Category: Hungary

Hungarian corporate law firm HBK Partners has entered into a strategic partnership with Moore Hungary, the local member of audit and advisory network Moore Global. As a result, the law firm changed its name to Moore Legal Kovacs.

According to the newly formed entity, its “scope of activities will be further expanded, strengthening its position in the Hungarian advisory and international legal market.” Moore Legal Kovacs Managing Partner Marton Kovacs will continue to head the firm’s M&A and capital markets teams.

“We are delighted to welcome Marton and his team to Moore Hungary and the Moore Global family,” Moore Hungary Managing Partner Akos Boross commented. “With the accession of HBK Partners – in addition to corporate finance, tax, auditing, hotel, and tourism, as well as accounting and payroll services – we will now be able to provide our clients with complex legal advice, thus further strengthening our position in the Hungarian and global advisory market.”

“Joining Moore Hungary will enable us to provide our clients with a one-stop-shop type of service, and to work more efficiently with our clients in cross-border transactions with the Moore Legal network of Moore Global,” Kovacs added.

Former Counsel Daniel Gera has been promoted to Local Partner with Schoenherr’s office in Hungary as of February 1, 2022.

Specializing in labor and employment law, Gera joined the firm in 2015, as Attorney-at-Law, and was promoted to Counsel in 2018. Before that, he spent over six years at Gide Loyrette Nouel as Attorney-at-Law, between 2008 and 2014. Earlier, Gera was an Associate with PwC Hungary, from 2004 to 2008.

“The promotion of Daniel Gera to Local Partner will further strengthen our position on the Hungarian market and serves as recognition of the added value he brings to our Hungarian team – not only with his outstanding legal expertise and commitment to client service but also with his versatility and excellent people management skills,” Schoenherr Hungary Managing Partner Kinga Hetenyi said of the appointment.

“Over the years, Daniel has solidified his reputation as one of Schoenherr Hungary’s most accomplished legal experts, with a remarkable track record in all aspects of employment law,” Schoenherr Head of Labour & Employment Stefan Kuhteubl added. “He perfectly combines our core values in his work: focusing on the interests of our clients and delivering top expertise in his legal practice. We look forward to seeing him bring our Labor & Employment practice group to the next level and expanding our expertise even further.”

Noerr has advised BBA Capitalpartners on the establishment of a Hungarian joint venture company with Mertcontrol.

Mertcontrol, which was established in 1951 as a state inspection body, is a company performing qualitative and quantitative inspections in the agricultural crops, soils, fertilizers, environmental protection, food, mineral oil, and metal industry sectors in Hungary and the CEE region.

BBA Capitalpartners is a Germany-based owner-managed investment company offering long-term entrepreneurial capital to the SME market.

Noerr’s team included Partner Zoltan Nadasdy, Counsel Akos Mates-Lanyi, and Associate Esztella Cseh.

Noerr did not reply to our inquiry on the matter.

As technology plays an ever-growing part in our lives, lawmakers, as well as high-tech companies have to deal with the problem of inheritance of these digital assets. The importance of these assets is demonstrated by the fact that according to notaries, they became part of succession in an increasing number. One has to pay attention to the inheritance of these accounts, since it can easily happen that heirs will not be able to access for example the deceased persons’ cryptocurrency account.

Digital assets range from Facebook profiles to cryptocurrency accounts, and their most important common feature is that they are guarded with a password. A crucial aspect of the inheritance is to what extent will heirs be entitled to use the inherited asset. In the absence of proper legislation, the tech companies started to regulate this matter, however not consistently. For example, heirs could access the deceased persons’ Facebook profile, without ever being able to see the previously sent messages, while Google gives full access to the heirs. The access is granted usually after the heirs provide a death certificate or other equal document.

According to dr. Tamás Parti, Vice President of the Hungarian Chamber of Civil Law Notaries, there is no harmonized response to the question regarding the fate of an invention found on a Google Drive account or the manuscript of a bestseller book. An even greater challenge is posed by cryptocurrencies as they are per definition non-regulated. He outlined that sooner or later lawmakers have to regulate this field as the owner of such digital assets became an everyday phenomenon. If one would like to ensure the proper inheritance of digital assets, that person must be forward-looking. A proper and maintained will shall be helpful.

By Levente Csengery, Partner, KCG Partners Law Firm

The amendment to the Government Decree on the energy performance of buildings, in force from 1 January 2022, requires parking spaces in existing buildings, new buildings or buildings undergoing major renovation (including the electrical infrastructure of the building) to be equipped with an electric car charger or to have an electrical connection facility to enable the charger to be installed at a later date.

The annex to the Government Decree specifies the buildings for which a charging point must be installed and the number of parking spaces for which a charging point must be prepared in advance. In the case of a new construction or a major renovation involving electrical infrastructure for non-residential buildings, if there are at least ten parking spaces and the parking is located within the building or directly adjacent to the building, it is mandatory to install an electric charging point, and every fifth parking space shall be adequately equipped for the subsequent installation of a charging point.

For residential buildings, if there are more than ten parking spaces and the parking is located inside or directly adjacent to the building, the preparation for the possible electrical connection of each parking space to have a charging point is required. In the case of already existing non-residential buildings with 20 or more parking spaces, at least one electric charging point must be installed from 1 January 2025 if the parking space is located inside or directly adjacent to the building.

It is important to note that the non-residential building category includes not only stores and shopping centres, but also office buildings, parking garages, commercial buildings (excluding indoor markets), independent shops, retail shops, consumer goods repair shops, service stations, accommodation and catering buildings (excluding camps), buildings used for education, health care, entertainment, sports and public entertainment. However, there is no obligation for existing residential buildings, so it is primarily up to the residents’ association to decide whether to allow residents with electric cars to have a charger installed inside the parking of the condominium.

The new regulation, which entered into force on 1 January 2022, could give a new boost to the uptake of electromobility since it contains requirements for most new non-residential buildings. As the trend of opting for green(er) energy and technology continues to spread, this legislation aims to fortify and support wider e-vehicle use and maintenance.

By Gabriella Galik, Partner, KCG Partners Law Firm

Kinstellar has advised MVM CEEnergy on a joint venture with Aspect for the exploration and exploitation of hydrocarbons and the participation in a large gas/condensate discovery in Hungary. RSM Legal Szucs & Partners reportedly advised Aspect.

MVM CEEnergy is a natural gas trader in Hungary.

Aspect is a US-based exploration and energy investment company.

Kinstellar’s team included Managing Partner Kristof Ferenczi, Partners Anthony O’Connor and Balazs Sepsey, Managing Associate Agnes Szabo, and Junior Associate Judit Sos.

Editor’s Note: After this article was published, RSM Legal Szucs & Partners confirmed its involvement in the deal. The firm’s team included Managing Partner Balint Szucs, Senior Associate Karoly Udvardy, Associate Gergely Pal, and Junior Associate Patrik Papai.

The act on the Enforcement of Material Compensation for Delay in Civil Proceedings entered into force on 1 January 2022. In the past decades, the European Court of Human Rights has repeatedly indicated that the Hungarian legal system does not provide a domestic remedy which is considered effective by the Court and would serve to prevent the delay of court proceedings or to remedy the damage caused by such proceedings. In its judgment in Gazsó v. Hungary, the European Court of Human Rights called on Hungary to establish a domestic remedy capable to handle the structural deficiencies identified in the judgment. As a result, the Act establishes a new legal remedy for compensation for violation of fundamental rights, called material compensation (in Hungarian: “vagyoni elégtétel”).

The Act determines the calculation of the court proceedings and the time periods considered reasonable which must necessarily be sufficient to enable the court to carry out the procedural actions necessary for a reasoned decision in the case in question. As a general rule, the duration of court proceedings is deemed reasonable if it does not exceed 60 months from the date of commencement of the proceedings at first instance to the date of notification of the final decision closing the proceedings. However, in specific cases requiring a rapid decision (e.g. action for the maintenance of a minor child or action for press retraction), a shorter objective period of 36 months has been established for the entire judicial procedure. The daily amount of material compensation is HUF 400.

A claim for material compensation may be brought in a civil non-contentious procedure before a court. The General Court of Debrecen and the General Court of Pécs shall have jurisdiction and exclusive competence to hear the proceedings. In order to ensure the efficient and expeditious conduct of the non-contentious proceedings, there is a maximum time limit of 15 days defined for the court’s general obligation to take action and a time limit of 30 days for the written submission of the counterclaim. The court must issue a decision on the merits of the proceedings within 3 months from the receipt of the counterclaim.

The Act shall be applicable to claims for material compensation in respect of legal proceedings pending at the time of its entry into force and those commenced thereafter.

By Lidia Suveges, Attorney at law, KCG Partners Law Firm

In its recent decision issued on 27 January 2022, the Constitutional Court annulled an important rule of the Tax Procedure Act with regards the prolongation of limitation period. The decision is fundamentally beneficial for taxpayers, but also triggers some uncertainty for repeated proceedings going forward.

The decision follows the Szeged Regional Court’s request for a constitutional review of the applicable law in an ongoing lawsuit before it. The case concerned late payment interest and default penalty of HUF 142 million (approximately EUR 400,000) imposed by the tax authority for VAT fraud dating back to 2010.  The case had gone through several stages of tax office and court proceedings in the past 10 years, finally to the Supreme Court (Kúria) and then to the Szeged Regional Court. The latter referred the case to the Constitutional Court stating that the applicable rules on the statute of limitation rule were unconstitutional and to be annulled.

Substantially, the Constitutional Court had to decide whether a subsequent extension of the default limitation period of five years could be applied in an ongoing case that had been pending for ten years. To make it more difficult, there were several changes in the applicable rule in the meantime: in 2012 Parliament extended the limitation period by six months, in 2015 by one year if the court orders a new procedure in relation to a decision of the tax authority and in 2018, with a new Code of Tax Proceedings coming into force, the one-year extension to be applied in new and repeated proceedings, as well. In practice, this resulted in the peculiar situation that the old rules were to be applied in tax proceedings having been initiated before 1 January 2018, but if a repeated proceeding was ordered, it had to be decided under the new rules.

It shows the importance of the case that Mr. Mihály Varga, Minister of Finance has also officially taken side in the question, arguing in his ‘amicus curiae’ that the given provision was not in conflict with the Constitution and even if it had been, the annulment of the provision would violate legal certainty. 

The Constitutional Court, however, found that (1) the application of the new rules placed the taxpayer concerned in a more disadvantageous position, and (2) the examined legislation was of retroactive effect, since not a procedural but a substantial had been altered negatively, therefore, the extension of the limitation period violated the prohibition of retroactive application of the law.

As a consequence, the Constitutional Court, besides annulling the challenged provision, rendered that it cannot be applied in the case concerned. However, the Constitutional Court’s judgment creates a degree of uncertainty regarding similar repeated proceedings in the future. In principle, this decision leaves it to the tax authorities and the courts to decide – given the explicit rule annulled – which set of procedural rules to apply in such cases.

By Balint Zsoldos, Head of Tax, KCG Partners Law Firm

The crowdfunding regulation of the European Union (Regulation (EU) 2020/1503 on European crowdfunding service providers for business, “ECSPR“) entered into force on 10 November 2021, which was a long-awaited legal development both within the European Union and on the Hungarian market. Even the Hungarian National Bank suggested in its Fintech Strategy that a regulatory framework for crowdfunding would be essential to assist financing of SMEs and therefore, enhancing competitiveness on the Hungarian market. Prior to the ECSPR, there was no uniform crowdfunding regulation within the European Union and Hungary did not have a regulatory framework for crowdfunding; thus, the Hungarian National Bank had to assess such activity pursuant to the already existing rules. The ECSPR established a directly applicable and uniform regulatory framework aiming to facilitate cross-border provision of services. We summarize below the latest legal developments in connection with the ECSPR.

EBA’s final draft technical standards

The ECSPR mandated the European Banking Authority (“EBA“) to develop two regulatory technical standards in close cooperation with the European Securities and Markets Authority (“ESMA“). EBA published the first draft technical standards of the two mandates in the last quarter of 2021. The technical standards support the ECSPR’s goals, i.e. fostering cross-border provision of crowdfunding services through ensuring uniform conditions for crowdfunding service providers across the European Union and in the meantime, providing a robust framework for investor protection. Investors are exposed to risks in connection with the loans and projects in which their funds are invested. In order to enable investors to have access to all relevant information about the composition of their portfolio (including the projects where their funds are invested and the quality of the loans financing such projects), the technical standards specify information that crowdfunding service providers must provide to investors on each individual portfolio. Investors may also face the risks arising from the method of risk assessment of these loans and projects applied by the crowdfunding service provider. Therefore, the technical standards require crowdfunding service providers to disclose certain information in relation to the method of credit risk assessment (i.e. elements that the description of the credit risk assessment method must contain). Finally, the technical standards specify policies, procedures and organizational arrangements that crowdfunding service providers should have in place when managing contingency funds (to compensate investors in case of the borrower’s default).

ESMA’s final report on draft technical standards

ESMA published in November 2021 a final report on draft technical standards under the ECSPR. Such technical standards are also an important milestone towards a harmonized crowdfunding regulation across the European Union. The report covers all 12 mandates of ESMA assigned to it by the ECSPR; including four with a deadline of May 2022.

The technical standards covered by the report include complaints handling (specification of requirements, standard formats and procedures), certain aspects of conflict of interests regarding crowdfunding service providers, measures and procedures for business continuity plan (which needs to be submitted when requesting authorization to provide crowdfunding services), requirements for the application for authorization (including forms, templates and procedures), methodology for calculating the default interest rates of loans offered on the crowdfunding platform, entry knowledge test and simulation of the ability to bear loss for prospective non-sophisticated investors (arrangements necessary to carry out such assessment and simulation), the requirements for and content of the key investment information sheet (“KIIS“), , data standards, formats, templates and procedures for reporting information on projects to be made by crowdfunding service providers to competent authorities and by competent authorities to ESMA, and standard forms, templates and procedures of notification to be made by competent authorities to ESMA on national marketing requirements, exchange of information between competent authorities in relation to investigation, supervision and enforcement activities, and cooperation between the competent authorities and between ESMA and the competent authorities (specification of information to be exchanged and forms, templates and procedures of the cooperation).

Questions and answers published by ESMA

ESMA assists member states by responding inquiries of the general public, market participants and competent authorities and clarifying certain aspects of the ECSPR, aiming to achieve a convergent application of the ECSPR provisions within the European Union. To this end, ESMA published questions and answers in 2021, which addresses inquiries regarding special purpose vehicles, application of the transitional period, aspects of certain general provisions, organizational and operational requirements, and queries regarding investor protection. The ESMA updated the Q&A at the end of January 2022 by responding questions on the language of KIIS and marketing of crowdfunding projects.

Pursuant to the ECSPR, KIIS must be available for securities offerings. KIIS documents should be drafted in one of the official languages of the member state where the crowdfunding service provider is authorized, or another language accepted by the competent authority of that member state. The ESMA Q&A clarified that if the crowdfunding service provider promotes its services through a marketing communication in another member state, the KIIS documents must be made available in one of the official languages of that member state or another language accepted by the competent authority of that member state. The ESMA also disclosed the languages accepted by the competent authorities and even though Hungary accepts Hungarian and English languages, there are several other member states which only accepts their official languages and therefore, KIIS documents must be translated to their official language (e.g. Austria, Germany, Czech Republic, Romania and Slovakia). In addition, ESMA clarified that marketing communication disseminated in a member state must comply with the national laws, regulations, and administrative provisions of such member state. Thus, crowdfunding service providers need to ensure that the marketing language complies with all of the national marketing requirements where crowdfunding services are promoted. To assist crowdfunding service providers, ESMA disclosed a table summarizing the marketing regulations of the member states.

Next steps

Both EBA’s draft technical standards and ESMA’s final report have been submitted to the European Commission for endorsement process and the European Commission has three months to decide whether to adopt the technical standards. In addition, ESMA will continue to develop the questions and answers on crowdfunding topics that have not yet been addressed in the Q&A. The regulatory standards and the ESMA’s Q&A are welcomed since the crowdfunding regulation was long awaited by market participants. It is expected that the uniform rules will enhance (cross-border) financing of SMEs and thus, the crowdfunding market will advance both within the European Union and in Hungary.

By Virag Palguta, Attorney at Law, Schoenherr

The MNB has launched its Green Program early 2019 to mitigate the risks associated with climate change and other environmental problems, to expand green financial services in Hungary, to widen the related knowledge base in Hungary and abroad, and to reduce financial market participants’ and its own ecological footprint. The Green Program relating to green financial services consists of several initiatives from analyzing the current situation of green financing to incentivizing the financial market participants to operate greener and engaging in green financial services (mainly loans and bonds).

The first step towards promoting green finance in Hungary was when the Hungarian Government issued green government bonds in June 2020, which primarily collected dedicated funds for government investments related to climate and environmental objectives defined in Hungary’s Clean Development Strategy. Since then, many other measures have been introduced to support the financing of green projects.

MNB capital relief

In order to encourage green lending in the banking sector, the green preferential capital treatment for energy efficient mortgages came into force at the beginning of 2020.  Under the new rules, banks can apply a significantly reduced capital requirement for loans financing purchase and construction of energy-efficient properties, including rebuilds.  The capital discount is 5% or 7% of each eligible gross exposure, which reduces the Pillar II capital requirements of the participating institution. The discount rate varies between industries and the type of standards adhered to. In exchange, it is expected that the clients are offered reduced interest rates and fees. 

At the end of 2020, the MNB introduced the Green Preferential Capital Requirement Program for loans financing renewable energy production, but its scope has been extended later on and now it covers solar power plants, sustainable agriculture, energy efficiency, electromobility and green real estates. 

Green know-how

The European Investment Bank (EIB) — the bank of the European Union — and Magyar Fejlesztési Bank (MFB), will cooperate to help MFB’s advisory unit to provide advisory services to Hungarian project promoters. The agreement will enable Hungary’s national development bank to offer support for the investment activities of businesses (small and medium-sized enterprises (SMEs) and mid-caps), municipalities and state-owned companies. The EIB grant to MFB is being provided through the European Investment Advisory Hub (EIAH), part of the Investment Plan for Europe.

MFB’s advisory unit (Üzleti Tanácsadás Csoport), established with the support of a previous EIAH grant, will provide technical assistance and advisory support for preparing, implementing, financing and monitoring investment projects in key sectors of the Hungarian economy, including information and communication technologies (ICT), the environment and resource efficiency. To achieve these goals, MFB will develop an online advisory platform and a financial product map to help project promoters navigate the financing opportunities available to them at the national and EU level. 

Green housing

The Green Home Program was launched during the summer of 2021 as part of the MNB’s Green Program to facilitate the development of green homes and establish a green home loan market. According to the Green Home Program, the MNB provides refinancings to the banks for financing the construction and purchase of green homes. In addition, the MNB launched a Green Mortgage Bond Purchase Program for the purchase of green-rated mortgage bonds with the aim to promote green housing lending from another angle.

Operation

In April 2021 – also as part of the MNB’s Green Program – the MNB issued a Green Recommendation for the banking sector. In this recommendation, the MNB sets out expectations regarding – among others – strategy making, corporate governance, risk management, etc. The goal of the Green Recommendation is to encourage the Hungarian credit institutions to change their operation towards sustainable ways and to prepare for mandatory regulatory changes relevant to climate change and environmental risks. 

Conclusion

In the near future, it is expected that sustainability will become a cornerstone of the regulatory environment. In parallel, the non-financial aspects of an investment will be more and more emphasized during the decision-making process. Greenwashing will no longer be sufficient; the environmental and social aspects will really matter in the market as the investors and the society turns its attention to the matter. This will challenge the current ways of operation of the lending sector and the transition must be well prepared and must start as soon as possible. 

By Gergely Szaloki, Partner, Schoenherr