Category: Hungary

Former Kinstellar Budapest Head of TMT Zsombor Orban has joined Deloitte Legal as a Partner and Head of Privacy and TMT in Hungary. He is followed by former Kinstellar Associates Daniel Nagy and Flora Szalai.

Prior to his move, Orban had been with Kinstellar since 2016, when he joined as an Attorney at Law. In 2017, he was promoted to Senior Associate and was appointed to Head of the TMT practice in Budapest in May 2018. In January 2019 he was further promoted to Managing Associate. Earlier, Orban worked as a Legal Advisor for Nestle Hungaria and as an Associate with Budapest Law Firm No. 5000 and with the Bogsch and Partners Law Firm.

Alongside Orban, Nagy is joining Deloitte as a Senior Associate, while Szalai is joining as an Associate.

“We are looking forward to team up with the market-leading IT risk and advisory teams of Deloitte, and to take the data protection and privacy legal services to a next level in Hungary,” said Orban.

Business start-ups and terminations reflect the recovery of the Hungarian economy after the downturn following the outbreak of the coronavirus epidemic. In the second quarter of last year, when the epidemic hit the country, only 5,041 companies were set up. Meanwhile, in the last three months of last year, the number was close to 9,000 and in the first quarter of this year it has already exceeded 9,000, as we discussed in a recent joint webinar with OPTEN.

Moreover, the latest figures already surpass the results of the period before COVID-19, when there were typically between 7,000 and 7,500 company start-ups per quarter. In addition to a comprehensive assessment of the situation, the webinar also discussed the new developments for 2021 which will provide a lifeline for businesses in payment difficulties or insolvency.

The opposite trend is seen for terminations. While 9,166 companies disappeared from the register between the beginning of April and the end of June last year, the number had fallen to 4,351 by the first quarter of 2021. The figures reflect the fact that from spring 2020, many people postponed their plans to start a business as the outlook suddenly deteriorated dramatically. However, the situation now seems much more stable and there seems to be a revival in the propensity to start a business.

There are also interesting trends in the number of liquidations and winding-ups, although the dynamics are much more moderate. OPTEN recorded 841 liquidations in March last year, compared with 629 in the same period this year. In the case of liquidations, the number of proceedings has fallen from 572 in 2020 to 423, also based on March data. In addition, the number of forced liquidations is also on a downward trend falling from 1,319 in April last year to 46 in March this year. It should be added that the latter is most likely due to the government decree restricting the imposition of compulsory liquidation procedures, which was introduced during the first wave.

“The figures also show that following the onset of the crisis there has been a clear increase in firm turnover, a reduction in life expectancy, and an increase in risks. By the beginning of this year, however, there was a clear return to entrepreneurship,” said Edit Nagy, OPTEN’s sales manager.

New insolvency procedures “on the horizon” 

In an economic environment characterized by the temporary or permanent insolvency of entire sectors, the changes that insolvency law is currently undergoing are particularly pertinent. In addition to the bankruptcy and liquidation procedures, with which many are familiar, two new features have been added to the range of insolvency procedures: reorganization and restructuring. While reorganization is a type of procedure regulated by a government decree as part of the emergency package to mitigate the economic symptoms caused by Covid-19, the restructuring procedure is based on a European Union directive adopted before the emergence of the coronavirus. The law transposing the Directive into national law was published in the Hungarian Gazette at the beginning of June. Both pieces of legislation are intended to help businesses that are in temporary difficulties but are fundamentally viable to stay afloat.

The two new types of procedure have many similarities and there are also elements that are most similar to the well-known bankruptcy procedure in Hungary. The one striking difference is that in the new types of procedure the company concerned can decide whether to go public or not. In the former case, an ‘RA’ or ‘SZA’ suffix is added to the name of the company to indicate the type of proceedings it is undergoing.

The non-public form may be attractive to companies as it does not carry the negative stigma of compulsory registration. However, in some respects, it is more demanding than the public procedure. In this case, it is possible to choose which creditors are to be included in the procedure and only those creditors are to be notified. With them, however, a unanimous decision on all substantive issues is required. In the public process, all customers will be notified but an unanimous vote of 60 percent of them will be sufficient to vote on a particular issue. It will be up to each business to decide for itself which process it considers most likely to succeed.

It is still uncertain how the reorganization procedure caused by the viral situation will be received by economic operators, as well as how long companies will be able to use the reorganization instrument. However, the Restructuring Directive had to be transposed into Hungarian law by this summer: the relevant law will enter into force next summer so the earliest we will see the above-mentioned company names with the “SZA” suffix will be 2022. 

It is generally accepted that bankruptcy proceedings have failed to fulfill their intended role of facilitating the reorganization of businesses over the years, as evidenced by the persistently low number of bankruptcy proceedings. At present many believe that the number of bankruptcy filings will continue to decrease with the emergence of new types of procedures.

By Tibor Nyitrai, Attorney At Law in cooperation with act Ban & Karika Attorneys at Law

The European Data Protection Supervisor (“EDPS”) has issued a guidance document entitled “Return to the Workplace and EUI’s (European Institutions, Agencies and Bodies) screening of Covid immunity or infection status” (the “Guidance”).

Basically, the Guidance is to be applied by the EUIs; however, its findings might also be relevant for other employers.

Personal data regarding Covid-19 vaccines

In the view of the EDPS, as long as Covid-19 vaccinations are not obligatory in the EU, processing of employees’ vaccination-related personal data is neither necessary nor proportional. It is also not obvious whether this kind of data processing has an appropriate legal basis. Accordingly, the Guidance recommends that employers avoid collecting and processing employees’ personal data in regard to vaccination status, irrespective of whether providing this data is voluntary or obligatory.

However, the Guidance does not preclude processing of aggregated health data (e.g. for the purpose of preparing a risk assessment), provided that this data is anonymized.

This approach is consistent with the practice of the Hungarian Data Protection Authority (“Authority”) in regard to processing the Covid immunity status of employees as elaborated on in the guidance issued by the Authority on 1 April 2021.

Antigen test required by employers

In connection with data processing related to antigen tests, the Guidance states that introducing obligatory antigen tests may be considered necessary and proportional only in exceptional cases, such as exposed positions or in situations where the health and safety work conditions cannot be ensured by less invasive measures (e.g. social distancing and use of masks).

Use of EU digital Covid certificates

The essential function of EU digital Covid certificates is to ensure freedom of movement within the EU. The Guidance also provides that using the EU digital Covid certificate for other purposes requires explicit authorization under national law. In accordance with the Guidance, EUIs can only use EU digital Covid certificates  if the purpose for which the data processing is intended cannot be achieved through a less invasive measure.

By Edina Czegledy, Counsel, and Laura Lukacs, Legal Advisor, Noerr

Hungarian law firm KNP Law has promoted Laszlo Agai to Partner.

A member of the M&A and corporate practice group, Agai has been with the firm since September 2020. Before that, he was an Attorney with LegalAgain Attorney Partnership, between 2012 and 2018, and with Gide Loyrette Nouel, between 2003 and 2010. Earlier still, he worked for three years for Linklaters as a Trainee Lawyer and for two and a half years as an In-House Lawyer with Geodis in Paris.

According to the firm, he graduated from the University of Paris I Pantheon-Sorbonne where he also obtained a postgraduate degree in foreign trade law. He began his professional career in France, where he lived for 13 years.

“Laszlo is a steady member of our professional team and has a special connection with French businesses,” commented KNP Law Managing Partner Kornelia Nagy-Koppany. “He has the skills and experience to be a Partner at our firm and we are very glad to have him on board.”

Schoenherr has advised Berlin-based electric scooter rental startup Tier on its entrance into Hungary.

The company announced it will start by making 150 scooters available in Budapest’s districts VIII, IX, and XI, making it the fourth such company in the country after Lime, Breezy, and Bird.

The Schoenherr team was led by Managing Partner Kinga Hetenyi and included Counsel Daniel Gera, Attorneys at Law Laszlo Krupl and Daniel Varga, and Associates Anita Vertes, Adrian Menczelesz, and Akos Kovacs.

The draft of a huge EU solar tender for the residential sector was published by the Hungarian Government at the end of August 2021. The draft proposal shows that households earning less than the national average income will be eligible for 100% non-repayable grants of between HUF 3-11.5 million (EUR 8,500 – 31,500) for green investment purposes.

According to the draft, applicants receive the grant based on what type of project they want to complete (i.e. installation of a solar system alone, installation of solar panels and heating modernization with a heating panel, or installation of solar panels and heating modernization with a heat pump). The total budget of the tender is expected to be around HUF 201 billion (EUR 572 million), which is mainly provided for by the EU recovery fund to help alleviate the effects of the coronavirus crisis. The tender is expected to result in 175 megawatts of newly installed solar capacity in Hungary. Around 35 000 households are expected to apply for the grants, which means a huge demand of solar panels and installation works.

The solar sector in Hungary was developing rapidly in the last two decades, the trend of shifting to renewable sources for energy supply, developing solar projects both for industrial and residential buildings to achieve a sustainable economy is now a crucial part of the Hungarian infrastructure. Solar installation in all sectors (commercial, residential, utility) is increasing every year with most of the added capacity in the utility sector. Even during the pandemic, the PV industry kept growing, with more than 100 GWp installed till the end of January 2021.  In the latest Hungarian tender (for all types and sizes of solar projects) issued in April 2021, a total of 1009 GWh of support demand was submitted in the applications, which compared to the 300 GWh to be allocated, means an oversubscription of around three and a half times.

With the introduction of the above residential tender, similarly high residential interest is expected, which means that the solar and the renewable energy sector, along with companies operating in this field can receive a significant boost both in manufacturing, installation and maintenance service demands. However, it is important to note that contractors wanting to participate will need to pre-register, as only registered companies will be able to participate in the tender.

Regarding the scheduling of the tender, contacting the registered contractors will be possible from the beginning of October 2021 and from the beginning of November 2021 it will be possible to conclude a pre-contract with the contractor. The tender will be launched in four phases until February 2022, with the first phase starting on 15 November 2021 and ending in mid-December 2021.

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

The Curia has made a legal uniformity resolution no. 7/2021 PJE on the enforcement of the rules of contract transfer. The resolution has been trying to put an end to the issues of contract transfer, especially in the case of agricultural leases. The previous legal practice was based on the interpretation that the contract shall be deemed to be a new contract in respect of all rights and obligations transferred.

However, the new resolution sought to deviate from this interpretation. The Curia stated that a regulated contract transfer is a transfer of all the rights and obligations of the party leaving the contract to the party entering into the contract, while maintaining the continuity of the legal relationship. Therefore, it results in a legal succession between the withdrawing and the entering party. In summary, the Curia indicated that the transfer of the contractual position terminates the obligation between the withdrawing and the remaining party, and all previously created rights and obligations, with the exception of the personal rights and obligations of the withdrawing party, remain the same between the party entering into the contract and the party remaining in the contract.

By Levente Csengery, Partner, KCG Partners Law Firm

With respect to the evaluation of the success of the incorporation of certain provisions of the Hungarian Civil Code in the practice and the regulatory proposals developed by the case law, the amendment of the Civil Code has become necessary, therefore, at the end of June 2021, an act amending the Hungarian Civil Code has been published.

Some provisions entered into force on 1 July 2021. For instance, the rule has been eliminated under which the general partnership and the limited partnership must be terminated by the operation of law in case the number of members in the general partnership is reduced to one, or the membership of all general members or all limited members in the limited partnership ceases to exist. In the light of the above, the provision maintains the six-month obligation for the company to register a new member with the court of registration, but it terminates the limitation nature of this period and it does not link the consequence of the termination of the company to the failure of this obligation.

Most of the new provisions will enter into force only on 1 January 2022. For example, the rules on additional payment (in Hungarian: “pótbefizetés”), which are already well established in the limited liability company regime, will be transferred to the common rules for companies. However, in case of a public limited liability company there is no reason to introduce the institution of additional payment, therefore, its statutes cannot provide for the additional payment. Furthermore, the so-called “fill-up” rule will be significantly simplified, which is difficult to interpret currently. The amended rule sets out in a clear provision what the legislator actually intended, namely that the members may decide to provide a cash contribution to the burden of dividends, in whole or in part. The company is therefore entitled to decide on dividend, however, dividend cannot be paid to a member who has not yet provided its cash contribution, but it must be settled against the cash contribution not yet provided. In practice, the need has arisen to set a time limit for the provision of the cash contribution, therefore, the member must provide its cash contribution within three months following the adoption of the accounts for the second full financial year (covering a period of twelve months) from the date of the registration of the company at the latest.

Finally, some new provisions will enter into force only on 11 July 2023, e.g.  the rule that makes it clear that not all shares of the public limited liability company need to be listed on a stock exchange. The stock exchange and securities market rules require only that at least one series of shares shall be listed on the stock exchange.

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

The European Commission approved the creation of a new synthetic securitisation product under the EU State aid regulation. The new product is in the form of guarantees on synthetic securitisation tranches to help companies affected by the COVID-19 outbreak in the 22 participating Member States (i.e. Austria, Belgium, Bulgaria, Croatia, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Lithuania, Luxemburg, Malta, the Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain and Sweden). The product is under the European Guarantee Fund and managed by the European Investment Bank Group (EIB Group). The dedicated budget is EUR 1.4 billion, however, it is expected to mobilise at least EUR 13 billion of new lending to companies affected by the COVID-19 outbreak.

Synthetic securitisation is a financial technique, whereby an issuer identifies a pool of existing assets (e.g. a portfolio of loans) which are hold on its balance sheet, it creates tranches with different risk or reward profiles against that pool, and subsequently transfers a part of the risk originating from the pool by buying protection on a specific tranche (for example by getting a guarantee on the relevant risk tranche) from a protection seller. Finally, the originating entity pays a premium to the protection seller.

By the new instrument, the EIB Group will endorse a financial intermediary with protection in the form of a guarantee on a specific risk tranche for an existing portfolio asset. Nevertheless, the portfolio needs to fulfil certain requirements in terms of maximum size and contain only performing exposures. Due to the provided guarantee, the financial intermediary will be charged with a subsidised guarantee fee by the EIB Group.

The financial intermediary will have to pass on the financial advantage which is originating from the transaction to the ultimate beneficiaries of the instrument. The financial intermediary will be obliged to use regulatory capital freed up to create a new pool of assets to meet the liquidity needs of SMEs, while complying with certain conditions in terms of riskiness, volume and maturity of the new loans. The aim of new instrument is to support originate new, riskier lending to SMEs.

By Krisztian Brody, Attorney at Law, KCG Partners Law Firm

In response to the ongoing COVID-19 pandemic, on 6 August 2021 the Hungarian Government issued Decree No. 474/2021 on the different application of the Patent Act (Act XXXIII of 1995). According to the decree, patent applications filed after the entry into force of this decree will not be subject to a maintenance fee for the first three years of patent protection. The decree was promulgated on 6 August 2021 and will remain in force until the end of the state of emergency related to COVID-19.

Although no reasoning was provided to the decree, the decree is in line with the Government’s aim to encourage research and development. Lifting part of the financial burden of obtaining patent protection on innovations may boost Hungary’s innovation performance and facilitate economic growth disrupted by the pandemic.

The owner of a patent has exclusive rights to exploit the invention. Without exclusive rights through patent protection, there would be no chance of a return on research and development activities, since other companies could copy the results and enter the market with the same product while spending nothing on their own development process.

Exclusive rights over a patented invention give the patent owner absolute discretion over whom they grant licences to and how they exploit the invention. However, especially in the middle of a worldwide health crisis, this poses a risk that holders of patents for things like medical products, active substances, procedures and equipment needed to fight the pandemic would not be able to ensure the required supply. To address this contradiction, the Hungarian legislator modified the Patent Act and introduced the public health compulsory licence. The new rules have been in effect since 18 June 2020. If the Hungarian Intellectual Property Office grants a compulsory licence to the applicant, the applicant will obtain the right to exploit the invention, e.g. to manufacture and sell a patented drug. Although the patent owner is entitled to a fair licence fee for the compulsory licence, the patent owner is still deprived of its exclusive right to decide on the exploitation of the invention.

Conclusion

The Government seems to be giving with one hand and taking away with the other. It is to be seen how the discount offered on maintenance fees may offset the potential negative implications of the newly introduced public health compulsory licensing hanging over the heads of patent owners like a sword of Damocles.

Nevertheless, as the discount on maintenance fees is offered only on patent applications filed before the end of the state of emergency, we encourage all innovators to take advantage of this non-recurring opportunity.

By Mark Kovacs, Attorney at Law, Schoenherr