13 November 2007

Commission scrutinises amendments in Hungarian company law

The Commission sent a letter of formal notice to the Hungarian government over the so-called 'lex MOL' legislation, signed off by the Hungarian President in October. The Commission is concerned that the law may contain unjustified restrictions on the free movement of capital and right of establishment, by introducing onerous requirements for public takeover bids and allowing public authorities to appoint a member on the boards of energy companies with the right to participate in the management and the control of the companies concerned.

The law is suspected of being used to protect domestic energy firm MOL from foreign takeover approaches, most recently by Austrian rival OMV. The Act prescribes that, in the case of public takeover bids for a company of strategic importance for energy and water supply sectors, the operational plan that must accompany the public takeover bid has to be approved by the supreme body of the bidder before submission of the bid to the Hungarian authorities.

This means that the bidder's intentions would become publicly known well in advance. In turn this would eliminate the surprise effect of the bid, may substantially increase the bid price and thereby obstruct the take over attempt.

According to the Act, the Hungarian Energy Office appoints one member of the board of directors, the executive board and the supervisory board of companies of strategic importance for energy supply. These representatives are entitled to participate in the management and the control of the operation of the business in question, as far as it concerns ensuring the energy supply of the country.

The Act tends to restrict the free movement of capital and right of establishment also in combination with some types of special rights, which the Commission considers to be in non-compliance with the EC Treaty, but which are still maintained in some privatised companies.

For instance, a provision in the Act prevents the application of the "breakthrough rule" (which nullifies voting limitations when a target company decides on a take-over bid) in companies where the State holds preference shares.

Press release

© European Commission