Concentration Analysis pre-M&A to Involve Abuse of Dominance Conditions Assessment?

In Case C‑449/21 (“Towercast”) (currently pending), the European Court of Justice (the “ECJ”) was required to assess and rule upon a preliminary question of whether a concentration which does not meet the relevant turnover-related thresholds of Regulation (EC) No 139/2004 (the “Merger Regulation”) and national merger control law and, as a result, did not undergo ex ante assessment with any national or European authority can be reevaluated following its completion in view of Article 102 from the Treaty on the Functioning of the European Union (the “TFEU””) on abuse of dominance.

In other words, the question raised by the inquiring national court (in this case, the Court of Appeals in Paris, France) opened the discussion as to whether a concentration which, at first sight does not even raise the issue of clearance (by not meeting the legal notification thresholds), may trigger additional ex post review based on legal grounds concerning abuse of dominance.

Advocate General Kokott issued their opinion in this case[1] and their conclusion is that indeed, such review could take place. The arguments brought forward in this regard are in brief the following:

1. applying national law provisions or the Merger Regulation with respect to clearance requirements for mergers does not preclude the application of Article 102 on abuse of dominance following the completion of the concentration, given the prevalence of treaty provisions. However, to the extent that a concentration meeting the thresholds for notification has been declared compatible with the internal market, “could not as such be qualified (any longer) as an abuse of a dominant position within the meaning of Article 102 TFEU, unless the undertaking concerned has engaged in conduct which goes beyond that and could be found to constitute such an abuse.”[2]

2. subsequent control under Article 102 TFEU can only concern concentrations carried out by an undertaking with a dominant position.[3]

3. legislation on merger clearance establishes a rebuttable presumption that, in case certain thresholds are met, a proposed concentration may raise competition concerns and, hence, require the preliminary review of competition authorities. However, lack of reaching such thresholds (and absence of the presumption) does not preclude Article 102 from applying and the relevant competition authority from assessing post concentration completion if abuse of dominance occurred.

4. in order to effectively protect competition, especially in acquisitions in highly concentrated markets, competition authorities should be able to use the tool made available by Article 102, where the aim of such acquisitions is to eliminate competitors (the so-called killer acquisitions - more on the concept here).

The case is still pending and the ECJ is yet to rule on it. However, if the Court's judgment follows AG Kokott's opinion and reasoning, it would probably require a partial reconfiguration of how some purchases will be dealt with, in the context of which the notification thresholds are not met:

• the standard assessment of notification thresholds carried out before any deal is signed will have to be followed by an assessment of the potential abuse of dominance resulting from the concentration. The absence of such extensive assessment could lead to negative consequences after the completion of the M&A in the form of fines or the retroactive dismantling of the transaction. In her Opinion, AG Kokott suggest that the adequate sanction would not be the dismantling of the transaction (given the primacy of behavioral remedies and the principle of proportionality), but “only” the imposition of fines[4]; and

• the agreements that give effect to the acquisitions (sale purchase agreements (SPAs)) will either have to contain warranties as to the absence of grounds of post-closing abuse of dominance, to the extent that a finding of such abuse would result in the dismantling/termination of the transaction.

Article to be continued based on the expected ECJ decision.

[1]https://curia.europa.eu/juris/document/document.jsf?text=&docid=267143&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=44949 [2] Paragraph 60 of the Opinion of Advocate Kokott delivered on 13 October 2022 in the “Towercast” case (the Opinion). [3] Paragraph 62 of the Opinion. [4] Paragraph 63 of the Opinion.

Convertible notes under Romanian law: a financing possibility for companies

#legalbrain #convertiblenotes #startup #financing #financingstartup #financingSME #intreprinderimicisimijlocii #antreprenoriat #finantare

The English term "convertible notes" is quite common in foreign jurisdictions, especially common law jurisdictions, and refers to "a debt security that contains an option that the instrument will be converted into a predefined amount of the issuer's shares".[1] In other words, a convertible note is a debt instrument (somewhat similar to a bond) whereby a company raises finance from an investor, who in turn earns the right to repayment of the loan plus interest or conversion of the loan into equity, i.e. shares in that company at a (pre-)valued subscription value.

The concept as such is unknown to company law in Romania. However, an adaptation of this instrument can be made in the light of the framework of Company Law 31/1990 ("Company Law") and the general provisions of the Romanian Civil Code.

In practice, it is common for a loan agreement to be signed whereby the lender (investor) agrees to grant a loan to a company with the following options for repayment or extinguishment: (i) the loan would be repaid in kind, as in the case of any other ordinary loan agreement; or (ii) the loan would be converted into shares issued by the company and, where appropriate, into a share premium in the context of a capital increase made in respect of the company. In the latter case, the involvement of the company's shareholders being required for the approval of the share capital increase.

Such a contractual construction relies to a large extent on good faith in the development of business relationships, and on the willingness of the company (and its shareholders) to use the financing to fuel its business and perhaps expansion plans. Enforcing the loan-to-equity conversion provisions through the court system is, however, an approach that we consider relatively optimistic, given that the courts would be faced with an exceptional case (exceptionality being more of a disadvantage when it comes to litigation in Romania), requiring them to compensate the shareholders for their willingness to increase share capital, most likely with a share premium.

However, these convertible notes, through their flexibility - given that they alternatively allow either repayment of the loan or - often in a future round of financing that increases the market value of the company - conversion to equity at a pre-defined valuation, have established themselves as a common financing model, especially in the early life cycles of companies.

[1] Source of definition: https://www.investopedia.com/terms/s/senior-convertible-note.asp

Crowdfunding: a financing solution for start-ups and SMEs in Romania and in the EU

#legalbrain #crowdfunding #startup #crowdfundingstartup #financing #financingstartup #financingSME #intreprinderimicisimijlocii #antreprenoriat #finantare

1. What is crowdfunding and where is it regulated?

As per EU Regulation 2020/1503 (the “Crowdfunding Regulation”)[1], crowdfunding is a form of alternative finance tool for start-ups and small and medium-sized enterprises (SMEs), typically relying on small investments.

Crowdfunding involves: (a) in the sense of the Crowdfunding Regulation, any natural or legal person who seeks funding through a crowdfunding platform is referred to as a “project owner”; (b) a crowdfunding service provider acting as intermediary; and (c) a crowdfunding platform meaning a publicly accessible internet-based information system platform operated by the crowdfunding service provider, open to the public to match or facilitate the matching of prospective investors or lenders with project owners. In other words, small or medium businesses wishing to draw funding to launch or expand their products or services may use a crowdfunding platform as a tool to reach out to investor to support their expansion plan.

Until recently, crowdfunding had not been regulated at all. However, the increasing need of start-ups and SMEs for financing and their constant struggle with traditional ways of obtaining it (bank loans, going public on the local stock exchange etc.) eventually brought this concept to the attention of national and, finally, European legislators.

Crowdfunding is now regulated at EU level by the Crowdfunding Regulation and the related legislation and, in Romania, by Law No. 244/2022.[2]

More information regarding the implementation of the Crowdfunding Regulation can be found here:

https://www.esma.europa.eu/sites/default/files/library/esma35-42 1088_qas_crowdfunding_ecspr.pdf

2. What are the conditions for a project owner to raise financing through crowdfunding?

The Crowdfunding Regulation requires crowdfunding service providers to conduct due diligence with respect to the prospective project owners prior to allowing funding through the platform. The minimum level of due diligence referred to in the Crowdfunding Regulation shall include ensuring (a) that the project owner has no criminal record in respect of infringements of national rules in fields of commercial law, insolvency law, financial services law, anti-money laundering law, fraud law or professional liability obligations; and (b) that the project owner is not established in a non-cooperative jurisdiction, as recognised by the relevant Union policy, or in a high-risk third country.[3]

3. Has crowdfunding actually been tried and tested in Romania?

To the date of this discussion and only very recently, one entity has acquired the authorization from the Romanian Financial Supervisory Authority (Autoritatea de Supraveghere Financiară or ASF) to provide crowdfunding services in Romania.

However, several other crowdfunding platforms incorporated within other EU member states have been authorized to provide such services in Romania as well.

4. Where to start for crowdfunding if you’re a start-up or SME?

The first question to ask would probably be: what crowdfunding platform to use? The research needed to answer this question should probably start by accessing the public register of all crowdfunding services providers authorised in accordance with the Crowdfunding Regulation i.e. the Register of Crowdfunding Services Providers (the “Register”).

The Register is kept by ESMA – The European Securities and Markets Authority and is accessible here: https://www.esma.europa.eu/document/register-crowdfunding-services-providers

Selecting a crowdfunding platform is a task involving looking at the jurisdiction where the platform is established, the number and quality of investors acting on the platform, the strategy adopted by the crowdfunding platform to draw funding as well as other commercial conditions.

We would be happy to continue this discussion further. Please get in touch.

[1] Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937. [2] Law No. 244/2022 on establishing measures to implement Regulation (EU) 2020/1.503 of the European Parliament and the Council of 7 October 2020 on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) [3] Pursuant to Article 9(2) of Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC