Faster Authorisation of a Transaction but Higher Risk of a Fine in Merger Control Proceedings?
→ Anna Turi
Hungarian merger control has been further harmonised with EU law, which helps international M&A transactions.
Recent amendments to the Hungarian Competition Act
Hungary has taken further substantial steps to harmonise its national law with EU competition law. The settlement proceeding (undertakings can receive a 10% reduction of the cartel fine) and new rules on the protection of business secrets have been introduced. Changes to the merger control rules include the introduction of the suspension clause and shortening the authority’s time frame for dealing with mergers.
Re-regulating the most important rules for mergers
The earlier system without an explicit suspension clause
The earlier Hungarian system had some loopholes. Without an explicit suspension clause it was commonly interpreted – also with views to the opposite – to mean that closing a transaction prior to merger control approval was permissible at the parties’ own risk. The civil law risk that the contract was non-existent until such clearance decision was granted was often neglected, also due to the lack of the possibility to impose a fine for closing a transaction prior to a merger control approval.
Introduction of an explicit suspension clause
The suspension clause, applicable in most EU member states and before the European Commission, was explicitly introduced into Hungarian law. As of July 2014, a notifiable concentration may not be implemented without the prior authorisation of the Hungarian Competition Authority (GVH); in particular, voting rights and the right to appoint the management may not be exercised.
Similarly to the EU merger control system, this prohibition does not prevent the conclusion of the contract or the issuance of a public take-over bid, or the performance of legal acts and declarations necessary for bringing about the concentration but that do not yet result in exercising of the control rights by the acquirer.
A way out from the mandatory waiting period? — derogation
The GVH – at the applicant’s request – may allow the exercising of control rights prior to granting the GVH’s authorisation, especially if it is necessary for maintaining the full value of the investment. Such derogation may be made subject to conditions and obligations (limitation of control rights).
However, it is unlikely that such (declaredly exceptional) derogation would often be applied for simple mergers. The 30-day deadline may prompt the GVH to grant clearance instead of using the same short time frame for issuing two decisions, granting prior control rights, then the clearance itself.
Breach of the suspension clause
In the past, no fines could be imposed for implementing a merger prior to clearance (but only for late or no notification). The new Hungarian system has introduced sanctions for both.
A daily fine (min. HUF 50,000 max. HUF 200,000 with the total fine capped at 10% of the turnover) may be imposed for implementation of a merger that has not been notified. The maximum HUF 200,000 daily fine is identical to earlier rules for late notifying.
What happens if a transaction is closed after submitting a request for authorisation but prior receipt of the clearance decision? An early closing would be assessed pursuant to the normal fining rules (maximum 10% of the undertaking’s turnover in the last financial year). It may look unfair to punish the undertakings so severely for an early closing, but the actual fine would be decided on a case-by-case basis, which could also result in imposing a low/no fine.
Abolition of the filing deadline
The 30-day deadline for the notification has been abolished with the introduction of the suspension clause. It is now in the parties’ interest to apply for the authorisation of the Hungarian Competition Authority in due time before clearance.
Shorter time frame of merger control review
The authority’s deadline for the final decision has been shortened from 45 to 30 days in a Phase I proceeding (the deadline for phase II proceedings remains four months). This is welcomed, especially considering that two levels of assessment must take place within the GVH within these 30 days – the preparation of the report by the case handlers, and the decision by the competition council. However, the 30-day deadline is somewhat misleading, as any request for further data stops the clock for the authority, making the actual deadline later.
The notion of intra-group turnover was also changed, which in the past could lead to different conclusions on (the lack of) a filing obligation for a transaction in Hungary and in the EU. Previously, intra-group turnover also included turnover between the acquirer and the target, which, after deduction from the turnover, could result in no filing obligation in Hungary – especially if the two parties were doing business with each other prior to the transaction (eg, one was a major supplier of the other). Such concentrations will now need to be notified under Hungarian rules, the same as under EU rules.
In contrary to EU merger control, Hungarian law still does not allow for prior (to signing) notification of a transaction.
The concept of pre-notification talks with the authority exists, and has now been incorporated into the Hungarian Competition Act to give such talks more weight. Practice shows that such talks can speed up the proceeding.
Summary of changes
The above amendments mostly derive from EU merger control rules, and will make the assessment and preparation of a filing for an authorisation of a transaction easier in multi-jurisdictional merger control filings.