Colombia: Superintendency of Industry and Commerce
Colombian antitrust laws embrace the concept of control as a criterion for determining whether a transaction is subject to pre-merger review or not. Article 9 of Law 1340 of 2009, which regulates merger review in Colombia, establishes the following:
Businesses engaged in the same economic activity or participating in the same value chain, and which comply with the following conditions [ie, having a minimum of operational revenues or total assets], must inform the Superintendence of Industry and Commerce of any transactions they plan to carry out in order to merge, consolidate, acquire control of, or merge, whatever the legal form of the projected transaction may be.
According to article 9, whenever an undertaking acquires control of another undertaking with which it has a horizontal or vertical relationship1 – and provided the parties have a minimum operational income or assets – it must submit the transaction for review to the Superintendency of Industry and Commerce (SIC).
The concept and limits of the word ‘control’ is therefore key to establishing whether a transaction must be submitted to the SIC before its execution. This is especially true considering that not submitting a transaction to the SIC when having the obligation to do so constitutes, by itself, a breach of antitrust laws subject to pecuniary sanctions of up to approximately €32 million.
Article 45.4 of Decree 2153 of 1992, defines control for the purposes of applying antitrust laws as:
The possibility to directly or indirectly influence the business policy, the commencement or termination of the enterprise activity, the variation of the activity to which the enterprises is devoted, or the disposition of the goods or rights essential to further the activities of a business.
To the Colombian competition community it was clear that a firm acquired control of another whenever it:
- acquired more than 50 per cent of the shares of another company;
- acquired the voting majority in the assembly or the board of directors, or the ability to appoint the majority of the members of the board of directors; or
- acquired a dominant influence on the decisions of the administrative bodies of the corporation through contract or any other business act.
These three cases, which are presumptions used by Colombia’s corporate law in article 261 of the Code of Commerce to assert that a corporation has corporate control over another, were also used as criteria to determine if a company acquired antitrust control over another or not.
However, it was not clear whether other situations that conferred one company a degree of influence on another, but did not fall within the three corporate scenarios described above, also amounted to antitrust control in terms article 45.4 of Decree 2153 of 1992. In particular, it was not clear if the acquisition of minority shares on a competitor fitted within the definition of control laid out in article 45.4 and, if so, in which situations.
On February 2014, the SIC issued Resolution 5545 of 2014, in which it imposed conditions on a merger in the energy sector. This decision, together with Resolution 32184 of 2014, provide guidance on when the acquisition of minority shareholdings amounts to the acquisition of antitrust control, and therefore must be submitted to the SIC for pre-merger control purposes.
In such decisions, the SIC established that the concept of control in Colombian competition law is not equivalent to having the majority of shares in another company, the necessary votes to elect the majority of members in the board or directors or the capacity to exercise a dominant influence in another corporation. Control, according to Colombia’s antitrust law, occurs ‘whenever one undertaking has the ability to influence the competitive development of another enterprise, regardless of whether such influence coincides with those events in which corporate laws consider that there is control.’2
To the SIC, even though when corporate control exists, antitrust control in the terms of article 45.4 will exist, the contrary is not true; the fact that there is no corporate control does not mean that there is no antitrust control, as a company may have influence in another without having the majority of shares, votes in the board of directors, or dominant influence through contract.
To the SIC, the definition of control in article 45.5 of Decree 2153 of 1992 (an antitrust law), is different from the definition of control in corporate law (article 161 of the Code of Commerce) because the purpose and effects that the two regimes assign to the concept of control is different.
The general purpose of the concept of control in Colombian corporate law is to grant transparency to commercial transactions through the identification and individualisation of the company with which one is doing business, with the objective of preventing the use of corporations as a vehicle for fraud. Some legal consequences are derived from such individualisation, including the presumption that the controlling corporation must be accountable when the controlled corporation turns insolvent. On the other hand, the concept of control in Colombian antitrust law seeks to determine those situations in which one company may influence or affect the competitive development of another company, thereby unduly restricting competition in the market, affecting consumers and economic efficiency.3
Taking this into account, the SIC considered that one of the events in which an undertaking acquires antitrust control over another is when minority shareholders, which may be other enterprises, have the possibility to influence decisions that affect the competitive development company in which they have the shares.
To the SIC, not every minority shareholding in another company (such as a competitor) confers the ability to influence its competitive development in the market (ie, control). It is only when such minority shareholding confers the shareholder the ability to block or materially influence in any other way a decision that affects the way in which the company competes in the market. In this sense, decisions that generally require a qualified majority and therefore confer a minority shareholder veto rights, usually confer antitrust control provided that those decisions are related to the way in which the company competes in the market (including, for example, a decision to make certain investment or to open a new branch).
The SIC considered that the determination of whether a minority shareholder acquired antitrust control (competitive influence) on another company must be determined on a case-by-case basis, evaluating the specific rights that the minority shareholder acquires. Nonetheless, the agency established that antitrust control in Colombia may be either exclusive or joint.
Exclusive control exists whenever an undertaking (a company or a person) may individually exercise a material influence over the competitive development of an enterprise, and no other company or person exercises material influence over such enterprise. This control may occur in two situations.
In the first, the undertaking that exercises exclusive control has the ability to individually determine the decisions that affect the competitive development of the enterprise (exclusive positive control). In the majority of cases, this control is acquired with the ownership of the majority of voting rights in an enterprise; for example, when a shareholder has 51 per cent or more of the shares of a company.
In the second situation, exclusive control is verified when one shareholder has the power to veto strategic decisions that materially affect the competitive development of an enterprise (eg, investments, the introduction of new lines of businesses, the adoption of a business plan) and there is no other shareholder with the ability to influence the decisions of the company. This event configures exclusive negative control.
Joint control, on the other hand, occurs whenever two or more enterprises or persons have the ability to materially influence the competitive development of another enterprise. In the case of joint control, even though two or more enterprises may exercise material influence over a company, it is not necessary for the two enterprises to agree with each other to exercise such influence. Indeed, joint control may exist when even though several enterprises may exercise material influence, each one of them may do it independently and without the approval of the others that also exercise control.
Joint control, according to the SIC, occurs in four situations:
- whenever two enterprises own all the shares of a company in equal proportions (fifty-fifty), and they have equal rights of decision – in this case, both enterprises exercise control, and each of them may individually veto any decision;
- when a shareholder has the right to veto certain decisions that materially affect the competitive development of the company, while another shareholder has the majority of shareholding rights (eg, 51 per cent);
- when two enterprises hold together the majority of shareholding rights and agree to exercise them coordinately; or
- whenever two or more enterprises together hold enough shares to veto a decision that materially affects the way in which the enterprise competes, and they agree to exercise their votes coordinately.
According to the SIC, in situations where a company acquires exclusive control or joint control, in the terms just explained, the transaction will be subject to ex ante merger control in Colombia, provided that it complies with other requirements established by the law. This means that if the acquisition of minority shareholdings confers a control, either exclusive or joint as explained above, the parties will have to obtain the authorisation of the SIC before executing the merger.
The Colombian competition agency hopes that with this decision it will control the creation of structural links between competitors that may affect competition, consumers and economic efficiency. The SIC also expects that this decision will provide the competition community with more legal certainty when deciding whether a certain transaction must be informed ex ante to the competition agency or not.
- According to Colombian antitrust laws, conglomerate mergers are not subject to pre-merger control.
- Superintendency of Industry and Commerce, Resolution 5545 of 2014.
- Superintendency of Industry and Commerce, Resolution 32184 of 2014.