Lawyers chew over new competition law

The new competition law has brought about some long-awaited clarifications, but has increased the value of fines, a killer measure as companies struggle to emerge safely from the crisis, say lawyers.

Dana Ciuraru

Recently, the Romanian authorities gave the green light to several amendments to the competition law bringing new positive change, say lawyers, but leaving room for interpretation in several costly issues of the law. The amendments to the competition law will enter into force at the beginning of next month. Meanwhile, the Competition Council (CC) is working on the secondary legislation in order to revise that as well.

Laura Mocanu, partner and coordinator of the privatization and competition department at Bostina and Associates, tells Business Review, “These changes marks a hardening of the CC’s position in relation to economic agents and institutions and central public administration authorities, local or general, generated on the one hand by the increased powers of the CC and on the other hand by limiting the options of those companies suspected to have violated the competition law to exercise their right to defense.”

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Unresolved aspects

One of the aspects worrying the business community, says Alina Lacatus, lawyer with DLA Piper Romania, is that the fee to be paid for CC authorization of a merger may impact the private-equity process. This is because so far the level of the fee has been calculated using the turnovers of the parties involved on the relevant Romanian market (namely, the market where the company carried out its activity). Now the fee will be based on the total turnovers achieved by the parties involved in Romania (with a EUR 100,000 threshold).

“This impacts private-equity processes if a company wants to enter a market on which it was not present in Romania. However, this new method for calculating the fee should speed up the decision-making procedure for the authorization of a merger by the Competition Council,” Lacatus tells BR.

Moreover, according to Mocanu, a minimum level of fines applied by the CC is now provided under the competition law, which did not exist in the old regulation. “If a company participates in a prohibited agreement the minimum fine will be 0.5 percent and can go up to 10 percent of its turnover in the year preceding the decision of the CC. The same minimum level is applicable where a merger is implemented prior to clearance by the CC. This is an indication of the increased sanctioning role of the Competition Council that has as its objective to pursue and reinstate a normal competitive environment,” says the Bostina and Associates official.

She adds that providing incomplete, misleading or inaccurate information or documents or a refusal to submit to an inspection carried out by the CC shall be punished by a fine of 0.1 percent to 1 percent of the total turnover of the year prior to the moment when the fine is given.

Another aspect which is worrying specialists is the condition under which if a company sanctioned by the CC goes to court to have the fine suspended, it will have to pay bail of 30 percent of the sum.

“Until now, no bail had to be paid when seeking a suspension in court. This means that companies facing financial difficulties may not be able to apply for a fine to be suspended. The CC claims that the purpose of introducing bail is to reduce the number of cases where the fine is suspended since the payment of fines amounting to EUR 50 million has been suspended so far,” says Lacatus. The Bostina and Associates official adds, “The purpose of this bail seems rather to provide revenue to the budget, with serious consequences for financial economic agents.”

Livia Constantinescu, partner at DLA Piper Romania, tells BR that the Romanian regime seems harsher than in some other EU jurisdictions. “In Holland, the fine is automatically suspended if the sanctioning decision is challenged, but where that claim is dismissed, the company will also pay interest. In France, no bail is necessary with a claim for suspension (in recent cases the suspension has been granted due to the negative impact of the financial crisis).”

According to her, in Spain, the fine can be suspended if it is considered that it will cause irreparable damage and a bank guarantee for 100 percent of the amount is instead required.

Mocanu also says that other potentially deleterious aspects of the legislation are the possibility of any individual or company that agrees to be interviewed intervening for the purpose of obtaining information regarding the object of the investigation, the possibility of competition inspectors checking other areas than the investigated company and the long periods which the CC has to analyze and come back with a final decision.

Positive changes

But some advantageous aspects for companies have also been introduced in the new competition law, saw lawyers. Lacatus specifies that one such is the fact that any document which contains communication between a company under investigation by the CC and a lawyer, which is related to the subject matter of such an investigation, now benefits expressly from client-attorney legal privilege.

“This is good news for companies since it means that they can deny the CC’s inspectors access to correspondence with the lawyers that is connected to the investigation by arguing that it is legally privileged under the competition law. In the event of a dispute over this, a special procedure is to be followed. The companies should put in place a procedure regarding e-mail correspondence with lawyers and any files related to this in order to make it easier to prove to the CC’s inspectors the privileged character of a certain document,” says Lacatus.

The Bostina and Associates official also cites the situation in which “if committing misdemeanors consisting of agreements, decisions and concerted practices or abuse of dominant position and, after receipt of the investigation report and right of access to the file, [the company] explicitly admits an anticompetitive deed, this will be considered a mitigating circumstance in the form of cooperation in administrative proceedings and determine a reduction in any fine of between 10 and 25 percent of the total.”

Moreover, companies involved in M&A projects can now give notification of their intention to perform an economic concentration (takeover or merger). So far, the CC has only been notified after the execution of the agreement of such an operation. It is likely that the prior notification of an intended merger will help companies obtain clearance in a shorter period of time and so speed up the process of actually carrying out the transaction.

dana.ciuraru@business-review.ro