Category: Hungary

While no more applications for Micro Projects (those below 0.5MW) can be submitted under Hungary’s very generous mandatory off-take system since the end of April 2018, the Government  seems to have acknowledged that the projects already licensed under the subsidy regime may not be physically implemented within the strict deadlines set forth in the original legislation. Therefore, it is now possible for entities that applied for licenses after January 1, 2016 to ask for a three- years extension to complete their projects without any sanction. This is good news for license-owners and potential investors, as they have a reasonable amount of time to manage the relatively burdensome permitting proceedings and can also secure project finance. This is also good news for the Hungarian state budget because the first heavy payments to the projects under the mandatory off-take system will be delayed by a few more years.

In the second half of 2016, nearly 3,000 applications were submitted to the Hungarian Energy Authority for the support of Micro Power Plants (power plants with a peak capacity below 0.5 MW). The high number of licenses awarded led to a “solar boom” at the end of that year. However, it was questionable all along whether the projects – with an aggregate capacity of approximately 1,500 MW – would actually be implemented. Although the support was attractive and offered compelling business opportunities, the 20-to-25 year reference period and imperfections in the legislation created potential risks as well.

Subsequently, the Hungarian Government changed the supporting regime with a new system as of January 1, 2017. The new regulations aimed at creating a more structured supporting scheme for the promotion of renewables, with less generous conditions for development than under the previous regime. This led to a decline in the number of applications (only 264 – a tenth of the 2016 figures). At the same time, the legislator adopted certain laws and decrees in order to boost the implementation of ongoing projects, ranging from easier connection to the grid to free-of-charge building and development of cables, as well as easier reclassification of agricultural lands. These changes predicted a bright future for development in Hungary, especially for ongoing projects; however, the most recent actions by the Government cast some shadow on the potential new power plants.

On April 20, 2018, the Government announced that no more applications for Micro PP licenses in the mandatory off-take system could be submitted after April 26, 2018. The decision was adopted strikingly fast, and without any foresight. The underlying reasons are unknown; however, the conventional interpretation appears to be that the high number of applications posed a risk to the budget. Such a fundamental change can affect the market in many ways – for example it could lead to to an increase in the market values of the existing Micro PP licenses. 

With the mandatory off-take system coming to an end, the new tendering system for supporting renewables may become popular for developers. The green and brown premium tendering in case of Small PPs (power plants with a peak capacity between 0.5 MW and 1 MW) and biomass and biogas generation units, and the competitive tendering for Major PPs (power plants with a peak capacity above 1 MW) is going to be a hot topic for the near future, but there are uncertainties in the systems. Although the general rules of tendering became effective in the beginning of 2017, no tender has been issued since, and it is not clear when and under what conditions the first tender would be issued in case of a competitive tendering. It cannot be excluded that investors who have already taken certain project development steps (such as securing land, evaluating the grid connection possibilities, elaborating their business plans, etc.) may be in a better position to provide offers and file applications, taking into consideration the short period of the procedure and the fixed cap on financial support.

By Laszlo Kenyeres, Partner, Wolf Theiss

This Article was originally published in Issue 5.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Several amendments to the Company Registry Act entered into force on 1 July 2018. The new provisions include a new information obligation for the legal representatives, meaning that in case of the indication of personal data in addition to the statutory data content of the company register, the legal representative must draw the attention of the natural person to the fact that his/her consent to include his/her natural data in the document means that such data will be available for the public.

Another novelty is the possibility to file the registration application with the court of registration prior to the date of the change, however, the submission to the court may not be earlier than the date of the decision on the change.

Under the new provisions of the Company Registry Act, it may also be included in the company register if the managing director does not have any representation right.

The provisions relating to the winding-up proceeding had also been amended substantially, for example, it is not required to appoint a separate winding up administrator, but the managing director of the company should perform the tasks of the winding up administrator.

By Eszter Kamocsay-Berta, Managing Partner, KCG Partners Law Firm

In the summer of 2000 I was working for the University of Vienna, spending my time on academic research and fighting with topics like the (lack of) enforcement of judicial awards in Austria and Hungary. My one-day seminar at the University of Economics (FOWI) brought me several interesting contacts, including some young lawyers from the classy law firm CHS, that resulted in an offer to develop a new partner firm for CHS in Budapest.

It wasn’t simply the challenge of diving into the hot and competitive life of international law firms in Budapest that was interesting but – for me as a country boy – the life in Budapest. I had to learn very quickly that knowledge of the law and the ability to solve legal problems alone are not enough to attain prosperity; human management, financing, acquisition, and marketing became the prominent words in my daily life. 

The differences between the legal markets in Budapest and Vienna became evident very early on. The Hungarian market was dominated by big international players, while the Austrian bar protected its home market very effectively, meaning that the top places in the legal rankings were occupied by local (Austrian) firms. The other thing was the differences in transparency. Lawyer rankings, deal reporting, ads, newspapers, and online marketing service providers reported every important event or case in the Austrian market. The Budapest market, however, was quiet. Better to close all doors and keep a golden silence, to protect the profession from snooping eyes. Legal marketing was even prohibited. There was clearly a connection between the number of registered attorneys (there were more in Budapest alone than in all of Austria) and the profitability of the legal profession (hourly rates of EUR 300 in Austria vs. EUR 30 in Hungary). 

This has all changed. New publications try to open a window on the daily work and life of attorneys. And a certain transparency in a segment of lawyers’ business has developed through deal reports. Still, it’s not enough. Indeed, one of the more significant attempts to impose transparency in the Hungarian system failed. In 2013 the Act on Attorneys was amended, and in 2015 law firms were required for the first time to publish their annual reports (based on 2014 figures). A couple of days before the expiry of the relevant deadline (May 31st, 2015), however, parliament quietly changed the rule and removed the publication obligation. By that time many firms had already published their financial data. Those that had not obeyed the rule must have known the future. Typically Hungarian, or as we say, “Hungaricum.” This is why there is no oversight on the financial success of Hungarian law firms. Good for the affected lawyers, bad for the market and transparency.

In this context, then can the public become informed about the strength and quality of legal services? As a result, I often see clients taking very different approaches in choosing legal advisors. For instance, recently we participated in a tender for legal services for the development of a new headquarters of a leading financial institution. The tender was managed by the institution’s procurement department, and participants were asked for fixed fee proposals for assistance in: 1) buying a property, building a new structure, and covering all necessary legal services; 2) buying nothing but entering into a lease; or 3) buying an old building and managing a refurbishment project. The scope was indefinite, and the price of the requested legal services was required to be fixed, as it is with buying any goods on the market. Oh my God! What effective and working client attorney relationship can be built that way? Or to choose perhaps a more striking analogy: who has ever seen somebody with heart disease waiting for the operation and choosing their doctor by tender where only the price is the determining factor?

If you look around you will realize that money alone rules the marketing market. If you pay, you will be mentioned. For example, I receive emails every day from self-made market researchers informing me that I am the best on the Hungarian market and the “Real Estate Lawyer of the Year” title is now within reach. I only need to buy their specific package and will find myself in heaven. There is an entire business that has been developed based on the vanity of our profession.

Of course, there are exceptions. Several of the most well-known international law firm ranking services for example, undertake genuine market research and listen to the recommendations of other lawyers who have had good experiences with their competitors. Still, they are exceptions.

Something has gone wrong. And this is why we need fair and independent market analysis, valuations coming from clients and, even better, from colleagues sitting on the other side of the table, more transparency, and value-based rankings. And this should be achievable even though we still live in a society that has not radically changed from the one described by Zsigmond Moricz in the novel Relatives (Rokonok). 

By Laszlo Szecsenyi, Managing Partner, Szecsenyi & Partners

This Article was originally published in Issue 5.5 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Society is undergoing a new industrial revolution – with the global development of the Internet, life has changed radically in just a few decades, and legislation can barely keep up with adapting to a situation that was previously unimaginable. The Hungarian Competition Authority (HCA) has also been monitoring developments and it has not been afraid to intervene in the interests of fair competition and the protection of consumer rights.

Influencers have recently been targeted by the HCA, especially regarding their promotional activity. Thus far, the HCA has taken a supportive approach; it has not imposed any fines but released guidelines to help influencers with compliance. This update will examine the most important elements of the HCA’s guidelines and the relevant issues to help ensure that individuals are compliant.

Who are influencers?

hunBefore the popularity of social media, brand owners often used celebrities to promote their products and serve as role models for their fans. However, with the development of social media, roles have changed and now anyone can be famous; even a cat can have millions of followers and a bigger fanbase than respected singers or movie stars. This has presented a real goldmine for marketing specialists, who have not hesitated to jump on the opportunity to reach new customers. A recent study found that 39% of marketers are going to increase their influencer marketing budgets in 2018.

Influencer marketing has also rapidly increased in Hungary. After issuing its guidelines at the end of 2017, the HCA aims to increase consumer awareness and also influence and shape future market conduct.

According to the guidelines – which are aligned with international practice – an ‘influencer’ can be anyone who is capable of exercising influence and forming consumer opinion in a digital environment by sharing online content on their website, social media or other online platform. This definition includes traditional celebrities, as well as youtubers, bloggers, vloggers or publishers of other online content (eg, on Facebook, Twitter, Instagram, YouTube and Snapchat) who have a dedicated follower base. Age does not matter – even a minor can be an influencer.

Being an influencer and sharing contents is not illegal. However, if the content is an advertisement which is not part of the influencer’s own opinion, taste, style or spontaneous reaction, but is due to some sort of reward from the advertiser company, consumers have a right to know this information. The reward is not limited to money, but also includes discounts, free tickets, products, car use and anything for which one would otherwise have to pay, including dividends or commissions.

In line with the Consumer Protection Act – which transposes the UCP Directive – it is deemed unfair if influencers share content in printed or electronic media to promote the sale or other form of use of a product and a business entity which has paid for this promotion, without making the paid promotion clearly identifiable to the consumer.

How to comply

According to the guidelines:

• the business relationship should be placed in a clearly visible, legible and understandable way (this requirement is not met if a consumer has to click ‘more information’ or complete some other activity to access this information);
• the use of hashtags can be sufficient (eg, #advertisement, #paidcontent and #sponsoredcontent, but not #Thank you, #partner), provided that they are positioned before other hashtags;
• the promoted company or brand name should be placed at the beginning of the post; and
• the same style of indication should be used on the same platforms.

In case of non-compliance, not only the influencer can be fined, but also the company ordering the paid content and even the intermediary company (eg, marketing agency).

Thus far, the HCA has conducted three competition supervision proceedings against influencers in Hungary, which all ended with commitments (ie, no fines were imposed). The concerned parties were ordered to share educational posts and information material on their pages to raise awareness of the issue. Although the HCA could have initiated further proceedings in this respect, it has considered that commitments with an educational value would better serve the public interest – at least in the short term.

Buying likes to boost followers

The HCA has recently dealt with another legal issue relating to influencers: the practice of buying fake followers to appear more popular than in reality. The number of followers is something that many people look at when deciding who to follow and it is a metric which brands frequently use to measure the possible audience their advertisement might reach.

This question emerged when a Hungarian violin artist suddenly gained more than half a million new followers from South Asia and became the second most-liked Hungarian celebrity page on Facebook. While there is no official press release from the HCA regarding this issue, it has provided information to an online newspaper on the ongoing competition supervision proceeding. The HCA has outlined that acquiring likes and followers for financial consideration and displaying it on a page may deceive both consumers and business partners regarding the positive assessment of the artist’s reputation and popularity.

While the proceeding is still pending, it will be interesting to see whether the HCA closes the case with commitments or whether it considers it necessary to impose a fine.

Comment

Although the HCA has applied a supporting, non-punitive approach towards these practices, after a certain grace period any non-compliance will induce the possibility of a significant fine (the statutory maximum is 10% of the undertaking’s turnover of the previous business year) being imposed. Affected market players should develop a practice based on the above guidelines and seek professional advice to prevent possible legal consequences. 

By Anna Turi, Attorney at Law, Mark Kovacs, Associate, Schoenherr 

Hungarian law has always permitted shareholders of a company to limit the power of the company’s managing director(s). Thus, it has also been allowed to appoint a managing director without any right to represent the company.

However, so far, the limitation on the representation rights of a managing director could not be registered in the Companies Register (other than individual or joint signing authority), and therefore, it could not be regarded as publicly available information. Consequently, the limitation was not valid in respect of third parties.

Based on the most recent amendment to the relevant law, which became effective on 1 July 2018, a new section was added to the Companies Register for the registration of managing directors without representation rights. According to this change, three kinds of representation rights may appear in the Companies Register:

• individual right of representation; 
• joint right of representation; and
• [complete] lack of representation rights.

The change is positive since it enables the Companies Register to properly reflect what has already been the practice especially at large companies (e.g. private companies limited by shares and public limited companies), where the members of the board of directors have often been appointed without representation rights, and solely to serve management purposes during the internal decision-making process of the company.

In order to actually introduce a managing director without signing authority at a company, the shareholders must resolve on the respective amendment to the company’s articles of association (or deed of foundation). The amendment must then be filed with and registered by the relevant company court. All these steps require the assistance of a Hungarian licenced attorney at law. 

By Kinga Hetenyi, Managing Partner, Adrian Menczelesz, Associate, Schoenherr 

The so-called Integrated Legislation System (ILS; in Hungarian: Integrált Jogalkotási Rendszer) is planned to be implemented in Hungary by the end of 2018. The main purpose of the ILS is the reduction of the administrative burdens of the public administration and the increase of the quality of the services for citizens and companies by the administration.

The expert framework system will cover the entire process of the legislation from the preparation of the first draft of the law until its publication in the Official Hungarian Gazette (in Hungarian: Magyar Közlöny). The ILS will support the legislation of local municipalities and renew the publication system of the municipality decrees. 

In the framework of the ILS, the National Law Store available on the link will also be updated. An intelligent searcher for legal regulations will be implemented to ensure faster access to the Hungarian laws by the users. The searcher will also be available on a mobile application and from a personalized administrative surface with thematic legal regulation services.

By Gabriella Galik, Partner, KCG Partners Law Firm

Hungarian businesses have the “sword of Damocles” hanging over their head as the new European data protection regulation (“GDPR”) is applicable as of 25 May 2018. Due to the fact that the majority of the Hungarian companies are micro-enterprises, the administrative burdens cause an impossible obstacle to them.

The amount of the administrative fines may be up to EUR 10 million or, in the case of an undertaking, up to 2% of the total worldwide annual turnover of the preceding financial year, whichever is higher. In case of a more series infringement of the provisions of the GDPR, the fines may be up to EUR 20 million, or for an undertaking, 4% of the total worldwide annual turnover of the preceding financial year. 

According to an economic analyst, 54% of the Hungarian companies have fewer profit before taxes than the 2% of their annual turnover. In case of the application of the highest administrative fines, 61% of the Hungarian companies have fewer profit before taxes than the 4% of their annual turnover.

According to the Hungarian newspapers, the competent authorities do not intend to impede the operation of the Hungarian companies, rather to assure their GDPR compliance, and the gravity of the infringement will determine the amount of the administrative fines. In relation to small-and medium sized enterprises, the Prime Minister’s Office stated that the National Authority for Data Protection and Freedom of Information will not impose administrative fines for the Hungarian SME-s at the first place, but rather notices them. This is possible under the GDPR, since the Member States have the power to adopt a more customer-friendly approach to implement the regulation. 

By Rita Parkanyi, Partner, KCG Partners Law Firm