Aims of the Draft Law
The parliamentary process leading to the introduction of a new law on business concentrations (Draft Law No. 8296) (the “Draft Concentration Control Law”) was started on 23 August 2023. Luxembourg is the only EU member state that does not have a national law on the control on business concentrations.
The new law aims to introduce for the first time in Luxembourg a procedure allowing the Luxembourg Competition Authority (Autorité de la concurrence) to verify ex ante whether a corporate concentration significantly restricts or distorts competition in Luxembourg, thus increasing legal security for businesses engaged in business concentrations.
At the present time those business concentrations that do not fall within the scope of application of Regulation (EU) 139/2004 of 20 January 2004 (the “EU Merger Regulation”), may in Luxembourg only be subject to controls ex post under existing competition rules provided that a concrete abuse of a dominant position by reason of the corporate concentration is demonstrated.
The EU Dimension
Concentrations are considered to have a European dimension, and are therefore caught by the EU Merger Regulation, where the combined aggregate worldwide turnover of all the concerned entities is more than EUR 5 billion and the aggregate European-wide turnover of each of at least two of the entities exceeds EUR 250 million.
In accordance with the EU Merger Regulation, where the above-mentioned thresholds are not met, concentrations may nonetheless reach a European dimension if a number of cumulative conditions is met, namely: (i) the combined aggregate worldwide turnover of all the entities concerned exceeds EUR 2.5 billion; (ii) the concentration affects at least three EU member states, in each of which the combined aggregate turnover of all the entities concerned exceeds EUR 100 million and the aggregate turnover of each of at least two of the entities concerned exceeds EUR 25 million; and (iii) the aggregate European-wide turnover of each of at least two of the entities concerned exceeds EUR 100 million.
In both cases, if the entities, taken individually, achieve more than 2/3 of their aggregate European-wide turnover within one and the same EU member state, the concentration is not considered having an EU dimension and, as such, in principle it will be considered under the national provisions.
Following the same logic, the European Commission (the “Commission”) is entitled to refer the case to national competition authorities where it considers that a project may significantly affect the whole or a part of a market in an EU member state presenting the characteristics of a “distinct market”. As such, in these cases, the project would be caught within the scope of the Draft Concentration Control Law.
Concentrations falling within the draft concentration control law
In line with the provisions of the EU Merger Regulation, the types of business concentrations that may be controlled by the Luxembourg Competition Authority are mergers, acquisitions (whether by way of purchase of capital, assets, contracts or by other means) or the creation of a joint enterprise (leading to lasting changes of control as regards mergers and acquisitions), if certain thresholds are exceeded.
The definition of “control” means (following closely the definition under the EU Merger Regulation) all rights, contracts or other means which confer individually or jointly and having regard to factual or legal circumstances the possibility to exercise a decisive influence on the activity of an enterprise (either its assets or the composition, deliberation, or decisions of corporate decision-making bodies).
Provided that the envisaged corporate concentration does not fall within the ambit of the EU Merger Regulation, the new law would apply if both of the following thresholds are exceeded:
- the total turnover (excluding tax) realised in Luxembourg by all the businesses concerned exceeds EUR 60 million; and
- the turnover (excluding tax) realised individually in Luxembourg by at least two of the enterprises concerned exceeds EUR 15 million.
The Luxembourg Competition Authority can also examine the effect of a corporate concentration if the thresholds are not met but if the Luxembourg Competition Authority believes that the corporate concentration might have a restrictive effect on competition as regards the market of goods or services in Luxembourg or a part of Luxembourg. In such case, for legal certainty purposes, the Luxembourg Competition Authority must promptly take action, no later than 60 days as of the date it became aware of the concentration, or, at the latest, as of the date of the realisation of the concentration.
The relevant enterprises taking part in the corporate concentration do not need to be Luxembourg enterprises.
Concentration not falling within the Draft Concentration Control Law
All concentrations that fall within the ambit of the EU Merger Regulation are excluded (except if there is a referral by the Commission to the Luxembourg Competition Authority, as mentioned above).
The Draft Concentration Control Law provides that acquisitions carried out by investment funds, securitisation funds or vehicles and pension funds generally do not fall within the scope of the Draft Concentration Control Law except for certain operation defined as capital investment operations that lead to a lasting change of control exceeding the thresholds.
Furthermore, the following operations do not fall within the Draft Concentration Control Law as they are not regarded as concentrations:
- concerted practises by enterprises that stay independent of each other (such practises might, however, be caught by the Luxembourg Competition Law of 30 November 2022 (the “Luxembourg Competition Law”);
- the temporary detention by banks, investment firms or insurance companies, whose business includes the trading and negotiation of financial instruments, of participations with the view of their re-sale within one year provided they do not exercise voting right with a view to determining the competitive position of the enterprise to but only in connection with the re-sale of the whole or part of the enterprise or its assets;
- if the control is exercised by a person mandated by a public authority under the legislation providing for a liquidation, winding up or similar bankruptcy procedure;
- if acquisitions are carried out by financial holding companies subject to such companies only exercising their voting rights in order to preserve the value of their investment rather than determining the competitive position of the enterprise;
- internal restructurings within a group of enterprises (e. g. increases in capital and creation of new group entities) if not leading to a change in the control structure; and
- internal group insurance or re-insurance schemes.
If the urgent rescue or re-organisation of a credit institution or certain investment firms becomes necessary to maintain or prevent a serious threat to the financial stability of Luxembourg or to protect the deposit holders or the investors, the CSSF will take over from the Luxembourg Competition Authority. The same will apply in the insurance and re-insurance sector with a possible transfer of responsibility to the Insurance Commission (Commissariat aux Assurances). In general, the Luxembourg Competition Authority needs to consult its fellow Luxembourg authorities where entities active on the financial and insurance and re-insurance markets are subject to a concentration.
Persons who can commence the procedure
The Draft Concentration Control Law provides for an obligation to notify the Luxembourg Competition Authority in advance of any proposed corporate concentration (as defined in the Draft Concentration Control Law) once the transaction is sufficiently concrete (notably if a memorandum of understanding respectively letter of intent has been signed or a public offer has been published) by:
- any physical or legal persons who acquire the control of the whole or part of an enterprise;
- in the case of a merger or creation of a joint enterprise, all parties concerned.
According to the comments to the Draft Concentration Control Law this does not preclude that informal and confidential pre-notification discussions with the Luxembourg Competition Authority are commenced beforehand, for example to clarify whether the transaction might fall within the competence of the Luxembourg Competition Authority. The practice under the EU Merger Regulation shows that the exchanges among the Commission and the concerned entities, in the pre-notification phase, are essential to structure and streamline the later notification procedure.
The notification can notably be submitted in a simplified form in case the project does not appear to raise any major competition issues.
The Luxembourg Competition Authority may of its own accord start a procedure within 60 days of becoming aware of a proposed or realised corporate concentration, if the thresholds are not met and the Luxembourg Competition Authority believes that the corporate concentration might have a restrictive effect on competition as regards the market of goods or services in Luxembourg (or a part of it).
Furthermore, as mentioned above, the Luxembourg Competition Authority may also become active upon referral of a project by the Commission in case the Luxembourg market could be identified as a “distinct market”, notwithstanding the turnover triggering the application of the EU Merger Regulation.
If the Luxembourg Competition Authority decides to open a procedure (or receives a referral), it will ask the relevant parties to proceed with a notification. A Grand-Ducal Regulation is to determine the modalities and the contents of notifications to the Luxembourg Competition Authority (including any simplified notification).
Procedure
Any notification or referral received will be published on the website of the Luxembourg Competition Authority.
Phase I
The Luxembourg Competition Authority will within 25 business days of receipt of a complete notification decide that either the transaction does not fall within the scope of the law, authorise the transaction or, if there are serious reasons to believe that the transaction will have a negative effect on competition, open a more detailed examination (the so-called Phase II procedure). It could also decide to refer the transaction to the Commission.
Phase II
If the Luxembourg Competition Authority decides to carry out a detailed examination, the Luxembourg Competition Authority will need to do so within 90 business days. It will notify its initial report and underlying documents to the parties concerned and give such parties 15 business days (which may be prolonged on demand by up to one month) to respond. If the parties wish to do, a hearing involving all interested parties may be convened thereafter.
At the end of the procedure, the Luxembourg Competition Authority will decide either (i) to authorise the transaction, (ii) to authorise the transaction subject to the parties’ undertakings and/or any conditions that it may impose, or (iii) prohibit the transaction and, if relevant, ask the parties to take all measures necessary to re-instate a healthy competition.
The Luxembourg Competition Authority will analyse on a case-by-case basis the relevant market and have regard to the principles on the definition of markets for EU law purposes, as set out in the Commission Notice on the definition of relevant market for the purposes of Community competition law (published in the Official EU Journal on 9 December 1997, wrongly stated to be 9 February 1997 in the Draft Concentration Control Law ), or any later revision of such notice.
Whilst the first duty of the Luxembourg Competition Authority will be to ensure that there is no significant distortion to competition in the Grand Duchy, notably by the creation or reinforcement of a dominant position which is not offset by a possible contribution to economic progress, it can, in view of its geographical characteristics, also look at concentrations affecting markets that extend beyond its borders.
Consistently with the design of the powers of the Luxembourg Competition Authority under the Luxembourg Competition Law, in carrying out any investigations, the Luxembourg Competition Authority will have wide powers to inspect premises and documents, obtain information from the businesses concerned and public authorities, convene persons for interview and put in place provisional measures. It can also engage experts. It can further impose daily penalties to enforce compliance and financial penalties for non-compliance (up to 10% of annual turnover during the last financial year of the businesses concerned).
Appeal/ Reversal of Decisions
Decisions taken by the Luxembourg Competition Authority may be appealed before the administrative courts within three months of the publication, notification, or knowledge of such decision.
The Luxembourg government may, by way of a cabinet decision decide to overturn a Phase II decision of the Luxembourg Competition Authority within 35 business days of such decision, by pointing to the general public interest of a corporate concentration including progress in industrial, economic or financial developments, the increased competitiveness of the enterprises concerned in the face of international competition or the creation or maintenance of employment.
Date of Effect
The Draft Concentration Control Law will now go through the parliamentary process and will only enter into effect on the 4th month following its publication in the Luxembourg Official Gazette (Journal Officiel).
The new law will not affect business concentrations in relation to which an authorisation or a publication has already taken place, or which were realised before the date of effect.
