EU & Competition

Faster Authorisation of a Transaction but Higher Risk of a Fine in Merger Control Proceedings?

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.

Fur­ther har­mon­i­sa­tion

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.

Remain­ing dif­fer­ences

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.

As of July 2014, a notifiable concentration may not be implemented without the prior authorisation of the Hungarian Competition Authority. A daily fine (min. HUF 50,000, max. HUF 200,000, with the total fine capped at 10% of turnover) may be imposed for implementing a merger that has not been notified.