On 1 July 2014 significant amendments to the Hungarian Competition Act (the “CA”) (the "Amendments") entered into force. The Amendments follow recent steps taken by the Hungarian Competition Authority (“HCA”) to increase the efficiency of the Hungarian merger control regime, including the introduction of a new merger notification form and amendments to the notice on the distinction between simplified (Phase I) and normal (Phase II) investigations in 2013. This article provides a short overview of some of the notable changes introduced by the Amendments affecting the Hungarian merger control regime. The Amendments will be applicable to merger notifications filed after 1 July 2014.
No completion before clearance
Prior to the Amendments, due to some rules in the Hungarian Civil Code, there was some legal uncertainty as to the validity of such actions. The Amendments have introduced an express prohibition of implementing the transaction (exercising voting rights, appointing officials, etc. by the purchaser) prior to the approval of the Hungarian Competition Authority. However, such prohibition does not affect the signing of the transaction agreement or any other necessary action under that agreement, provided that the concentration is not implemented. In the event such prohibition is breached, and the HCA prohibits the transaction (which is extremely rare in practice) all actions and dealings contrary to the prohibition will become null and void.
The Amendments enable the parties to exceptionally request the HCA’s permission to implement the merger before clearance, if (a) the parties justify that this is necessary to protect the value of the parties’ investment and (b) such prior implementation does not change existing market structures to the extent that would make it impossible or significantly more difficult to restore the competitive conditions before the merger in the case of a negative decision. To this end, the HCA is authorized to lay down conditions for exercising control and may impose obligations (including certain reporting obligations) on the parties in the decision permitting the provisional implementation of the merger, and may amend such conditions or even revoke its permission prior to implementation if the conditions prove to be ineffective. If the parties breach such conditions and the HCA prohibits the transaction, all actions and dealings contrary to the conditions set by the HCA will become null and void.
The following changes affect conditional clearance: First, the amended CA expressly refers to behavioural remedies and structural remedies that the HCA can accept. Remedies must be such as to eliminate any negative effect on competition (as opposed to just mitigate such effect, according to the previous wording). Secondly, prior to adopting its decision, the HCA may publish a non-confidential version of the planned conditional clearance, inviting third parties to comment. Thirdly, the HCA must amend the conditional clearance decision if (a) the affected undertaking has so requested, if such undertaking can no longer implement the commitments due to external and unavoidable reasons, (b) the remedy offered is no longer necessary due to changes in market structures or changes in competition, provided in both cases that the negative effects underlying the conditional clearance decision can be eliminated without a commitment or in an other way.
The Amendments introduced the pre-notification procedure into the CA, which has been encouraged by the HCA since 2012 based on its best practice guidelines. Pre-notification under the CA essentially authorizes the parties to initiate informal discussions with the HCA regarding the scope of the data to be provided during the notification process.
The Amendments bring the CA in line with EU merger control rules as far as the calculation of turnover is concerned. Previously, for the purposes of turnover calculation, both inter-group and intra-group revenues had to be ignored under the CA. Pursuant to the Amendments, only intra-group revenues will be disregarded for turnover calculation (reflecting the EU rules).
As a result of the Amendments, the CA expressly authorizes the HCA to impose a fine in the event that the parties implement the merger despite a negative decision, or fail to fulfil the conditions in a conditional clearance, or fail to notify the HCA of the merger, regardless of whether the merger is subsequently cleared.
As a general rule, the cap of the fine is 10% of the turnover in the business year preceding the HCA decision of either (a) the investigated undertaking or (b) the group of undertakings identified in the HCA decision to which the investigated undertaking belongs. An exception from this rule is the fine for failing to notify the merger, which remains calculable on a daily basis, with a daily fine ranging between 50,000 HUF (approximately 165 EUR) and 200,000 HUF (approximately 667 EUR).
Procedure deadline shortened
The Amendments have shortened the procedural deadline of the HCA for simplified proceedings (similar to Phase I proceedings in the EU) from 45 calendar days to 30 calendar days. As before, such deadline can still be extended by the HCA (once) by 20 days and the deadline will not begin to run until a complete notification is filed. Furthermore, it may be suspended due to a number of reasons, including until the date on which the HCA’s additional information requests are fulfilled by the parties.