12 December 2017
newsletter
hungary
Hungary Update (III): Authority appoints first divestment trustee
There have been quite a few developments in Hungarian competition law over the past weeks. While legislators have introduced further changes to the Competition Act (see here for Update II), the Hungarian Competition Authority ("HCA") has issued two new decisions, assuming jurisdiction over a merger below the mandatory – but above the voluntary – merger control thresholds and appointing its first trustee in a merger control case.
Background of the trustee appointment
The appointment concludes a complex merger control case. DDC[1], a building material supplier, notified the acquisition of Hungarian competitor Readymix.[2] Owing to competition concerns in several local markets for ready-mix concrete, DDC undertook to divest six ready-mix concrete plants in an area where it would operate more than one plant post-merger. Also, and more importantly, the HCA for the first time took the view that a trustee is necessary to ensure the effectiveness of the divestment remedies. The trustee, chosen from among two candidates proposed by the acquirer, will ensure that DDC preserves the economic viability / competitiveness of the soon-to-be divested assets in compliance with its obligation. DDC will commission the trustee based on an engagement letter, which was also included in the clearance decision. The trustee will continuously report to the HCA on the fulfilment of DDC's obligations.
Comparison with EU model trustee
Unlike the EU Commission and the authorities of several Member State, the HCA has no standard model for trustee mandates. In the clearance decision, DDC mandated a trustee to oversee the economic viability of the parts which DDC chooses to divest. The HCA is entitled to give the Trustee reasonable instructions, while DDC has no such option. This is in line with the European Commission's Best Practice Guidelines, which clarify that the role of a divestment trustee is atypical and consists of monitoring. Although the obligations of the trustee in the engagement letter mirror those described in the European Commission's Model Trustee Mandate, under the new Hungarian scheme, the trustee has no obligation to serve as a point of contact and its duty is limited to monitoring and reporting on the economic viability of the parts to be divested. As to reporting, the obligatory content of the trustee's reports is a boiled-down version of the Commission's model (in line with the more limited duties) focusing on economic analysis. The trustee is also obliged to report on the current status of the parts to be divested and to provide a closing report on each successfully divested part. The duties and obligations of DDC within the framework of the engagement are also rather constrained: besides the payment of an adequate fee, DDC is obliged to provide the trustee with all necessary information. The engagement letter also deviates in its conflict of interest provisions (less detailed), but includes detailed confidentiality obligations.
Remarks
The European Commission's model evidently served as a guideline to define the role of the trustee and the characteristics of the engagement in the HCA's experimental case, but it has not been fully adopted by the HCA. This may be because the prospective buyers are already known to and approved by the HCA, meaning that the trustee's role is solely to monitor that the parts under divestment remain competitive. Nevertheless, the precedent is useful for market participants who intend to submit commitments or accept obligations when preparing for discussions with the HCA, as it shows the converging and deviating characteristics of the Hungarian divestment trusteeship compared to EU practice.
[1] Duna-Dráva Cement Kft. ("DDC") is a joint venture of HeidelbergCement AG and SCHWENK Zement KG.
[2] Readymix Hungária Kft. ("Readymix")
