Managers’ liability for anti-competitive conduct and other legislative news

Czech MPs currently discuss a significant amendment to the Act on the Protection of Competition, which has already been approved by the government. The amendment significantly expands the powers of the Office for the Protection of Competition. We bring you an overview of the most important changes of the upcoming legislation you need prepare for.

A fine of up to CZK 10,000,000 for managers

The Competition Office will, in the future, proceed much more strictly against persons participating  in prohibited anti-competitive agreements. Until now, it has not been possible to punish a natural  person (a non-entrepreneur) for participating in a prohibited cartel agreement. The liability of natural  persons (typically managers) for intentional conclusion of a prohibited agreement on behalf of a  company is to be introduced in a completely new way. Managers will face a ban on their activities  for up to 5 years and a fine of up to CZK 10 million. The new legislation would apply to horizontal  cartel agreements between competitors (agreements on prices, market sharing, bid rigging) as well  as to so-called vertical relationships between suppliers and distributors and to concerted practice.

The Competition Office calls for improved corporate compliance to prevent employees from  committing unlawful acts. At the same time, the new should encourage managers, as well as other  employees, to make more frequent individual leniency applications, which may enable the  Competition Office to obtain essential information about a possible prohibited agreement that they  concluded or otherwise coordinated on behalf of their employer. If the employee is successful with  the leniency application, he or she may get off scot-free or achieve a significant reduction of the  fine. At the same time, this form of cooperation with the Competition Office may result  in the abolishing of the criminal liability of the employee who helped uncover the prohibited anti competitive agreement.

Moreover, the Office will have a power to prosecute managers not only for a finished offence but  also for a mere attempt to enter into a prohibited cartel agreement. Thus, for example, a situation  where the manager proposes to enter into a prohibited agreement, but the agreement is never  concluded due to its rejection by the other party, will now also be considered an offence.

How to prepare?

In the light of the newly introduced liability of managers, it is advisable to develop (or update an  existing) competition compliance program to meet the Competition Office's requirements as  defined in the Office's Notice on Compliance Programs. At the same time, it is necessary to  introduce a system of regular trainings for employees to explain the basic antitrust rules, highlight  risks of non-compliance and recommend appropriate rules of conduct.

Power to order structural measures (new competition tool)

The Competition Office would newly have the power to impose remedies where it concludes,  based on a sector inquiry, that an ongoing distortion of competition has been identified in a  particular market/ segment. In particular, the Competition Office will a power to impose the  following remedies on individual market players:

the obligation to provide access to data, interfaces, networks or other facilities. 

• the obligation to establish transparent, non-discriminatory and open norms and standards; • the obligation to modify certain types of agreements and/ or contractual arrangements; • the obligation to disclose information that reduces information asymmetry;  

• an obligation to impose certain requirements on business relationships between  undertakings; or 

• an obligation to prohibit unilateral disclosure of information that would facilitate coordinated  behaviour. 

This new legislation gives the Competition Office powerful tools to intervene in the market  environment without having an obligation to conduct formal administrative proceedings against  any particular competitors and to prove a violation of law.

Call-in power in merger control

The amendment introduces the call-in model of merger review, whereby the Competition Office would have a power to call on merging companies to submit a clearance application in situations where the transaction in question has not met the statutory notification criteria. At the same time, the Competition Office will be able to retroactively call on already merged entities (after the completion of the transaction – acquisition, merger) to submit a new merger clearance application up to six months from the date of the completion of the transaction.

The Competition Office will be able to intervene if the following conditions are met (cumulatively):

• the Competition Office will suspect that the transaction in question could result in a significant distortion of competition, in particular the creation or strengthening of a dominant position of the merging parties (or just one party),

• the total turnover of the merging parties for the last financial year on the market in the  Czech Republic exceeds CZK 1,5 billion, and

• at least two of the merging entities each achieved a net turnover of more than CZK 100 million in the Czech market in the last financial year.

If the entities fail to comply with the Competition Office's request and do not submit a clearance  application or continue with the merger (which is under review), they will be sanctioned up to  CZK 10,000,000 or 10% of the net turnover achieved in the last completed accounting  period.

This call-in instrument will introduce a significant degree of uncertainty in the planning of  transactions. It will not be possible to assess with clarity in advance whether the contemplated  transaction may or may not be subject to (call-in) review by the Office. In practice, it will be much  more necessary to pro-actively interact with the Competition Office asking for comfort  letter(s) within the pre-notification phase in order get the certainty whether the Competition  Office would have an interest to activate its call-in power or not.

This whole process can delay the whole transaction timeline and M&A teams should take this into  account when structuring the process of the deal.

We will keep you informed about the future legislative developments. Follow-us on our LinkedIn to be always up-to-date.