Hungary: New corporate law changes affecting Hungarian companies

As of 1 March 2012, the amendment of the Companies Act, the Companies Registration Act and certain related acts will enter into force, which may affect Hungarian companies. We have summarised the most important legislative changes below mentioning also in certain cases related changes which came into effect as of 1 January 2012:

Some changes (or the re-introduction of previously applicable mandatory rules) together with the rules which came into effect earlier this year (from 1 January 2012), serve to better protect the interests of company creditors and to increase legal certainty in general:

• would-be executive officers (e.g. managing directors) will have to face stricter disqualification criteria. Information from the criminal records which relate to them will be obtained by the Court of Registration, and if a certain person is banned from becoming an executive officer this will appear in the companies’ register;
• under certain special circumstances company managers (“cégvezető”) may also be held liable for the unsettled debts of the company;
• in the event of a change in the ownership structure of a company, the Court of Registration will obtain information from the Hungarian Tax Authority as to whether the company has public debts. If the unsettled debts of the company exceed HUF 15,000,000 (approx. EUR 52,000), it will be obliged to submit its audited balance sheet with the effective date of the transfer – please note that there are separate requirements with respect to any unsettled public debts of the new member which to held majority control, as described in our previous Law-Now article dated 21 December 2011;
• in the event of a transformation, merger or de-merger, as well as the reduction of the share capital of a limited liability company (Kft.) or a private company limited by shares (Zrt.), non-secured creditors of the company will be entitled to request security from the debtor company in relation to both their expired and non-expired claims;
• the administrative burden increases as more data and documentation will need to be submitted to the Court of Registration, including tax numbers of shareholders (members), dates of birth of the persons indicated as representatives of the Company in the company registry or the trade registry extract of the foreign shareholder (member) entity. Private individuals, and legal persons not residing in Hungary, will need to engage a Hungarian service agent for the purpose of official communication received from authorities and courts;
• all business activities of the company (not just the main activity) need to be indicated in the articles of association of the company and in the company register, however, generally changes to the activities has to be reported to the tax authority (and not to the court of registry) together with statistical classification numbers (in certain cases amendment of the articles of association and hence reporting to the court of registration may also be necessary);
• companies will have to prove their title to use the property serving as their registered seat, branch office or business site, by submitting appropriate documentation to the court (e.g. land registry extract, extract of the lease agreement, certificate of usage);
• registered seat services (including law firms and specialized firms) provided by third parties will no longer be permitted but the current ones will not be affected.

Generally, the abovementioned data and documentation must be submitted to the Court of Registration, along with the submission of the documentation evidencing the first changes in the company’s data, following 1 March 2012. However, companies are required to comply with the new regulations by 1 February 2013 the latest.

The new corporate law amendments also increase the financial burdens relating to the establishment or operation of companies:

• managing directors should keep in mind that obligatory fines for the delay in the submission of changes in the companies’ data to the Court of Registration may amount to HUF 900,000 (approx. EUR 31,000) – generally, the deadline is 30 days after the change;
• stamp duty payable when establishing a company with a template foundation document (simplified proceedings) will increase to HUF 50,000 (approx. EUR 170) from HUF 15,000 (approx. EUR 50);
• financial sanctions for not publishing the financial statement within the statutory deadline is harsher as of 1 January 2012 as a fine of up to HUF 500,000 (approx. EUR 1,700) may be imposed on a company which does not meet the above obligation. If the company does not fulfil its obligation, despite the additional 30 day period set by the Hungarian Tax Authority, the maximum amount of the fine increases to HUF 1,000,000 (approx. EUR 3,500). Non-compliance with the repeated notification will result in the deletion of the tax number of the company.

Stricter liability rules will apply to shareholders (members) with majority influence, and executive officers for the unsettled creditors’ claims in the event of an involuntary dissolution (“kényszertörlési eljárás”), or a liquidation procedure.

Creditors may request the court, within 90 days from the closing of an involuntary dissolution to establish the unlimited liability of the shareholders (members) with majority influence over the terminated company for the unsettled creditors’ claims, unless they can prove that the reason for such procedure was not due to them. Any former shareholder (member) having majority control, who transferred shares (business quotas) of the terminated company to another person during the 3 years preceding the commencement of the involuntary dissolution or a liquidation procedure (in the latter case only if the unsettled creditors’ claims exceeded 50% of the registered capital of the terminated company), may also be the subject of such proceedings. Such former shareholders (members) may escape liability if they prove that the company was not insolvent (or threatened by insolvency) at the time of the share (quota) transfer or it was insolvent, but the former shareholder acted in good faith (and considering the interests of the creditors) when transferring its shares.

Any executive officer who served in such position during the years preceding the commencement of the involuntary dissolution or a liquidation procedure may also become subject to similar unlimited liability if he/she acted without giving priority to the interests of the creditors of the company after the company was in a situation threatening with insolvency and thereby the assets of the company decreased or the satisfaction of the creditors’ claims were frustrated.

For further information and legal advice relating to any of the above matters please contact: