Produced in partnership with Asgari & Associates
A conversation with Anahita Asgari Fard, Managing Partner at regional law firm Asgari & Associates on key issues on merger control in Iran.
Table of Contents
Until 2007, Iran did not have a specific law containing the merger control concept rather than the law on the merger of Cooperative Companies which did not cover another type of companies. In 2007 The Act of Implementation of The Constitution’s Article 44 Policies (The Privatization Act) recognized the concept of the merger in article 1 (16). Merger control is the subject of articles 47 and 48. The Executive Instructions of Articles 47, 48, and 49 of the Privatization Act (The Merger Control Executive Instructions) was ratified in 2018.
As one of the major developments in the merger control regime of Iran, under article 53 of the privatization act, the Competition Council (the Council) was created to achieve the objectives of chapter 9, which is “Promoting Competition and Prohibiting Monopolies”. In recent years, the Council’s activities and its role in the Iranian economy is increasing exponentially. According to article 62 of the Privatization Act, the Council is the only authority to probe anti-competition procedures and the responsibility to start an investigation on anti-competition procedures and make decisions. It will do that either itself or based on complaints raised by legal or real entities, including Prosecutor General or Local Prosecutor, State Audit Court, General Inspection Authorization, section adjustor, government-affiliated organizations, and institutions, guilds groups, the association of support for consumer rights and non-government organizations. The Executive Bylaw related to the Methods of Search and Investigation. Handling the Complaints and Enforcing the Decisions of the Council was approved in 2016.
In addition, to handle the professional, executive, and other affairs of the Council, the National Competitive Council has been formed to serve as an independent government institution.
Furthermore, article 105 of The Fifth 5 Year Development Plan (2012-2016), permitted the merger of companies to the extent that it does not cause centralization and monopoly. In other words, the merger activities that companies undertake should comply with the Competition Law ( Articles 43 to 84 of The Privatization Act ), instructions and regulations issued by the Competition Council, and must not contradict the principle of prohibition of monopolies.
The latest regulation concerning the merger control in Iran is the Bylaw on Article 15 of the Law on Maximum Use of Country’s Production Capacity ( The Law on Encouraging Cooperation’s of Companies ) 2021. This bylaw defines merger and joint venture as two methods of company’s extensions. . The objective of the bylaw is to protect and promote the establishment of merger and joint venture entities, by facilitating and obtaining financial credits and tax exemptions for such procedures. According to this bylaw, the merger of the companies in line with their articles of association, decision of the stakeholders, and other relevant regulations is permitted. To control such mergers, the law prohibits mergers that:
As Iran’s legal system is developing, the parliament sees the merger as an important issue that should be addressed more comprehensively. Thus, in the new bill of Commercial Code of Iran 2005, Iranian legislators have allocated one part of the bill to the merger and merger control. The bill has yet to be ratified by the parliament.
The concept of the “decisive control “control test is not defined under Iran’s merger control law. According to the Privatization Act, no legal or real entity will be authorized to own capital or share of other companies or firms in a way that would hinder competition in one or more markets. However, there are some exceptions:
The controller firm or company is defined in the Privatization Act as: “A firm or company which controls economic activities of the other firms or companies using wholly or partly acquisition of stocks, assets, management, etc. Controlling shares is the least number of shares that enables the holder to determine the majority of the board of director’s members and managing shares is the number of the shares of a company whose holder is authorized to nominate at least one member to the boards of Directors as stipulated in the Articles of Associations.
Regarding the non-governmental banks and financial and credit institutions and other intermediary monetary firms, the permitted ceiling of ownership of such companies (directly or indirectly) is %10. However, the Central Bank of Iran can permit acquiring up to %33 of the shares in some cases. Any transactions above the mentioned ceiling without permission from the Central Bank can be considered null and void by the authorities.
Regarding minority shareholdings, Iran’s merger control regime is silent. However, it has attracted legislatures’ attention in recent years, because of its importance and that issue is being debated in the parliament.
Article 43, Chapter 9 of Privatization Act (Facilitating Competition and Prohibiting Monopoly) stipulates that all legal and real entities including public, government, cooperative and private sectors will be subject to provisions of the chapter. Therefore, while an express authorization of the merger control authorities is not required for the incorporation of a Joint Venture (JV), the JV activities should comply with the Privatization Act and anti-competition regulations. In other words, activities undertaken and agreements made by a JV should not cause centralization or monopolies according to the competition law.
Furthermore, any provisions distorting competition are not allowed to be included in the JV agreements according to Article 44 of the Privatization Act. Moreover, none of the directors, advisors, and staff of the JV can currently hold a similar position in a related company or firm or similar profession to restrict or disrupt competition in one market or more. Also, no JV is authorized to own capital or share of other companies or firms in a way that would hinder competition in one or more markets.
According to Article 1 of the Law on Encouragement of the Cooperation of Companies 2021, non-structural, cooperative JVs are allowed as a civil partnership and must be registered with the Registration Office and comply with Islamic principles, the principle of damage prevention, and prohibition of monopolies.
The main criteria for prohibiting a merger transaction are stipulated in article 48 of the Privatization Act. The forbidden acts, according to the above-mentioned article, that may hinder competition are:
Furthermore, in the event the below situations happen as a result of a merger, the merger is considered anti-competitive:
The scope of extreme market centralization is specified by the Council in The Merger Control Executive Law 2018. To measure market concentration, the Herfindahl-Hirschman Index (HHI) is used. According to Article 2 of the said law, extreme centralization happens when:
The Council has the authority to identify instances of anti-competitive procedures and exemptions covered by the Privatization Act and make decisions on which procedure is caught by merger control law.
Foreign to foreign transactions are principally subject to the Iranian merger control if the criteria above are met and the transactions are considered harmful to the competition in Iranian territory. Specifically when foreign entities involved in the merger transactions have branches or subsidiaries in Iran. However, while the branches or subsidiaries or a JV established by such foreign entities does not have a significant impact on the Iranian market and will not in foreseeable future (after the merger transaction), they are not caught by the Privatization Act.
As is mentioned in question 4, the required threshold is indicated in the Merger Control Executive Instruction Law 2018. The Council will consider the HHI Index to determine the scope of centralization. The parties of a merger can inquire about the relevant HHI score related to their market before entering a merger agreement.
Under Article 49 of the Privatization Act, which uses the verb ” can “ instead of “ shall “ asking the Council for clearance is not mandatory, therefore Iranian Competition Law has a voluntary regime of merger control. Many substantive issues regarding mergers in Iran are not addressed by the privatization act or any other laws, therefore, they are recognized and enshrined under the “freedom of contract” principle and governed by the contract law. Hence, closing should not be suspended pending clearance.
However, the Council has the authority to investigate and research events of breach of competition law and is empowered to autonomously impose fines and other remedies for the infringement of competition law. Therefore, it is recommended that parties involved in the merger, would apply for the Council clearance before initiating the merger procedure.
The Council is the only authority to probe anti-competition procedures and has the responsibility to start an investigation on anti-competition procedures and make decisions. In some cases, the merger is allowed regardless of being categorized by the Council as an anti-competition activity. For instance, when avoiding the stoppage of the activities of firms and companies or their access to technical know-how will not be possible other than through merger. According to the Merger Control Executive Law 2018, the Council is authorized to recognize what kind of merger procedures fall under this exemption.
No prohibition is ordained to close deals before local clearance locally or globally. However, the Council has the authority to review transactions and mergers whether on its merit or following any reports about the transaction and if necessary, void or nullify the agreement. So, actions or matters that cause an anti-competition activity inside Iran’s territory can be caught by the Council. Therefore, it is suggested that, if a deal is considered to be effective on the Iranian market and may distort competition in Iran, parties should apply for the Council clearance before closing.
It is not mandatory in Iran’s merger control regime to notify the Competition Council of a transaction or an agreement. Therefore there is no deadline for filing a notifiable transaction. However, in the event a firm or company submit its request to the council voluntarily, the Competition Council will have the responsibility to investigate the case within a maximum of one month from receipt of due requests and, inform the applicant of the result in a written way or by sending a reliable message. If the inquiry-related actions are found not being harmful to the competition and if no response is received from the Competition Council within the specified time, the transactions will be considered proper.
If the pre-merger application is not submitted before the transactions, the Competition Council can investigate and study the activities of the company by itself or after receiving a complaint any time after the completion of the transaction or during the merger activity. Once the anti-competitive activity is being proved by the Competition Council’s investigations and searches, they can enforce penalties and other remedies on the company. They can even announce the merger activity null and void in some serious cases. The decision of the Competition Council can be appealed to the Retrial Board by the beneficiary. The deadline for appealing the decision is 20 days for Iranian residents and two months for those residing outside Iran. The decision of the Retrial Board is deemed final.
Article 49 of Privatization Act says the firms and companies can apply for the confirmation of the Competition Council before the merger. The person responsible can be managing director , or a person who is responsible for submitting the request by the minute of the meeting in which the principles of merger is agreed and a letter of intent is signed .
Pursuant to the Merger Control Executive Law , ratified by the Competition Council in 2018 , persons seeking inquiry in line with article 49 of the Privatization Law, should submit to the below information to the Council in the specific forms ( along with the latest financial statements and a comprehensive feasibility study report regarding the impact of merger on the relevant market ) :
The applicable filing fee is not recognized for the pre-merger inquiries by the Bylaw. However, in the event of submitting a complaint against an anti-competitive merger activity or agreement, the expenses of the procedure until issuing the final decision is beard by the National Competition Council. (The bylaw on implementing method of search and investigation, handling the complaint and enforcing decisions of the Competition Council 2016).
As it is mentioned before, the merger control regime in Iran is not mandatory, therefore, no penalties are prescribed for failing to notify or suspend transactions. But, it is worthy to mention that if the Council finds any infringement of the competition regulations after receiving complaint or by deciding to investigate the merger company’s acts, it can decide on one of the following remedies and penalties:
In addition to above remedies, the most severe punishment the Council can consider in the serious cases is mandating suspension or ordering annulment of any sort of merger deemed contrary to the Competition Law, or mandating disintegration of the merger companies.
According to the privatization act, in general, the Competition Council is the only responsible body regarding merger control regime. However, in some specific areas, there are other regulatory bodies that have specific duties according to the relevant provisions.
For example, beside the Council, there is The Communications Regulatory Authority, that has the specific duty to control the merger system according to the relevant provisions in the telecommunication industry. Furthermore, Central Bank of Iran in some cases has the authority to issue the license for merger of companies in the banking and finance industry.