Category: Hungary

EU energy policy ensures the efficient functioning of the EU energy market and promotes the interconnection of energy networks and the efficient use of energy. It covers all energy sources, from fossil fuels to nuclear and renewables (solar, wind, biomass, geothermal, hydro and tidal).

The European Commission finalised in 2019 the Clean Energy for all Europeans (“CEP”) package, which sets out the blueprint for achieving carbon neutrality by 2050. In December 2018, Directive 2018/2001/EU on the promotion of the use of energy from renewable sources (Renewable Energy Directive – Recast to 2030, RED II) entered into force, defining the concept of Renewable Energy Communities (RECs). The concept of Citizen Energy Communities (CECs) is regulated in Directive 2019/944/EC of the European Parliament and of the Council of 24 October 2019 concerning common rules for the internal market in electricity and amending Directive 2012/27/EU (Internal Electricity Market Directive, IEMD).

The CEP has a clear objective to clarify the rights and obligations of individual or collective producer-consumers (prosumers) connected to the grid. As regards consumer rights, the two Directives provide a framework for the development of energy community regulation. Directive 2019/944/EU sets out a renewed market operating model, the main provisions of which will apply in Hungary from 1 January 2021.

What exactly we can call an energy community is difficult to define clearly, as there are many different forms of community and many different relationships between community and energy.

For example, we can talk about a condominium that installs solar panels on the roof, or an agricultural cooperative that installs wind turbines, or even a municipality that creates a jointly owned solar farm and energy storage unit. The activity does not necessarily have to be energy production, but can also be energy storage or distribution, for example.

The actors in such communities can also be very diverse; in addition to natural persons, they include municipalities, non-profit organisations and small businesses. Different practices have developed in the EU Member States to categorise and regulate these communities, and EU law has sought to standardise this.

The IEMD includes a definition of energy communities, according to which local energy communities are shareholder/member-led organisations that

• is based on voluntary and open participation and is effectively controlled by members or shareholders who are natural persons, small businesses, municipalities or other local authorities;
• the primary objective is not to make a financial profit, but to provide social, environmental and economic benefits;
• may be involved in the following activities: energy production, energy distribution, energy supply, energy consumption, aggregation, energy storage, provision of energy efficiency services, charging of electric vehicles and other energy services to members/shareholders;
• can connect to distribution networks and enjoy non-discriminatory treatment in access to the electricity market;
• share their own electricity production with their members;
• own a distribution system (if the rules of the Member State allow it.)
Under current Hungarian national legislation, energy communities have the right to establish a power plant, to generate, trade and store electricity, to establish a private transmission line and to operate a public lighting system. In the field of electricity, the rights of energy communities do not cover transmission system management, distribution, universal services and the operation of organised markets.

Energy communities are subject to registration, and the registration is carried out by the Hungarian Energy and Public Utility Regulatory Office (hereinafter: “MEKH”), and the energy community is established by a decision on registration. MEKH also keeps records of the activities (production, storage, etc.) carried out by the energy communities for which a licence is required.

By Robert Szuchy, Partner, BSLaw

Crucial amendments to the Hungarian Competition Act entered into force on 1 January 2023, while others will on 1 February 2023. This article briefly describes the most important changes.

Amendments concerning the merger control proceeding

1. Thresholds and fees

Most importantly for those dealing with merger control assessments and notifications, the merger notification thresholds and procedural fees have increased
Until the end of 2022, a merger had to be notified if the combined Hungarian turnover of the groups concerned .

Following the amendment, the combined turnover threshold will be increased to HUF 20bln (approx. EUR 50m) from HUF 15bln (approx. EUR 37.5m), while the individual threshold will be increased from HUF 1bln (approx. EUR 2.5m) to HUF 1.5bln (approx. EUR 3.75m).

Procedural fees will also increase. The fee for a “Phase I” competition procedure will increase from HUF 3m to HUF 4m (approx. EUR 10,000), while the fee for a “Phase II” procedure will rise from HUF 15m to HUF 19m (approx. EUR 47,500). However, the fee for fast-track notification (HUF 1m, approx. EUR 2500), in which most of the mergers are cleared, has not increased.

The legislator justified the increase on the grounds of inflation.

2. Penalties for breach of the duty to notify or the standstill obligation (“gun jumping”)

Rules on fines to be imposed for non-notified mergers or where the transaction was closed before clearance have also changed. The good news for the companies concerned is that the minimum fine has been abolished, so the Hungarian Competition Authority (HCA) can even refrain from imposing the fine in certain cases. At the same time, the maximum daily fine will be increased from HUF 200,000 to HUF 300,000 (approx. EUR 750), which the legislator also justifies by citing inflation, as the previous amount was no longer a sufficient deterrent.

3. Clarification of the voluntary regime and others

In addition, at the request of the industry, the legislator has clarified that if the mandatory notification thresholds are not met, the notification of mergers exceeding a HUF 5bln combined threshold is indeed a voluntary option and not an obligation, even if it is unclear whether the merger will have adverse competitive effects.

Furthermore, the legislator solves a previous problem of practical interpretation of the law by clarifying from which date the turnover thresholds are to be calculated when the merger is notified by the parties, and from which date if the transaction is subject to an ex officio investigation by the HCA, i.e. exactly which financial year will be relevant to calculate the turnover thresholds.

Furthermore, certain transactions of investment funds and private equity firms have been included in the exemptions from notification.

The HCA’s new tool: letter of formal notice

From 1 January 2023 the President of the HCA will have a new tool to enforce compliance: a letter of formal notice to express concerns about suspected infringing conduct.

This will be possible in cases where, in the absence of sufficient information and evidence, there is no reasonable likelihood of an infringement, but where market developments give rise to a suspicion of illegal behaviour.

The letter of formal notice will not be part of the competition supervision procedure, nor will it lead to the establishment of an infringement. The HCA may refrain from the formal opening of competition supervision proceedings if the undertaking concerned successfully dispels the HCA’s doubts about the infringement in its reply to the letter of formal notice or brings its conduct into line with the legal requirements. Interestingly, the HCA will also publish on its website a list of the alleged infringements, the relevant market and the number of letters of formal notice sent in the year under review, without mentioning the names of the addressees. In this way, market players will also be able to find out from the HCA’s website what conducts the authority is concerned about.

New powers for the HCA regarding new EU digital markets legislation

The new Digital Markets Act (“DMA”) regulation is designed to ensure that the big online content platforms, known as “gatekeepers”, operate fairly. If they do not, the European Commission or the authorities designated by the Member States may take action against them. In Hungary, the HCA has been appointed as the competent authority and will have to cooperate closely with the European Commission in its proceedings.

The HCA will be able to open competition proceedings to determine whether the conduct of the gatekeeper company meets the requirements of the DMA regulation. A new chapter of the Competition Act will set out detailed procedural rules.

Entry into force of the new amendments, final remarks

The increase in the merger notification thresholds will reduce the burden on the HCA, as the legislator expects the number of notifications to fall by around 10-15 %. In 2021, a total of 68 mergers were notified to the HCA, so the number of notifications the competition authority will have to deal with is likely to decrease by 8-10 cases per year.

Some of the freed-up resources are expected to be used for the new powers – monitoring the activities of gatekeeper companies and sending letters of formal notice.

Most of the above provisions entered into force on 1 January 2023. However, the increase in the administrative service fee for mergers and the changes in the fines for “gun jumping” will only apply from 1 February 2023.

Companies should check carefully whether the mergers they plan to conclude in the near future are in fact notifiable based on the new thresholds.

By Anna Turi, Counsel, and Mark Kovacs, Attorney at Law, Schoenherr

On November 28, 2022, CEE Legal Matters reported that Jalsovszky had advised Zambo Vagyonkezelo on the pre-exit restructuring and sale of Tuzallotechnika to Alba Industrial Holding. CEELM reached out to Jalsovszky Partner Agnes Bejo to learn more about the transaction.

CEELM: To start, when did the firm become involved in the deal?

Bejo: Luckily, we have been able to be involved at a very early stage, due to the fact that the deal had been preceded by a tax restructuring of the sellers’ group. Representing a family business on the sellers’ side almost inevitably brings up tax issues and we are able to assist from both a tax and an M&A perspective. This is something we believe gives us a competitive edge in the market – being able to assist clients with both the M&A and the tax side of deals is rather unique amongst law firms and our clients are really appreciative of that.

CEELM: Speaking of which, what were the specific areas you advised on, and who took the lead on each from your side? 

Bejo: Our tasks included carrying out a pre-deal restructuring. The Head of our Tax Planning group, Akos Barati, led the team there. The M&A group included me, coordinating the work, with the assistance of Associate Dora Nagy and Junior Associate Lajos Kerekes. Our real estate department was also involved. Levente Bihari, our Senior Associate heading the Real Property group, was taking care of that bit.

CEELM: What would you say was the most complex aspect of the deal?

Bejo: In fact, there have been quite a few challenges. We needed to sign the deal very fast, due to a tight deadline available for the buyer to have an engagement from the financing banks. As a result, some commercial issues have been left to be agreed on until closing, which leads to sometimes rather tense negotiations. Also, coordinating all (tax, commercial, real property) advice needed the close cooperation of all lawyers involved.

On December 27, 2022, Dentons announced that aiMotive’s sale to Stellantis (as reported by CEE Legal Matters on November 30, 2022) had closed.

According to Dentons, “on December 22, 2022, multinational automotive manufacturer Stellantis announced the completion of its acquisition of Hungary-based aiMotive, a leading developer of advanced artificial intelligence and autonomous driving software. The acquisition enhances Stellantis’ artificial intelligence and autonomous driving core technology, expands its global talent pool, and boosts the mid-term development of its new STLA AutoDrive platform. Ultimately, the deal is an essential contribution to Stellantis’ strategy to become a sustainable mobility technology company in the future.”

As previously reported, Dentons advised aiMotive on its sale to Stellantis. Baker McKenzie advised aiMotive shareholders Szechenyi Funds and Lead Ventures on their exit.

Villey Girard Grolleaud and Noerr reportedly advised Stellantis on the acquisition.

Stellantis aimed to “enhance its artificial intelligence and autonomous driving core technology with the acquisition of aiMotive, a startup company based in Budapest, Hungary, with offices in Germany, the US, and Japan, with over 200 highly skilled employees worldwide,” Baker McKenzie informed. According to the firm, “aiMotive will operate as a subsidiary of Stellantis, maintaining its operational independence and start-up culture. It will continue selling three areas of its current technology product portfolio, including aiData, aiSim, and aiWare, to other partners.”

The Dentons updated team included Budapest-based Partners Rob Irving and Marcell Szonyi, Senior Associate Kamran Pirani, and Associates Sebastian Ishiguro, Iryna Nahorniak, and Aliz Wulcz as well as Frankfurt-based Partner Gesine von der Groeben and Senior Associate Lieor Koblenz.

Baker McKenzie’s team was led by Budapest-based Managing Partner Akos Fehervary and Munich-based Counsel Tino Marz.

A number of changes have been recently introduced and will be introduced in the near future in Hungary that fundamentally affect both the most commonly applied legislation, as well as the day-to-day work of lawyers. Below is an overview of the important points of these developments.

Relevant changes regarding the implementation of the Digital Directive

In Hungary, the registration of companies and civil society organizations are managed separately until mid 2023. However, on July 1, 2023, the new Registration Act (Act XCII of 2021 on the Registration of Legal Persons and the Registration Procedure) will enter into force, creating a unified register of legal persons. The private law legislation to date has also anticipated the need for a unified approach to registration, but from July this year this will also be introduced in Hungary, in line with the practice in several EU Member States (e.g. Austria, Belgium, Denmark, Poland). 

The new Registration Act clarifies the provisions implementing the Digital Directive (Directive (EU) No 2019/1151). In particular, the harmonisation obligation concerns the authenticity of the register, its publicity and cooperation with EU bodies. A key regulatory aspect of the new Registration Act is that it facilitates the exchange of information at EU level, whereby Member States inform the requesting Member State whether the person named in the request is subject to a prohibition on holding a position of executive officer in the Member State concerned.

Major changes in employment law

As of January 1, 2023, the Hungarian Labour Code (Act I of 2012 on the Labour Code) has been significantly amended, posing a major challenge for employers and lawyers alike. As a result of the changes, employers’ information obligation has been broadened, consequently employers must now provide employees with detailed written information on, amongst other matters, working hours, the rules concerning the termination of employment and the employer’s training policy.

With the amendment of the Labour Code, provisions on paternity leave and parental leave were introduced. In the former case, the father is entitled to 10 working days’ leave, at latest by the end of the second month following the birth or adoption of his child, meanwhile, in case of parental leave the employees are entitled to a total of 44 working days of parental leave up to the age of three of their children. In addition to the above, there have also been substantial amendments to the provisions on probatory periods, time limits, the reasoning in connection with the termination of the employment relationship and flexible work conditions.

Changes regarding the Land Registry Act and the electronic land registry system

In 2021, a new Land Registry Act (Act C of 2021 on the Land Registry) was adopted by the Hungarian legislator, with the declared aim of replacing paper-based administration with electronic methods, linking the land registry with other publicly certified registers and creating a more transparent regulation of the land registry. The new act was originally due to come into effect in February 2023, however this date has been postponed to 2024, giving the practitioners an extra year to prepare for the major changes. 

In addition to the above, from 2023 the possibility for lawyers and individuals to obtain a non-authentic property deed and a copy of the profile map has been abolished. As a result, from now on only the less cost-effective certified copies of these documents will be accessible. 

New forms in electronic company registration procedures

As of January 1, 2023, the technical conditions for the electronic company procedure being in place since 2008 have changed. Therefore, starting from this year, a new type of form-filling software must be used during the preparation of the applications for company registration ensuring the compliance with the newly introduced standards. Consequently, forms that do not meet the requirements of the new regulation are temporarily unavailable, therefore lawyers working with these software will have to find new alternatives.

Changes to the rules on electronic communication with the courts and authorities

In addition to the form-filling programs used in electronic company procedures, the technical rules on electronic communication with courts and authorities have also changed. The outdated technology-based form-filling software (ÁNYK) previously widely used for electronic communication was already phased out for authorities in 2022, while in case of the courts, the new, more modern forms (iFORM) for communication are introduced from this year. Both of these software are based on the personal client gate technology operated by the Hungarian state, and in preparation for the changes, the two software will be usable simultaneously until September 2023.

By Aron Bagdi, Attorney at law, Partner, and Zsombor Szakal, Associate, Provaris

Jalsovszky’s Head of Corporate and M&A and former Senior Associate Agnes Bejo has been appointed as a Partner with the firm.

Bejo has been with Jalsovszky since 2013 when she joined as a Senior Associate. She became the Head of the firm’s Corporate and M&A department in 2021. Prior to joining Jalsovszky, she spent over 15 years with Allen & Overy, starting as a Junior Lawyer in 1998 before becoming an Associate in 2002 and a Senior Associate in 2008.

Kinstellar has advised S Immo on the acquisition of six office properties in Budapest valued at EUR 244 million from Immofinanz. Oppenheim advised Immofinanz.

S Immo is a Vienna Stock Exchange-listed real estate investor and developer.

According to Kinstellar, “the acquisition includes the following six buildings comprising around 124,000 square meters of usable space: Thirteen Globe, Thirteen Xenter, Greenpoint 7, Atrium Park, Haller Gardens, and Szepvolgyi Business Park. The purchase price is based on the valuation of the property portfolio carried out by an external expert with a value of EUR 244.1 million as of December 22, 2022.”

Two months earlier, Kinstellar had advised S Immo on its EUR 238.3 million acquisition of Budapest office properties (and a land plot) from the CPI Property Group (as reported by CEE Legal Matters on November 21, 2022). Earlier, the firm had advised S Immo on the acquisition of the EXPO Business Park in Romania from Portland Trust (as reported on April 22, 2022). And, in 2020, Kinstellar advised S Immo on the acquisition of two class A office buildings in Bucharest from developer Skanska (as reported on December 16, 2020).

Meanwhile, Oppenheim had recently advised Immofinanz on the acquisition of a retail property portfolio, including 53 assets in Poland, the Czech Republic, Slovakia, and Hungary, from the CPI Property Group for EUR 324.2 million (as reported by CEE Legal Matters on September 26, 2022).

Kinstellar’s team included Of Counsel Dalma Ordogh, Managing Associate Barnabas Sagi, Associate Bertalan Vanya, and Junior Associates Anna Szilagyi and Kalman Varga.

Oppenheim’s team included Partner Mark Pinter, Counsel Janos Fodor, and Associate Mark Ratkai.

 

Former Kapolyi Law Firm Partner Jozsef Antal joined Grundfos as its Lead Legal Counsel in Hungary. 

Antal joined Kapolyi Law Firm in 2020 as a Partner and Head of Disputes (as reported by CEE In-House Matters on September 7, 2020). 

Before that, he had served as Metro Cash & Cary Hungary’s Head of Legal and Compliance between January 2020 and September 2020 (as reported by CEE Legal Matters on January 21, 2020). Earlier still, he was the Chief Legal Counsel of Unix Auto since 2019 (as reported by CEE Legal Matters on July 9, 2019).

Before moving in-house, he was Partner and Head of Dispute Resolution at Baker McKenzie, a firm he first joined in 1999.

Originally reported by CEE In-House Matters.

The global economic downturn has hit Hungary much like the rest of the region but the country may be on its way to a quick recovery on the wings of diverse and dispersed investor interest, according to BLS-CEE Hungary Partner Erzsebet Szalay.

“The global economic slowdown has impacted the entire region, and Hungary has been feeling the consequences too,” Szalay starts. “Still, with the recently passed US inflation reduction act, and with all of the economic activity in Western Europe to keep the markets alive – I’d say that we can expect a quick recovery of the region, in terms of legal work at least.” Additionally, she reports of strong investor appetite coming in from the far east. “In addition to investors from the Netherlands, the Nordic regions, and the US – we have also seen investment interest from China and South Korea.” According to her, these investors are no longer looking only into single countries when deciding on where to place their funds, but are seeking to have more of a “regional footprint for their ventures.”

Focusing specifically on Hungary, Szalay says that, somewhat surprisingly, the bulk of these investments is no longer going to Budapest. “The countryside is developing admirably, with a high number of manufacturing companies seeking to settle all over the country, especially so next to the Danube river.” She notes that most of the upcoming development is to be expected in logistics and infrastructure. “Major production facilities are popping up all over Hungary,” she says.

Turning more to the legal markets, Szalay shares that she expects an increase in dispute resolution. “As usual, whenever there’s an economic downturn, two areas go up in terms of activity – dispute resolution and M&A transactions. In this particular instance, I have to say, however, that disputes are no longer happening due to the pandemic blowback,” she continues. “The cause is to be found in the global economic instability and market volatility – high energy prices, unfavorable forint foreign exchange rates, and the inflation tide, to name but a few. With many companies having settled on their business plans for the next few years and now having to rework their approach, downsize, shrink, or change course – a change in their contract network is logical, but it also means having to deal with commercial litigation,” Szalay explains.

Finally, taking the temperature of the Hungarian economy, Szalay reports good vibrations. “Everyone has a bit of a sunny disposition of late, with a deal being struck for some EU funds. However, receiving the actual funds under the recently sealed political deal is still a way off and, with some of the EU funds still being frozen, the economy might struggle more.” Still, she concludes, “overall, we see a wealth of opportunities.”

According to the Hungarian Civil Code, the debtor is liable to pay interest on any owed money that has fallen due from the first day of the delay in payment, even if the use of the money was free of charge until the delay.

The amount of the interest on payment is calculated by the central bank base rate in effect on the first day of the first calendar half-year in which the delay occurred.If the monetary debt is to be satisfied in a foreign currency, the interest shall be calculated by the base rate of the issuing central bank, or failing to this, by the money market rate. The obligation to pay interest shall be effective even if the obligor justifies his default.

According to the Great Commentary of the Civil Code, if the debtor was originally obliged to pay interest on the money debt and is late in paying the money, they shall pay “cumulative” interest. This cumulative interest is the sum of the original interest plus default interest at one-third of the base rate of the central bank in effect on the first day of the calendar half-year in which the default occurred, but not less than the legal rate of interest on late payments.

According to a new Government Decree issued in November 2022 on the different application of certain substantive provisions on interest on late payments in the event of an emergency, during the emergency, the default interest claim may be enforced up to a maximum of 25% per year, and for the exceeding part, it shall be deemed not to have been concluded.During the emergency, the maximum amount of default interest that may be charged is 25%. The provisions of the decree apply both to default interest due under existing contracts and to contracts to be concluded in the future.

Based on the current rules, the state of emergency is in effect until 29 May 2023. So, from 30 May 2023, interest on late payments in excess of 25% can be claimed and enforced, provided that the emergency is not extended.

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