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The New Competition Act in Slovakia and Its Impact on Business

The New Competition Act in Slovakia and Its Impact on Business

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Only a handful of recent legislative initiatives have sparked as much interest in Slovakia’s business community as the draft of the country’s new Competition Act. What at first seemed to be a routine implementation of the EU ECN+ Directive resulted in a flood of comments and proposals. More than 350 suggestions from the public and various authorities were submitted after the original draft of the new Competition Act was published. Now the bill, having been approved by the cabinet, is entering deliberations in Parliament. The act, which will regulate the daily course of business of every entrepreneur under threat of exorbitant sanctions, certainly deserves a brief summary.

Competition law in Slovakia – an EU Member State – has already been largely harmonized with Union law. The rare exception was the definition of “undertaking,” which is central to competition law. Until now, the definition of the subject of competition rules was linked to legal personality. The new Competition Act will harmonize the definition of “undertaking” with the EU law concept of “an entity engaged in economic activity,” regardless of its specific legal form or the existence of legal personality. The repercussions of this change are far from academic. First and foremost, fines for competition law infringements will no longer be calculated as a percentage of the turnover of the legal entity acting as a party to the proceedings, but from the turnover of all entities found liable for the infringement. Instead of imposing separate sanctions on various entities from the same economic group engaged in anti-competitive conduct, the competition authority will be able to make multiple entities forming the undertaking jointly and severally liable for the fine. Last but not least, the redefinition of an undertaking will open the door to embracing the principle of economic continuity, whereby liability for breaches of the Competition Act passes to the economic successor continuing the commercial activity of its predecessor.

The imposition of fines on anti-competitive decisions of associations of undertakings will be reformed. The competition authority will be able to impose fines up to 10% of the turnover not of the association itself, but of its member companies active on the market concerned by the infringement. Should the trade association prove unable to pay the fine, it will be obliged to require contributions from its members. If they fail to comply, the competition authority will be able to claim the fine from any member company with employees who served on decision-making bodies of the association, or any member company active on the concerned market. Enforcement of decisions of the competition authority will be secured by imposition of periodic penalties.

The new Competition Act is introducing several new procedural instruments, such as interim measures in cases of prima facie infringements of the prohibition of anti-competitive agreements and abuse of dominant position, and a similar possibility in merger control, designed to preserve effective competition in cases of premature implementation of concentrations. Decisions in the antitrust area may now be accompanied by temporary structural or behavioral measures, imposing additional obligations on the undertakings on top of fines.

Merger control regulation should become more efficient with the abolishment of the notification threshold for creating full functioning joint ventures, which has in the past caught numerous foreign-to-foreign transactions due to the joint venture founders having sufficient turnover in Slovakia. The competition authority has previously expressed concern about some concentrations escaping notification due to temporary decreases of turnovers as a result of the COVID-19 pandemic, which does not impact the relative market power of the undertakings. As a result, the merging parties will be obliged to assess both the latest and the pre-pandemic turnovers to establish whether the transaction meets the notification thresholds.

The new Competition Act is expected to enter into force on May 1, 2021. What the May Day will bring to business is yet to be seen. A strict, yet more efficient and targeted enforcement of competition law, is in sight.

By Tomas Maretta, Partner, and Marek Holka, Senior Associate, Cechova & Partners

This Article was originally published in Issue 8.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.