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New Law on the Horizon: Stronger Competition Authority, Risks for Large Firms’ Owners

New Law on the Horizon: Stronger Competition Authority, Risks for Large Firms’ Owners

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On 2 April 2024, a new bill was submitted to the Hungarian Parliament. Among other judicial system-related acts, the proposal aims to amend our Competition Act. The bill establishes the concept of ‘undertaking of fundamental importance’ (in Hungarian: “alapvető jelentőségű vállalkozás”) and gives new powers for the Competition Authority (HCA) in respect of these undertakings.

In the framework of a competition supervisory procedure, the HCA could classify any undertaking (i.e. company) as undertaking of fundamental importance with special regard to the undertaking’s market shares, financial strength or access to other resources, vertical integration (i.e. the number and strength of economic connections with undertakings of upstream or downstream markets), access to data that is relevant from a competition point of view, fundamental importance of services or products from the perspective of consumers or the economy, or any other activity that is fundamental for consumers or third parties in order to get access to procurement or sales markets, or with which the undertaking can influence third parties’ business activities.

The bill’s significance is given by the fact that it would entitle the HCA to apply serious consequences against undertakings of fundamental importance. Among other powers, it could forbid self-preferencing, forbid to use (for their own account) data collected by their counterparties, or impose an information obligation about the performance, quality, or success of their services provided to their counterparties. The next level of powers defined in the proposal can only be exercised if an undertaking of fundamental importance cannot manage its proper functioning or there is an imminent danger of its inability to maintain its obligations. In such a situation, the HCA could oblige its owners to sell their company partially or wholly, oblige to temporarily transfer its assets to an appointed supplier (but only those assets that are necessary for the safe and continuous service, commerce, and manufacturing), initiate changes in the leadership of the undertaking, suspend the voting rights of its owners, oblige its owner to sell its share or oblige the management for the convocation of the general meeting.

According to the HCA, this instrument would be useful against large companies that could otherwise solely control the market and it is the consumers’ essential interest to be protected from them. In its declaration, the HCA states that in German and American competition law quite similar institutions can be found. However, many competition law experts are afraid that by this power the HCA could reclassify an undertaking without any legal limitation, since the conditions are not concrete and well-defined enough, and they cannot be applied objectively.

By Rita Parkanyi, Partner, KCG Partner

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