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23 March 2017
The legislature did not delay in revising the Competition Act. Amendments were adopted in late 2016 and most of them – including those concerning merger control – entered into force in early 2017.
The amendments have significantly revised the merger control threshold system. The turnover thresholds for triggering a filing obligation have been increased, to the benefit of market participants. Filings are now mandatory where:
Previously, the second threshold was Ft500 million (approximately €1.6 million).
Further, the amendments have clarified that only turnover generated in Hungary will be relevant when calculating the turnover thresholds. However, the legislature has also introduced a voluntary threshold, effectively transposing the voluntary notification system into Hungarian competition law for transactions where the mandatory thresholds are not met, but the parties have achieved a combined turnover in Hungary of more than Ft5 billion.
The voluntary notification system imposes no notification or standstill obligation (ie, the parties may implement the concentration without clearance). However, it enables undertakings to notify the transaction and acquire a clearance certificate from the Hungarian Competition Authority (HCA) for security. The more burdensome side of the system relates to the investigative powers that the new provisions have vested in the HCA. In the absence of voluntary notification, the HCA can review the transaction within six months. While it cannot impose fines, it can impose conditions or obligations or prohibit the transaction in its entirety.(1)
The concept of voluntary notification is not new to merger control. For example, merger filing is fully voluntary in the United Kingdom, although the respective authority has extensive merger control powers, including the possibility to render a hold separate order. The HCA has previously stated that in Hungary, the primary test relates to the creation or strengthening of a dominant position (for further details please see "Reduced red tape in merger control proceedings"). This will be the focal point of the assessment in all cases where investigation is necessary. In any case, market participants can expect that the authority – in its future practice – will not shy away from using its newly acquired investigative powers.
Following the adoption of this new approach to merger control both in the law and by the HCA, companies must adapt and find new strategies to ensure that they navigate the merger control system transactions in the simplest and most cost and time-effective way.
The Competition Act provides that even if the obligatory thresholds are not met, transactions should still be notified in case they meet the voluntary threshold and "it is not evident that competition will not be restricted significantly". Therefore, in theory, the law imposes an obligation on market participants. However, undertakings are free to decide whether they deem it possible that competition will be significantly restricted. In addition, the law provides no penalties that the HCA can impose in these cases; as mentioned above, no fines may be imposed and no standstill obligation applies. Regardless, the HCA can initiate an investigation if it believes that a recently implemented transaction meets the voluntary threshold and may significantly restrict competition.
On the above basis, the threshold remains voluntary in nature. It provides market participants with significant freedom to determine internally whether they would prefer to have the safety of a clearance certificate.
At the same time that the amendments took effect, the HCA issued respective guidelines (HCA Guidelines 2/2017), which establish:
Undertakings may use these guidelines to assess the HCA's potential attitude towards a concentration and thus the risks of not filing. Following a careful assessment of the market shares and conditions, it may transpire that the concentration falls within the safe harbours set out in the guidelines. The HCA has stated that the act will be interpreted so that where a concentration meets only the thresholds for voluntary notification, but – in light of the market shares and conditions mentioned above – meets the criteria for initiating a Phase II investigation, it must be notified. This does not mean that the HCA will initiate a Phase II investigation, but that it has the option to do so. Therefore, undertakings have a convenient indicative tool – in the form of the Phase II criteria set out in the guidelines – to assess whether there is a risk that the HCA will engage in an investigation (ie, whether notification is necessary.
The HCA recently issued revised guidelines on pre-notification in merger control cases (HCA Guidelines 4/2017). Pre-notification essentially gives undertakings the option to liaise with the HCA not only with regard to the data that must be provided or the likeliness of a proceeding being initiated, but also with regard to whether – in cases where only the voluntary thresholds are met – filing is necessary.
Pre-notification is possible in case of transactions where the parties have communicated their definite intention regarding the concentration. The definite nature of the concentration must be evidenced to the HCA; however, a signed agreement is not necessary at this stage. Pre-notification may be initiated if questions arise regarding:
Pre-notification is possible up until two weeks before the submission of the actual filing. The HCA rarely deviates from this practice to ensure that the case team can:
The parties may initiate pre-notification by providing the HCA with written information on the transaction. No formal requirements apply; however, the full potential of the pre-notification discussions may be harnessed only where the parties prepare a draft filing form with all the necessary and available information included. In case of such a final draft, the case handlers may engage in a detailed assessment of the transaction, thus minimising the duration of merger control through the provision of a clearance certificate without the initiation of merger control proceedings or, in the event that a merger control proceeding is initiated, through the avoidance of data requests.
This is not the case when the uncertainty concerns the existence of a filing obligation. If the parties merely intend to inquire whether notification is necessary under the voluntary system, a less comprehensive draft notification may be sufficient. The minimum requirements regarding the written information to be conveyed to the HCA are:
During the pre-notification discussions, the HCA will aim to guide the parties as to the necessary data and amendments to be provided in the notification form as precisely as possible. As mentioned above, during the discussions – which are highly cooperative in nature – the HCA may also suggest that the parties do not notify (in cases where only the voluntary thresholds are met) if it is evident that the transaction will not lessen competition on the relevant market. If informal confirmation is not sufficient for the parties, in the case of a well-prepared pre-notification, they may receive a clearance certificate as quickly as one or two working days from the date of filing.
The dubious reactions to Hungary's new merger control approach may be justified. The increased obligatory threshold is expected to reduce the number of notifications. However, with the introduction of a reasonably low voluntary threshold, the HCA has obtained the power to review most major transactions. This may effectively result in multiple notifications, where undertakings simply opt for the secure solution instead of six months of disquiet. Therefore, it is arguably more important than ever that, along with this new system, the HCA provides a straightforward and convenient solution for undertakings to address these issues.
The safe harbours provide undertakings with measures to conduct an internal assessment of their obligations and determine the necessity or potential outcomes of a notification. Further, pre-notification provides them with the option to engage with the HCA in case of uncertainty and aims to clarify the data and documents necessary for the filing. However, in practice, the HCA's pre-notification policy achieves much more, by giving parties the option to minimise their administrative burdens in a fast-track proceeding on the grounds of enhanced cooperation with the HCA.
For further information on this topic please contact András Nagy at Schoenherr by telephone (+36 1 8700 700) or email (email@example.com). The Schoenherr website can be accessed at www.schoenherr.eu.
(1) For further details please see "Significant amendments to the Hungarian Competition Act".
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