The Ecuadorian competition regime, contained in the Organic Law for the Regulation and Control of Market Power (“the Law”) was enacted on October 2011, implementing the first domestic regime of its kind in the country. In turn, the Regulation to the Law (the “Regulation”) was enacted on 7 May 2012, and was recently reformed on 18 October 2022 with some changes of very significant importance for the merger control regime that will be evaluated later in this document.

The current Superintendent has remained in office on an interim basis since November 2023, when the five-year term prescribed by law for holding the position expired, and a replacement has yet to be appointed. The next step in this political transition is for the Council for Citizen Participation and Social Control (an Ecuadorian government body responsible for regulatory appointments) to select from a list of three candidates proposed by the President, from which the new Superintendent will be appointed. Based on a reasonable analysis of the country’s current situation, it is anticipated that this process will be reactivated in the coming weeks.

In general, the Superintendence of Economic Competition (SCE, or “the Authority”) acts through two bodies when assessing a merger transaction.

First, the investigation authority known as the National Intendancy for the Control of Economic Concentrations (“the Intendancy”), which oversees the investigative phase and has the power to issue a preliminary report and recommendation from the results obtained during the investigation phase with respect to the impact of a possible merger operation in the Ecuadorian market.

Second, the First Instance Resolution Commission (FIRC), which is the body of the SCE in charge of accepting, subordinating, denying or inhibiting merger control operations based on the findings of the investigative phase by the Intendancy.

Introduction

In general, competition law is built on the basis of two scenarios of control. First, the ex ante merger control regime; and second, the detection and sanction, ex post, of operations that, being deemed notifiable concentrations by the terms of the Law, have not been notified to the Authority, representing a gun-jumping scenario.

Of course, in the middle of these poles there is a wide spectrum of situations that make up the merger control regime, such as the concept of change or taking of control, the thresholds that trigger the obligation to notify and obtain approval prior to closing, the deadline to do so, and so on.

Throughout this contribution, the most relevant elements of the Ecuadorian competition regime will be reviewed. In addition, some relevant considerations that have been observed in the recent practice of the Authority will be covered to provide an overview of the functioning of the merger control system in the country.

Definition and Form of an Economic Concentration

Article 14 of the Law provides that an economic concentration constitutes the “change or takeover of control” of one or several companies or economic operators through the performance of acts such as:

• mergers;
• assignment of all effects of a trader;
• direct or indirect acquisition of the ownership or any right on shares, equity shares or debt securities that give any rights of being converted into shares or equity shares or have any influence on the decisions of the issuing person when such acquisition gives the acquirer the control of or substantial influence over that person;
• interlocking joint administrations; and
• any other agreement or deed that may transfer factually or legally to a person or economic group the assets of an economic operator or give it control or influence on the adoption of ordinary or special management.

In Ecuador, the merger control regime is exercised ex ante by the SCE. This prior notification system is designed for the Authority to identify those operations that could generate anticompetitive effects in the affected relevant market. Depending on the results of its analysis, the Authority may (i) approve the concentration without conditions; (ii) approve the transaction with behavioural or structural remedies; or, (iii) deny the transaction.

During 2023, the Ecuadorian competition Authority published 17 decisions on merger control operations that were notified. Based on the above, 11 unconditional clearance decisions were issued, five inhibitory resolutions, and one transaction was subordinated to remedies.

It is positive that the Authority has made efforts to ensure that its decisions are more widely publicised, and that all participants in the merger control ecosystem can have access to non-confidential versions of the decisions taken and even of the analyses carried out by the Intendancy when access to or copies of its reports are requested.

Operations Not Deemed Economic Concentrations, Based on the Law

Article 13 of the Regulation states that the following cases shall not be considered economic concentrations:

• the holding, on a temporary basis, of shares, participations or fiduciary rights by entities whose normal activity includes the transaction and negotiation of securities for their own account or for the account of third parties, which have been acquired for resale, provided that the voting rights attached to such shares and fiduciary rights are not exercised for the purpose of determining the competitive behaviour of the economic operator but for the purpose of preparing the realisation of its assets or of the shares, units or fiduciary rights, and provided that this realisation occurs within one year from the date of acquisition;
• when control is acquired by a person by virtue of a mandate conferred by the public authority in accordance with the regulations relating to liquidation, bankruptcy, insolvency, suspension of payments, arrangement with creditors or other similar procedures; and
• when control is acquired by a person by virtue of the application of seizure or other administrative procedures, in accordance with the law.

Exemptions

Article 19 of the Law provides an exhaustive list of those transactions that are exempt from the obligation to be notified to the competition Authority, as follows:

• the acquisition of shares without voting rights;
• the acquisition of bonds, obligations, or any other securities convertible into shares without voting rights;
• the acquisition of liquidated economic operators; or
• the acquisition of economic operators that have not had any local activity for the past three years.

In addition, in 2022, in case No SCPMCRPI.006.2022, the FIRC made important clarifications regarding conglomerate concentrations. It defined them as those that occur “between companies that do not exercise the same economic activity and where, therefore, no vertical or horizontal relationship is established between them”, considering article 16 of the Law.

The decisions of the FIRC are not binding – ie, it is not mandatory that the criteria used in one case are necessarily repeated in another. However, it is positive that the Authority issues decisions in accordance with international criteria behind which the reasoning, without being mandatory, can be replicated in analogous cases.

Concept of Conclusion of the Agreement

The moment to consider that the conclusion of one of the forms of “agreement” exemplified by the Law has occurred varies from case to case, and is fundamental in determining the moment from which the eight calendar-day filing deadline applies. In general, the Regulation prescribes the following scenarios.

• In the case of a merger, as soon as the general shareholders’ meeting of the economic operators involved, or their competent bodies in accordance with the relevant bylaws, have agreed to carry out the merger operation.
• In the case of assignment of all the effects of a trader, from the moment at which the intervening economic operators consent to carry out the operation, and determine the form, term and the conditions under which it is to be executed. When the participants are companies, the agreement shall be deemed to exist when the execution of the act in question is authorised by the general meeting of shareholders or partners, or the competent body, of the economic operators involved, in accordance with the corresponding bylaws.

• In the case of the acquisition, directly or indirectly, of ownership or any right over shares or equity interests or debt securities giving any kind of right to be converted into shares or equity interests, or to have any kind of influence on the decisions of the person issuing them, when such acquisition gives the acquirer control of, or substantial influence over, the person issuing them, an agreement exists from the moment the participants consent to perform the act giving rise to the economic concentration, and determine the form, term and conditions under which it is to be executed. When the participants are companies, the agreement shall be deemed to exist when the execution of the act in question is authorised by the general meeting of shareholders or partners, or the competent body, of the economic operators involved, in accordance with the corresponding bylaws.

• In the case of interlocking joint administrations, an agreement exists from the moment the administrators have been appointed by the general meeting of shareholders or partners, or the competent body, in accordance with the corresponding bylaws, of the economic operator in respect of which the change or taking of control is to take place.
• In the case of any other agreement or act that transfers in a factual or legal manner to a person or economic group the assets of an economic operator or grants it control or determining influence in the adoption of ordinary or extraordinary management decisions of an economic operator, an agreement exists from the moment the participants consent to carry out the act that originates the economic concentration operation, and determine the form, term and conditions under which it is to be executed. When the participants are companies, the agreement will be deemed to exist when the execution of the act in question is authorised by the general meeting of shareholders or partners, or the competent body, of the economic operators involved, in accordance with the corresponding bylaws. The existence of clauses that in any way condition the future formalisation or execution of such agreements does not provide exemption from compliance with the duty to notify.

Thresholds

According to the Law, the economic operators involved in horizontal or vertical concentration transactions in any area of economic activity are obliged to comply with this procedure, provided that one of the following thresholds is met:

• turnover threshold; or
• market share threshold.

Turnover threshold

The last and most fundamental legal reform to Ecuador’s merger control regime was on 18 October 2022 through Executive Decree 570, which amended Article 5 of the Regulation on how to interpret the “total turnover” of an economic operator.

Although the reform does not specifically refer to the merger control regime, but to a general definition of how the concept is interpreted, in practice, its greatest implications will be seen when analysing the turnover threshold in merger operations.

This will also be relevant for the purposes of calculating the amount of fines that may eventually be imposed in application of the Law. It would be appropriate that, considering this reform, the competition Authority issues an update of the form for mandatory filing to maintain uniformity in the criteria required therein, since the current templates still refer to the concept of total volume of business, without considering the relevant market in which the income is produced.

Based on the above, a merger must be notified when the total aggregate turnover in Ecuador in the relevant market affected by the transaction of all participants exceed – during the fiscal year prior to the transaction – the amount of Basic Unified Salaries (RBU) in force established by the Regulation Board. RBU is a measure of value linked to the regime of salaries in Ecuador and are expressed in US dollars. The current RBU is set at USD460 for 2024. On that basis, the turnover threshold operates as follows:

• concentrations that involve institutions in the national financial system and the stock market, RBU3.2 million (USD1.472 billion);
• concentrations involving insurance and reinsurance companies, RBU 214,000 (USD98.440 million); or 
• concentrations that involve any other operator other than those mentioned in the first two points above, RBU200,000 (USD92 million).

The relevant markets affected by the transaction are those in which the target is active. If the acquirer is not active in these markets (ie, there is no overlap), only the turnover of the target is considered.

Market share threshold

This affects concentrations involving economic operators undertaking the same economic activity, and where the operation will result in a market share equal to or greater than 30%being acquired or increased at national level or in a narrower defined geographic market within Ecuador.

Market share increment is not required for a filing to be triggered in circumstances where the acquisition involves an acquirer with no local market share but where the target has a local market share equal to or exceeding 30%. Therefore, it shall be understood to include those independent participants acquiring a company or business unit which already has said percentage of market share in the relevant market.

However, when that is the case (acquirer with no local market share), a first-landing exception can be alleged to benefit from a faster clearance proceeding (Phase I).

Request by the Superintendency

The Superintendency can still request that economic operators involved in a transaction not meeting the above conditions make a notification for informational purposes. In such cases, the economic operators will have fifteen days to file the notification.

Failure to Notify/Gun-jumping

The Law provides a number of scenarios for fines for failure to notify, or late notification, of an economic concentration.

First, the following are considered minor infractions: (i) late notification of the concentration (outside the eight calendar-day term starting from the date of conclusion of the agreement); and (ii) failure to notify a concentration required ex officio by the SCE. Minor infringements are subject to a fine of up to 8% of the total turnover of the offending undertakings in the year immediately preceding the year in which the fine is imposed.

Second, it is considered a serious infringement to implement a concentration before it has been notified to the Authority; or before it has been authorised. Serious infringements are subject to a fine of up to 10% corresponding to the annual turnover.

Third, it is considered a very serious infringement to execute acts or contracts resulting from a concentration before it has been notified. Very serious infringements are subject to a fine of up to 12% corresponding to the annual turnover.

In addition to the aforementioned fines, the Authority may also order a divestiture of the transaction when this is the only way to restore competition. This sanction has not been imposed in practice.

In the case of very serious infringements, the Authority may impose personal fines of up to USD230,000, on each of the legal representatives or directors of the infringing company. This sanction has not been imposed in practice.

Procedure

There is a two-phase 60-day investigation process. Phase I investigation takes place during the first 25 business days and Phase II from business days 26 to 60 (or 120 if the proceeding is extended). Transactions will be cleared at the end of Phase I if the Superintendency concludes they do not present any anti-competitive risk.

If further analysis is indeed required, the investigation will then continue to Phase II. It is customary for the Authority to issue several requests for information prior to officially starting the clock to obtain additional time. Additionally, the Superintendency can “stop the clock” for up to 45 business days.

On average, clearance in Ecuador is taking anywhere from three to five months from the date of filing for non-problematic transactions and approximately six to eight months where remedies may be required.

Form for Mandatory Filing

A form for mandatory filing designed by the competition Authority must be completed at the time of entering the notification of a merger operation:

The following documents must be attached to this form:

• a copy of the documents related to the draft legal act that will give rise to the merger, with their translation;
• documents that support the date of conclusion of the agreement that will give rise to the change or acquisition of control;
• financial statements for the last fiscal year of each of the economic operators involved in the merger;
• a confidentiality request regarding the information provided or part of it;
• non-confidential extracts of the information that has been requested to be classified as confidential;
• a sworn statement that the information provided in the notification and its attached documents are true, and that the opinions, calculations and estimates have been made in good faith; and
• analyses, reports and studies considered relevant (if applicable).

Proof of payment of the fee for the analysis and study of the economic concentration operation.

These and other documents, such as certificate of legal existence of the economic operators, powers of attorney and translations will need to be filed with the corresponding apostille.

Filing Fee

All merger control operations that are notified to the SCE are subject to the payment of a fee for the analysis and study of the transaction. This value changes annually depending on the costs and expenses incurred by the Authority, and depending on whether the notifications are mandatory or informative.

For 2024, the fees are as follows:

• mandatory pre-notification of a merger transaction: USD26,241.02;
• notification for informative purposes in a merger transaction: USD13,120.51.

Meetings With Officials of the Superintendency During a Merger Process

The Superintendency will not accept parties’ requests for a meeting when the subject matter to be discussed relates to a notification of economic concentration that is being processed, or at the stage of filing or resolution of an administrative appeal. (Limitation introduced through Resolution No SCPM-DS-2023-07 from 31 January 2023).

The Intendency may, however, summon parties to work meetings during the investigation and resolution phases if it requires this.

Strengthening Control and Monitoring of Non-notified Economic Operations

One of the objectives of the Ecuadorian competition Authority is to constantly monitor economic concentration operations that have not been notified. For this purpose, different mechanisms are used, for example, the permanent review of national and international news, the cross-checking of information with other control authorities and attention to economic operators’ own information.

In this sense, the most recent gun-jumping investigation began on 26 April 2022, resulting in a decision on 20 April 2023. The offending entity was Ecuadorian company Unión de Concreteras, UNICON UCUE, which received a very serious sanction in the form of a fine of USD159,397.73 from the Authority for acquiring the assets of Mezcladora y Distribuidora de Hormigón, MEZCLALISTA S.A. without prior notification.

The gun-jumping investigation, which has resulted in the highest sanction by the Ecuadorian competition Authority, started on 1 September 2020 and concluded on 11 June 11 2021 with foreign conglomerate Sia Products being fined roughly USD2.7 million for failing to notify the establishment of a new trust that gave it majority control over a paper products maker.

Recent Relevant Decisions

In its recent practice, the Authority has issued two decisions, in cases No SCE-CRPI-12-2023 and No SCE-CRPI-1-2024, which are complex and relevant examples for study. Both decisions announce a certain tendency of the FIRC to look at the effects of foreign-to-foreign transactions in isolation when reviewing whether or not they should be notified.

In the view of the Authority in these cases, the fact that the imports of products have not been carried out directly by one of the notifying parties but by an intermediary means that the trader’s transactions have not been carried out in Ecuador.

This is not a trivial matter. It is relevant because, even if, in certain cases, there are no direct effects or a nexus of transactions with Ecuador, these may be present even indirectly, and have implications on competition and markets in the country.