Hungary: Changes to Competition Act on the horizon

22 October 2013 | newsletters

The Hungarian competition act currently deviates from the EU competition law regime in several noteworthy aspects. However, Hungary is about to take a further step to bring its rules in line with EU rules. Proposed amendments to the country’s Competition Act ("CA") are currently pending before the Hungarian Parliament. One of these changes affects the suspension clause in merger control proceedings. Such clause is to be firmly introduced, but the proposed changes raise some questions.

The suspension clause

The current Hungarian CA does not contain an explicit suspension clause, i.e. it does not explicitly prohibit the implementation of a transaction (that meets the turnover thresholds) before its approval by the Hungarian competition authority (GVH).

Instead, the CA currently

  1. sets out that the GVH's (i.e. third-party) approval is required for the coming into existence of the contract resulting in a concentration. This provision, however, is commonly interpreted to mean that the closing of a transaction without prior approval is permissible at the parties' own risk, as long as merger control approval is obtained subsequently, as such approval renders the contract to be deemed to have come into existence retroactively; and

  2. does not provide for any fines if a notifiable transaction is closed without prior merger control approval (but rather, only for the failure to notify / belated notifying of a notifiable transaction).

To fill this legal loophole, it has been proposed to include the following provisions in the CA:

  • a notifiable concentration may not be implemented without the prior authorization of the GVH; in particular, voting rights and the right to appoint the management may not be exercised without prior approval by the GVH. 
    This prohibition does not apply to the conclusion of the contract bringing about the concentration or the issuance of a public take-over bid or - on the basis of the above - the performance of such legal acts and declarations that are necessary for bringing about the concentration which do not yet result in exercising of the control rights by the acquirer.
  • upon a prior reasoned request of the party obliged to file the notification, the GVH may allow the exercising of control rights, especially if it is necessary for maintaining the full value of the party’s investment. 
    Such derogation from the suspension clause might be made subject to conditions and obligations (limitation of control rights); at the same time, the GVH may oblige the parties to submit the documents on exercising their control rights (e.g. resolutions, etc). In its decision about the concentration, the GVH states whether the exercising of control rights was in line with the limitation of control rights which it had ordered earlier. 
    Contrary to the EU Merger Control Regulation ("ECMR"), it is unlikely that the parties would be entitled to apply for the derogation before notifying the planned concentration to the GVH.
  • If the GVH does not authorize the concentration, any act or declaration resulting from the exercising of control rights in breach of the suspension clause (or in breach of the above imposed conditions and obligations) is null and void; the party exercising control rights in breach of the suspension clause or in breach of the conditions or obligations may not refer to the nullity and is liable for damages arising from the legal consequences of nullity.
  • a daily fine (min. HUF 50,000 -- max. HUF 200,000, with the total amount of the fine being capped at 10% of turnover) calculated until the start of the competition supervisory proceeding may be imposed for implementation of a merger which has not been notified. This maximum daily fine of HUF 200,000 is identical to that applied by the current rules for late notifying, while the minimum amount is newly introduced.

In view of the introduction of a suspension clause, the proposal foresees a shorter deadline (30 days instead of the currently applicable 45 days) for the GVH to assess a concentration in Phase I (while the deadline for a full - Phase II - proceeding remains four months). It has yet to be seen to what extent the derogation will be resorted to, considering the shortening of the Phase I deadline for the assessment of the concentration on its merits.

At first sight, these changes seem by and large in line with the ECMR.

Further changes

The bill contains several other proposed amendments to the CA also affecting other areas of competition law, including cartel proceedings. These include the introduction of a settlement procedure (which can lead to a decrease by 10% of the fine imposed against an undertaking which committed an infringement) and changes to the rules of access to file (by allowing a wider access to the file than the currently applicable provisions).