Category: Hungary

CMS Hungary has advised OTP Bank Plc., the arranger of Pannonia Bio’s issuance of the first Hungarian forint bond in line with the Bond Funding for Growth Scheme announced by the Central Bank of Hungary in July, 2019 which involves the bank’s purchase of bonds with good ratings issued by non-financial corporations as well as securities backed by corporate loans from a HUF 300 billion funding pool. BLS represented Pannonia Bio.

According to CMS, Pannonia Bio’s successful bond auction resulted in the sale of HUF 15 billion of bonds to the Central Bank of Hungary.  

The CMS team consisted of Partner Erika Papp, Senior Consultant Arpad Lantos, and Junior Associate Zsolt Beregi.

The BLS team included Partners Gabor Kovacs and Erzsebet Szalay and Associate Mark Bene.

Former Head of Legal and Compliance at Metro Cash & Carry Hungary Peter Sukosd has joined the Hungarian office of DLA Piper as Head of Competition Law.

According to DLA Piper, “as a competition law and compliance expert, Peter Sukosd has 17 years of experience, during which time he served at several enterprises as head of legal and compliance departments and has obtained international work experience as well. He began his career in 2002 at the Hungarian Competition Authority, spending over a decade in various management positions. During this period, he also served as a National Expert at the European Commission, and between September 2007 and April 2009 he worked as a Policy Analyst at OECD. As a senior legal manager of British American Tobacco between 2012 and 2015, he was responsible for the antitrust and compliance matters of the Hungarian and Croatian subsidiaries of the company.”

In 2017, Sukosd co-founded the Hungarian Corporate Compliance Society where he currently serves as Vice President. He is also acting Co-President of the Hungarian Trade Association. 

“The Hungarian team at DLA Piper is glad to welcome an excellent and experienced professional,” said DLA Piper Hungary Country Managing Partner Andras Posztl. “We hope that by combining the values and qualities of our office and his skills and expertise, Peter will manage a successful practice.”

“DLA Piper possesses an esteemed competition team with an exemplary know-how at hand. I am certain that our work with both colleagues and clients will be highly successful,” added Sukosd.

Sukosd was a speaker at the 2017 Hungary GC Summit as part of the Core Competencies of the General Counsel as Business Enabler panel . Those interested in attending this year’s event, scheduled for October 1, 2019, can register here.

The Jalsovszky law firm has advised Hungarian-based integrated business management and administration software distributor Libra Szoftver Zrt. on its take-over of VT-Soft Kft. from Unit4 Software NV. CMS Budapest advised the sellers on the deal.

Unit4 is a Dutch software company that designs and delivers enterprise software and ERP applications and professional services. It was acquired by Advent International in 2014.

The Jalsovszky team was led by Senior Attorney Agnes Bejo.

The CMS team was led by Partner Aniko Kircsi and included Senior Counsel Eszter Torok and Lawyer Szabina Marsi.

CMS Hungary has advised Balbec Capital and Momentum Credit Zrt, a Hungarian joint venture owned by Balbec Capital and the APS Group, on the purchase of MKB Bank Nyrt’s non-performing retail mortgage loan portfolio, secured mostly by residential mortgages. MKB Bank was advised by HBK Partners on the transaction.

The transaction, with a face value of over EUR 75 million, consisted of a two-phase auction sale bidding process organized among international and Hungarian institutional players on the NPL market, including banks, investment banks, and loan management firms. 

The CMS Hungary team consisted of Partner Erika Papp, Senior Counsel Eszter Torok, and Junior Associate Zsolt Beregi.

The HBK Partners team consisted of Partner Marton Kovacs and Junior Associate Mate Vinglman.

Baker McKenzie Budapest has advised Hungarian entrepreneur Stefan Fritsch on his sale of 61% of the 11 Entertainment Group to the Genesis Private Equity Fund III, a private equity fund advised by Genesis Capital. Kinstellar advised Genesis Capital on the deal.

Genesis Capital provides advisory services to private equity funds offering access to financing for growth and development of small and medium-sized companies in the Czech Republic, Slovakia, Poland, Hungary, and Austria. Since its foundation in 1999, Genesis Capital has provided consultancy to four private equity funds with a cumulative size exceeding EUR 170 million. The current fund, Genesis Private Equity Fund III (GPEF III), is over EUR 80 million, and has been actively investing since 2015. Investors in GPEF III are mostly local and international institutions and investment firms such as the European Investment Fund (EIF), Ceska Sporitelna (a member of the Erste Group), Amundi Czech Republic, Kooperativa Pojistovna, and Ceska Podnikatelska Pojistovna (both members of the Vienna Insurance Group), and Finnish fund-of-funds firm eQ Private Equity.

According to a Genesis Capital press release, “11 Entertainment Group contains companies providing indoor family entertainment in trampoline parks, indoor playgrounds, and laser tag arenas in Hungary. The founder and owner of the business, Mr. Stefan Fritsch, started the first playground in 2009 as a hobby-business together with his wife Raka Kovacs to entertain his own children, while being a top manager in the automotive industry. This point was an off-take of Mr. Fritsch’s career as entrepreneur.|

That same press release quoted Fritsch as explaining that: “Entrepreneurship was a passion for me since I was a little boy selling comics at the street corner of my home town. As entrepreneurs we have the full freedom to influence the future in a direction we want to have it and by that we can generate the positive flow needed to overcome the immense hurdles and work load on our way to make things happen.” 

According to the Genesis Capital press release, “since 2009, Stefan and Reka grew the business to five parks accommodating more than 500,000 visitors annually. The business has ambitions to expand further into the neighboring countries to become a Central European family entertainment leader. In preparation for this plan, 11 Entertainment Group was recently strengthened by experienced top managers who also become shareholders of the group. GPEF III and Mr. Fritsch both allocated potential further capital to support the growth plan.”

Baker McKenzie’s team in Budapest was led by Partner Akos Fehervary and included Associates David Ferenc and Gabor Hajduk.

The Kinstellar team advising Genesis Capital was led by Partner Jan Juroska and included Senior Associate Michal Kniz and Junior Associate Denisa Simanska in the Czech Republic, Partner Adam Hodon, Senior Associate Michal Hrusovsky, and Junior Associate Livia Miklencicova in Slovakia, and Partner Anthony O’Connor and Senior Associate Agnes Zsofia Szabo in Hungary.

Former TENK Law Firm Senior Associate Eszter Zadori has joined Dentons Budapest as a Partner.

Zadori has 20 years of experience in energy law. According to Dentons “she advises major stakeholders of the energy sector – including transmission system operators, natural gas producers, natural gas and electricity trading and sales companies, LPG distributors, as well as conventional and renewable power generation companies.” Her experience in the energy sector includes, Dentons reports, “advising on complex commercial, M&A and arbitration matters and counseling in regulatory and compliance areas.”

“It is a pleasure to welcome Eszter to our team in Budapest,” said Istvan Reczicza, Dentons Hungary Managing Partner. “She adds significantly to our Energy sector capabilities in Hungary and across CEE/SEE, as attested by her broad expertise in energy law matters. Her appointment demonstrates the role of our Budapest office as a hub for sector expertise and client service across the region.”

Zadori graduated from the University of Szeged with a JD in 1999. Prior to joining Dentons, she practiced law at Baker McKenzie, Weil, Gotshal & Manges,  and TENK law firm. She also served as in-house legal counsel at E.ON in Budapest.

It has been clear for some time that Hungary is in breach of EU law by not allowing the refunding of VAT on bad debts. The fact that cases of Hungarian taxpayers have now been brought before the European Court of Justice (ECJ) has forced Hungarian lawmakers to move on the issue. While the package of tax amendments submitted last week provides an opportunity to reclaim such VAT, in certain cases – due to the planned administrative restrictions – it will still only be possible to enjoy this right with reference to EU law.

En garde!

It was in the case of the Italian Enzo di Maura that the ECJ first clearly declared that member states must refund the VAT if the consideration requested in a transaction becomes definitively irrecoverable. This decision was in direct contradiction to the viewpoint of the Hungarian authorities and courts, according to which member states had a choice in this regard. For this reason, several companies have taken up the challenge to ultimately prove their case in court and, if necessary, force the refund of VAT on their irrecoverable debt with the involvement of the ECJ.

Parry

The “spring” tax amendment package put forward by the government last week seems to suggest that Hungarian lawmakers have decided to prevent an attack. Under the proposal, the Parliament would regulate the issue by including the possibility of a refund in the VAT Act.

If the amendment is approved, that would certainly settle an old and major “debt” in the legislation.  The fact that Hungarian suppliers cannot get reimbursed VAT on their sales even if their customers fail to pay it has long been an unfortunate situation. This has often prompted companies to resort to strange and not quite lawful solutions, such as cancelling their invoices on genuine, executed sales just to avoid having to pay VAT that will never be refunded.

The proposal now being tabled would bring about a radical change in this. It would allow bona fide suppliers to reclaim the VAT on their irrecoverable debts if certain formal and administrative conditions are met. If it is approved by the Parliament, companies would be able to reclaim VAT with reference to the new regulation from 1 January 2020.

Touché?

At the same time, the planned regulation is not without its pitfalls. On the one hand, a refund will have many administrative conditions that could make it rather difficult to actually reclaim VAT. Moreover, under the proposal, only VAT on sales made in 2016 or later will be refundable. This means that it will not be possible to reclaim VAT on a big volume of such transactions that have not yet lapsed, which would also appear to be a questionable restriction. Therefore, those whose claims date from earlier, or who are for other reasons unable or unwilling to meet the administrative conditions that are now being introduced, may still want to consider initiating a refund directly based on EU law. 

By Tamas Feher, Partner, Jalsovszky

CMS has advised GTC Hungary on the sale of the White House office building in Budapest. to Warburg-HIH Invest Real Estate. Warburg-HIH was reportedly advised by Baker McKenzie, and DLA Piper advised the financing bank.

The development of the A-class, LEED Platinum White House project on Vaci Street in Budapest was completed by GTC in 2018. The building has 22,300 square meters of leased area and it is occupied by tenants such as Jaguar Land Rover, BlackRock, and the Dutch co-working provider Spaces.

The CMS Budapest Real Estate team was led by Partner Gabor Czike and included Associate Zsofia Zsurzsa. 

The DLA Piper team was led by Partner Gabor Borbely and included Senior Associate Attila Sari.

Image Source: budapestoffices.net 

If somebody dies unexpectedly, it’s not only a terrible loss for the grieving family and friends, but can also be a tragedy for the company of which the deceased was a member. At such times, the company can find itself unable to make decisions, even if the deceased only held a small share in the business. However, solutions do exist to enable the testator not only to make provisions for family members in the event of his or her death, but also to make sure that the company can continue to make decisions.

The shares of a private-individual member are passed on to his or her heirs upon the member’s death. Precisely who those heirs are, however, is not decided until the notary public presiding over the probate procedure makes a decision on the transfer of the estate. But this can take a long time, which may cause an impasse in the affairs of a company that operated with the participation of the deceased person. As invitations to a members’ meeting cannot be delivered to the member (or his or her heirs) at such times, it is not possible to convene the members’ meeting, and thus it cannot make any valid decisions. This, in turn, could profoundly disrupt the operation of the company, as it will be incapable of approving the balance sheet, paying dividends or appointing senior officers. 

The situation is even worse if the deceased also happened to be the company’s sole managing director. In this case, the company is effectively paralysed until the end of probate when the estate is transferred, as there is no person with the authority to make legal declarations on behalf of the company. And because the members’ meeting cannot be validly convened for the reasons described above, a new managing director cannot be appointed either. What can be done in this situation?

What we can do while the testator is still alive…

Trusts

The concept of trusts, introduced by the new Civil Code, may still sound unfamiliar to many, but it offers excellent solutions for avoiding certain inheritance problems. If the testator places his or her membership share into a trust, i.e. transfers it to a trustee while still alive, then after his or her death the company can continue to operate normally, as the trustee will continue to be able to exercise the relevant membership rights. What’s more, if the trust contract so provides, the named beneficiary can terminate the trust contract at any time after the testator’s death and take over the company share, thus avoiding the difficulties associated with the probate procedure.

Trust is also a rational solution for those who do not wish to relinquish control over the company during their lifetime. In the trust contract, the trustee may be instructed in detail on how, and along what lines, the ownership rights should be exercised, and if these instructions are breached, the contract may be terminated.

Restructuring of company holdings

From a tax perspective, the interposition of a ‘holding company’ between the private individual and the operative company often proves a favourable solution, as it can allow the tax-free withdrawal and reinvestment of income from the company performing the actual business activity. The use of a holding company can also remedy the problem of inheritance. This is because if other persons in addition to the deceased are registered as directors of the holding company, then the operative company is able to continue its business without interruption after the testator’s death. Of course, the matter of who inherits the shares in the holding company still needs to be settled in such cases, but at least it does not obstruct the continuity of the business.

… and after that

A relatively little-known option is to appoint an asset manager (“ügygondnok”), even though it is a good way of solving the problem of the company’s inability to make decisions until the official transfer of the estate. In a probate procedure, the notary or notary public may appoint an asset manager at the request of persons with an interest in the probate, if this is necessary to safeguard the company shareholding or to ensure the company’s continued operation. In such cases the asset manager is entitled to exercise the membership rights that are associated with the company shareholding, for example by attending and voting at members’ meetings or general meetings. 

The appointment of an asset manager can be requested immediately after the death of a company member, and what’s more, the authorities that appoint the asset managers usually act with urgency in such cases. And although the asset manager is restricted in the making of certain decisions – for example, he or she may not vote in favour of a decision that endangers the company’s assets – simply having an appointed asset manager makes it possible for members’ meetings to be validly held, and thus for the company to continue operating smoothly.

Summary

The death of a company member is not only a loss in human and business terms, but can also represent considerable legal risks. However, there are ways to prepare for such risks and to take steps to mitigate then. This, in turn, may also shorten the ‘grieving period’ for the company as well.  

By Agnes Bejo, Attorney-At-Law Jalsovszky

Noerr has advised Hungarian-based online travel portal Szallas.hu on its take-over of the MaiUtazas Group travel portal in a combined share and asset deal transaction. The acquisitions were financed with Szallas.hu’s internal resources, as well as capital from the equity funds of Szallas.hu’s owner, OTP Bank. The Csetneki Law Firm advised MaiUtazas Group on the deal.

The Noerr team was led by Head of Corporate/Private Equity Akos Bajorfi and included Lawyer Timea Tompa, Senior Associates Szilvia Andriska and Eszter Sieber-Fazakas, Associate Reka Zambo, and Legal Advisor Eszter Hegedus.