Issues of administrative approvals
For purposes of this chapter, we understand “administrative approvals” to mean any and all types of consents, confirmations, authorisations, entries in registers, permits, licences or concessions issued by public administrative authorities, required for performance of a given type of economic activity or for performance of specific actions within economic activity, or to make specific use of certain assets.
The variety of administrative approvals required across specific sectors results from the specific types of activity and associated risks. It is generally accurate to say that the greater the risk associated with a given activity, the greater the regulation of the activity and the intensity of oversight of the activity by public administrative authorities.
For example, the following administrative approvals might be involved:
- Concessions, licences or permits for conducting specific types of:
- Concession to conduct business involving production and trade in explosives, weapons, ammunition, and goods and technologies for military or police purposes
- Concession to operate air transport
- Permit to operate a public pharmacy
- Licence to provide road transport
- Permits to conduct specific activities as part of economic activity:
- Permit for production of strictly controlled medicinal products
- Permit for retail sale of specific types of alcoholic beverages at a specific location
- Consent for specific use of assets:
- Approval of an establishment for specific food production
- Consent to operation of machinery and equipment subject to technical oversight
- Entries in register of regulated activity:
- Entry in the register of healthcare entities
- Entry in the register of telecommunications enterprises
- Other approvals
- Permit to operate in a special economic zone
As a rule, administrative approvals are issued in the form of an administrative decision, i.e. an act addressed to a specific entity which is the applicant and a party to the administrative proceeding. The decision resolves the matter on the merits and rules on the applicant’s rights and/or obligations.
Administrative decisions are not transferrable unless otherwise provided by a specific regulation. This rule is based on the construction under which an administrative approval is issued to a specific entity which has been checked by the administrative authority in subjective and objective terms and given a positive rating as an entity ensuring proper performance of the specific activity or action.
Usually, during realisation of the transaction, there is an expectation that the transaction will not in any way affect the uninterrupted operations (production) of the entities involved in the transaction, whether during the transaction or after the closing.
But because the rights obtained under administrative approvals are held by a strictly defined entity and are not subject to automatic transfer, it must be verified whether and when the future acquirer will obtain comparable rights in order to make full use of the acquired assets.
There is no one single rule concerning transfer and continuing validity of administrative approvals as a result of transactions.
To assess the risk connected with administrative approvals, it is necessary in each case to consult the regulations governing the specific approval, in light of the type of transaction planned. These regulations specify the situations in which the administrative authority must, or has the discretionary right to, withdraw or limit the approval. If the transaction will give rise to circumstances which under the regulations provide a basis for withdrawal or limitation of the approval, that is an identified risk.
The least transaction risk associated with administrative approvals will occur in M&A transactions involving a change in shareholders (share deal).
As a rule, the addressee of an administrative approval is a legal person, i.e. the company. The administrative approval confirms the company’s right to conduct a specific type of activity or specific action.
Thus, most often, a mere change in shareholders, without disrupting the integrity of the company that is the addressee of the approval, will not affect in any the entitlement awarded to the company.
Sometimes, however, depending on the type of administrative approval, a share deal can potentially affect the continuation of the entitlement. This will occur in situations where the identity of the shareholder, its attributes or qualifications, are relevant to retaining the approval.
An example would be a concession for radio or television broadcasting, which may be withdrawn if a different person assumes direct or indirect control over the broadcaster; similarly with respect to a concession for production and trade in explosives, arms, ammunition, or goods for military or police uses. When seeking such concessions, a list of shareholders is submitted along with the other elements of the application. After obtaining the concession, the holder is required to notify the authority within 14 days of a change in the state of facts or law with respect to the information contained in the application for the concession and the documents enclosed with the application, arising after issuance of the concession. If the authority finds that the change in ownership on the part of the concession holder will impact state defence and security or the safety of citizens, it may withdraw the concession.
Risks connected with administrative approvals generally arise in connection with transactions involving transfer of assets, an enterprise or an organised part of an enterprise.
In the case of sale of an enterprise, the enterprise is carved out of the assets of the company that is the addressee of the approval. If the enterprise includes concessions, licences or permits (Civil Code Art. 551), such approvals are subject to general succession. Thus the acquirer may apply to the administrative authority for issuance of the same concessions, licences or permits to the acquirer. The concessions, licences or permits issued in this manner will constitute a continuation of the original approvals, but reflecting the change in the identity of the holder.
A more difficult situation arises when the functioning of the enterprise requires approvals other than those expressly identified in the Civil Code as concessions, licences or permits. These could involve for example a decision by the sanitary inspectorate approving an establishment for food production, or a decision of the technical supervision inspectorate permitting operation of specific equipment, marketing authorisation for a medicinal product, or entry in the register of telecommunications enterprises. These approvals, unlike those listed in Civil Code Art. 551, will not be subject to general succession. In that situation, the acquirer of the enterprise will have to apply for issuance of an approval in its own name.
Corporate merger, division or conversion
In the case of a conversion of corporate form, the transfer of administrative approvals will work similarly as in asset deals.
Within general succession, administrative permits, concessions and allowances pass to the acquiring, newly formed or converted company under Commercial Companies Code Art. 494, 531 or 551, respectively. But the list of approvals subject to succession is limited to the permits, concessions and allowances and there is no basis for freely expanding this list.
This means that newly created entities will have to expect the need to apply on their own behalf for approvals required for their activity which cannot be obtained under the rule of general succession.