On October 23, 2021, the Standing Committee of the National People's Congress (NPCSC) released the draft Amendment of the Anti-Monopoly Law for public consultation, and held the first deliberation on November 9, 2021, and the second deliberation from June 21 to 24, 2022. The NPCSC announced the adoption of the Amendment of the Anti-Monopoly Law (the Amendment) on June 24, 2022, which comes into force on August 1, 2022.
On June 27, 2022, the State Administration for Market Regulation (SAMR) released the Provisions on the Review of Concentration of Undertakings (Draft for Comments) (the Draft Review Provisions) and the draft for comment versions of another five provisions for public consultation from June 27 to July 27.
The Amendment adds Article 32, which stipulates for the first time the circumstances under which antitrust enforcement agencies may decide to suspend the review period for a concentration of undertakings, i.e., so-called 「stop the clock」 measures. The main purpose is to improve the agencies』 review efficiencies and avoid delays due to the requirement of notifying parties, which may affect the review process. For cases currently reviewed under the ordinary procedures, especially those that may have remedies imposed, the new stop the clock measure can improve the flexibility of the review procedure and reduce the frequency of pull-and-refile procedures. This is due to the exhaustion of the regulatory time limit, which could improve the overall review efficiency, particularly in complex cases.
A stop the clock mechanism may also have a significant impact on the parties』 transaction timetable and lead to a certain level of unpredictability, therefore other jurisdictions usually restrict the application of this measure. On the basis of the general rules stipulated in Article 32 of the Amendment, the Draft Review Provisions add matched regulations for the stop the clock measure, which provides more specific guidelines for antitrust agencies』 future enforcement, and increases predictability for undertakings in merger filing procedures.
I
A Stop the Clock Measure is added in the Amendment
The Amendment introduces a stop the clock measure for the first time. Article 32 of the Amendment stipulates:
Under any of the following circumstances, the Anti-monopoly Law Enforcement Agency of the State Council may decide to suspend calculation of the time limit for the review of a concentration of undertakings, and notify the undertakings concerned in writing:
(1) where the undertakings concerned fail to submit documents and materials in accordance with the relevant provisions, thereby making the review impossible;
(2) new circumstances or facts occur that have a material impact on the review of the concentration of undertakings and will result in the failure to carry out the review without verification; and
(3) where it is necessary to further assess the restrictive conditions attached to the concentration of undertakings and the undertakings make a request for a suspension.
Calculation of the review period shall continue from the date on which the cause of suspension of calculation is eliminated. The Anti-monopoly Law Enforcement Agency of the State Council shall notify the undertakings concerned in writing.
II
The Pros and Cons of the Stop the Clock Measure
1.The benefits of introducing a stop the clock mechanism in China
Introducing a stop the clock mechanism in China’s merger filing review regulations can improve the review’s efficiency, reduce repetitive procedures, and promote the rational use of enforcement resources. On one hand, a stop the clock mechanism can improve the flexibility of the review process and avoid the loss of review time due to reasons attributable to the notifying parties, which can help improve the review efficiency. On the other hand, in complex cases which may have competition concerns, a stop the clock mechanism can reduce or avoid procedural pull and refile procedures due to the exhaustion of the review period and thus optimize the use of enforcement resources, so that the parties and the antitrust enforcement agency are able to put more effort into the substantial review of the transaction.
Practically speaking, it is currently difficult for the antitrust enforcement agency to complete reviews for transactions with competition concerns (especially those involving conditional remedies) within a 180-day review period. According to decisions regarding conditionally-approved cases published by the antitrust enforcement agency since the Anti-Monopoly Law came into effect, the agency has made conditional approval decisions on 55 transactions, 28 cases of which have been pulled and refiled at least once. 23 of the 27 conditional approval cases concluded since 2017 have been pulled and refiled at least once.
2. Possible adverse effects of the stop the clock mechanism
Although introducing the stop the clock mechanism can reduce to a certain extent the complexity of the review process for conditionally approved cases, the lack of specific and clear regulations on the applicable conditions may lead to undue extensions of the review period, thereby reducing the transparency and predictability of the review process and creating greater uncertainty for undertakings.
Compared with the stop the clock mechanisms already applied in the EU, the Amendment further expands the application scope of the mechanism, with rather general wordings in the provision and a lack of remedies or penalties for the possible impact caused by a suspension to the review period. There may therefore be some difficulty regarding the understanding and application of the relevant rules by the antitrust enforcement agencies and undertakings.
III
Matching Rules for the Stop the Clock Measure in the Draft Review Provisions
Corresponding to the Amendment, the Draft Review Provisions released by SAMR have simultaneously added the matched detailed rules for the enforcement of the stop the clock mechanism. Such rules perfect and supplement the overall principles set out in the Amendment. They help the antitrust enforcement agency enhance the flexibility and efficiency of the review by applying the stop the clock measure while minimizing the uncertainty caused by such measures and protect an undertakings』 reasonable expectations of the law.
1. Adding the rules in terms of the start and end time of the suspension period
The rules for calculating the start and end time of the suspension period have been added in the Draft Review Provisions, which shall also be notified by the antitrust enforcement agency in writing. This clarification mitigates any risk of making the suspension period unclear for the undertakings.
2. Further explaining the application caused by an undertaking’s failure of supplementing the notification materials
The Draft Review Provisions supplements the antitrust enforcement agency’s obligations under clause 1 of Article 32 of the Amendment to restrict the application of the review period suspension due to the undertaking’s liability (i.e., if the notifying party fails to supplement the materials within the time limit set by the agency and such failure is not caused by real difficulty), which follows the same legal principles within EU regulations. Such further explanation provides guidance for antitrust enforcement agencies to clearly measure the situation when the clock needs to be stopped.
3. Further explaining applications caused by new circumstances or facts that have a material impact on the review
The Draft Review Provisions add that the notifying parties have an obligation to proactively report the new facts or changes that have occurred during the review period, while the antitrust enforcement agency shall verify such new facts and can stop the clock if the review cannot be carried out without verification. While the current clause 2 of Article 32 of the Amendment takes an objective way to assess whether to stop the clock, we suggest following the similar principle with clause 1, i.e., to only stop the clock if such new facts/circumstances occur due to the undertaking’s liability.
4. It is advisable to further restrict the application when necessary to further assess the restrictive conditions
While reclarifying that the clock can be stopped upon an undertaking’s request if the agency needs to further assess the remedies to be attached to the transaction, the Draft Review Provisions do not provide further explanation to clause 3 of Article 32 of the Amendment. While this clause has practical significance in addressing the tight review period for specific complex cases, it is materially different from the rules in other jurisdictions (e.g., the EU) and follows different legal logic, i.e., not for the reason attributable to the undertakings. Therefore, we suggest stipulating a specific time limit to the suspension period under clause 3 of Article 32 of the Amendment in the Draft Review Provisions.
IV
Conclusion
The stop the clock mechanism is a new attempt for China's merger filing review system. Its purpose is to avoid delays in the review process and the waste of law enforcement resources due to reasons attributable to the notifying parties. The stop the clock mechanism can effectively enhance the flexibility of the review system, improve the review efficiency, and optimize the use of law enforcement resources, but it may also increase the uncertainty of the review system and reduce an undertakings』 ability to make business decisions based on reasonable expectations. The Amendment of the Anti-Monopoly Law has been completed and will soon be implemented. Accordingly, the amendments of the subordinate regulations including the Review Provisions are also in progress and are expected to come into force soon with the Amendment of Anti-Monopoly Law, to provide more specific guidance for the interpretation and application of the stop the clock measures and other newly established measures.
Xiaohua Sara Chen
Counsel
chenxh@junhe.com
Practice Area：
Corporate and M&A
Competition
Xiaoyao Yao
yaoxy@junhe.com
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