement between undertakings or undertaking associations.’ Also within the prohibition of Article 101(1) TFEU is a choice taken by a federation-type organization–that is, an organization whose members are themselves associations.

The MasterCard organization asserted in Case C-382/12P MasterCard that after 2006 it was not an association of undertakings. Until that date, affiliated banking organizations owned and administered the MasterCard organization. It became a stock exchange-listed corporation after that date and stopped being owned by those organizations. After 2006, the board of the MasterCard consisted of a significant majority of people who had no affiliation with any financial institutions and followed their shareholders ‘ interests. MasterCard argued that an entity can not be categorized as an association of undertakings unless it consists of a majority of members of the undertakings involved and is free to take its choices in their exclusive interest in accordance with relevant domestic legislation. In his Opinion, A-G Mengozzi stressed that MasterCard’s criteria clash with the wide interpretation of the notion of “association” created by the case law. He stated that an entity should be considered as an association of undertakings’ if it constitutes the framework within which, or the instrument through which, the undertakings concerned coordinate their conduct on the market, provided that the public authorities do not impose coordination or the results achieved.’  The wide interpretation was maintained by the ECJ. It argued that MasterCard was an association on two basis: After 2006, banks involved in the MasterCard payment system continued to have decision-making powers, although not over MasterCard’s contested decision to impose cross-border multilateral interchange fees (MIFs), which the ECJ condemned as having an anti-competitive impact and which amounted to a decision within the MasterCard

The purpose of the notion of a decision is to capture all types of forbidden cooperation organized by an organization with respect to its members. These may include, but are not limited to, binding association resolutions, binding regulations on the operation of a certification system and an association’s written constitution. In Case 8/72 Cementhandelaren, the ECJ regarded whether a non-binding suggestion could amount to a decision within the significance of Article 101(1) TFEU.

Facts: The Dutch trade association, of which most Dutch cement retailers were members, recommended a price adjustment for the sale of cement in the Netherlands. The trade association effectively governed the Netherlands cement sector, as it imposed comprehensive trade regulations on its members (for instance, the duty to notify any change in leadership), oversaw its members ‘ accounts, needed them to sell to each other (and thus eliminated the chance of third parties building up cement stocks) and was empowered to expel its members.

Held: The ECJ held that Cementhandelaren’s decision to recommend target rates had a major effect on price levels: first, its participants were in fact complying with the recommendation and, second, it removed the uncertainty about prices to a large extent, as almost all retailers were charging the same price as each other. The recommendation was therefore considered to be a choice within the significance of Article 101(1) TFEU.

Comment: It follows from this situation that the word “decision” includes non-binding suggestions, casual choices, circulars, etc., if it can be demonstrated that such non-binding measures made by an organization have affected or may impact (in which respect its members ‘ previous behavior will be taken into consideration) the behavior of its members on the relevant market arising in a restriction of competition. Concerted methods It follows from the very nature of a concerted exercise that it does not have all the components of a treaty, but is a type of casual cooperation between undertakings.

Concerted procedures are hard to prove, given that they are implicit, secret arrangements that the participating undertakings will at all costs attempt to conceal from the public perspective. The significance of a concerted exercise has been described by three instances decided by the EU judiciary. Below, they’re debated.

Case 48/69 ICI (Dyestuffs) The ECJ ruled that a concerted practice referred to a type of collaboration between undertakings which, without having reached the phase where a correctly so-called contract was concluded, would knowingly replace the danger of practical collaboration between them in competition. Therefore, co-ordination and collaboration between undertakings is an important characteristic in determining whether or not they were involved in a concerted exercise.

In Suiker Unie, The ECJ ruled that:'[ t]he co-ordination and co-operation criteria must be understood in the context of the notion of competition intrinsic in the Treaty provision that each financial operator must separately determine the strategy which he plans to implement on the Common Market.’ Such autonomy is called into question when competing undertakings exchange data deliberately, directly or indirectly, in order to impact the behavior of real or potential rivals or to reveal an adopted or envisaged course of behavior to such rivals.

No actual plan is required, but for a concerted practice to exist it is necessary that undertakings have direct or indirect contact, the object or effect of which is either to influence the behavior of an actual or potential competitor or to disclose to such a competitor the course of action that the colluding undertakings have agreed to adopt or envisage adopting on the relevant market.

Joined CasesT-25 to 104/95 The GC first distinguished between passive data reception and active data reception. It indicated that there must be an intention to transmit data to the other party to be a concerted exercise, and the latter must be conscious that it is getting such communication not accidentally, but purposefully. The exchange of data must go beyond mutual understanding of what the other party is doing on the basis of ordinary data sources, such as the terms and conditions cited to clients, which are simple to acquire and which will affect rates and policies taken by rivals.

Secondly, the GC indicated that:’ a concerted practice involves, in addition to joint undertakings, conducting on the market in accordance with these collusive methods and a cause-and-effect relationship between the two.’

It is possible to summarize the case law above as follows. In order for there to be a concerted practice, there must be direct or indirect contact between competing undertakings that influence the behavior of an real or potential competitor on the market, the object or impact of such interaction is’ to produce circumstances of competition that do not correspond to the ordinary circumstances of the market in question’ and a connection between cause and effect.

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