The Regulation of Economic Concentrations in Nicaragua

Jul 20, 2020 | English Blog

In accordance with Article 24 of Law 601 Law for the Promotion of Competition, approved on September 28, 2006, published in the Official Gazette No. 206 of October 24, 2006, hereinafter referred to as “The Law”, a Concentration is any act by virtue of which economic agents merge, consolidate or combine their businesses in whole or in parts, or that implies the acquisition or control of part or all of an economic agent by another.

Specifically, the Law contemplates the following forms of concentration:

  1. When economic agents that have been independent of each other carry out among others: acts, contracts, agreements, whose purpose is the merger, acquisition, consolidation, integration or combination of their businesses in whole or in parts, ceasing to be independent;
  2. When one or more economic agents that already control at least other economic agents acquire by any means direct or indirect control of all or part of more economic agents; and
  3. Any other agreement or act that tacitly or legally transfers to an economic agent the assets of a company or gives it decisive influence in the adoption of ordinary or extraordinary management decisions of a company.

Now, the important aspect at this point is to verify as an economic agent who intends to carry out a concentration operation, if it is within the thresholds established in Article 25 of the Law, and if they are exceeded by the concentration it is mandatory to submit an application for authorization before the National Institute for the Promotion of Competition (PROCOMPETENCIA), otherwise it can be sanctioned for violation of Nicaraguan legislation.

The thresholds are as follows:

  1. As a result of the concentration, a quota equal to or greater than twenty-five (25%) percent of the relevant market is acquired or increased; or
  2. The economic agents to concentrate have combined gross income above an average of 642,857 minimum wages.

It is clear then that under Article 25 of the Law only those operations that exceed these levels or thresholds must be notified before PROCOMPETENCIA; nevertheless, keep in mind that the Law prohibits the concentrations of economic agents whose effect is or may be to diminish, restrict, damage or prevent free economic competition with regard to similar or substantially related goods or services; except for said prohibition the concentrations that apply on an economic agent that is in a state of insolvency.

To investigate an operation of economic concentration, article 27 of the Law establishes the analysis criteria that should be observed by PROCOMPETENCIA among which are: pricing, creation of barriers to the entry of new competitors and substantially facilitating the participants in said act or attempt the exercise of anticompetitive practices.

If an economic Agent has complied with the due process of notification and the concentration has been approved, Article 28 of the Law indicates that said concentrations cannot be subsequently deconcentrated, however, there is a possibility that the request for concentration will be approved on a conditioned basis, so that economic agents will be monitored by the authority to ensure compliance with these conditions.

In the case of partial or conditioned authorization, PROCOMPETENCIA may establish the following conditions for economic agents, among others:

  1. Carry out a certain behavior, or refrain from doing it.
  2. Dispose of certain assets, rights, social participations or shares to third parties.
  3. Eliminate a certain production line.
  4. Modify or eliminate terms or conditions of the acts they intend to celebrate.
  5. Obliging to perform acts aimed at encouraging the participation of competitors in the market, as well as giving access to or selling goods or services to them; or
  6. Others whose purpose is to prevent the concentration from decreasing, damaging or preventing competition or free competition.

The resolution that denies the authorization of a concentration must indicate the reasons to justify that it would cause, if authorized, the effect of diminishing, restricting, damaging or preventing free competition in the market.

So what happens if a concentration is not notified? According to Article 28 of the Law and 39 of the Regulations, when a concentration operation has not been subject to prior verification, PROCOMPETENCIA from the date on which it was aware of it, must start at the request of a party, or ex officio , an investigation and if this fact is proven may send the economic agents to carry out a partial or total deconcentration and to pay the fine established in Article 46 subsection c) of the Law, meaning a minimum one hundred minimum wages of up to maximum of six hundred minimum wages.

Finally, note that if you must proceed to submit a request for authorization of concentrations, you must do so prior to any act tending to conduct a concentration between economic agents, and in the case of concentrations derived from legal acts performed abroad, you must request the corresponding authorization before they have legal or material effects in national territory.