Category: Hungary

Schoenherr has advised Paris-based MNK Partners on the acquisition of the Kodolanyi Janos University building in Hungary from Defactoring Zrt.

MNK Partners is a fund manager acting on behalf of the MNK One Real Estate Investment Fund, managing a EUR 400 million portfolio in five different countries. Defactoring Zrt is a Hungarian company active in the non-performing loan sector.

According to Schoenherr, “the asset has a total of 7,500 square meters leasable area and 40 surface car parking spaces and it is entirely leased on a long-term basis to the Kodolanyi Janos University. The transaction was performed as an asset deal and marks MNK’s market entry in Hungary.” 

Schoenherr’s team was led by Attorney Laszlo Krupl and included Associates Anita Vertes and Adrian Menczelesz.

In a recent article for CEE Legal Matters, Schoenherr Attorney at Law Alexandra Bognar wrote that Hungary adopted a UBO Register Act this year. We spoke to Bognar to learn more about the new piece of legislation.

CEELM: Let’s start with a bit of context – what’s the UBO register and what is different as of May 2021?

Bognar: UBO stands for “ultimate beneficial owner,” who is the person that ultimately benefits from a company’s financials. The EU sets a threshold for being an ultimate beneficial owner as “controlling” at least 25% of the voting rights in a company. If there is nobody who exists that fulfills this criterion, the managing director shall be considered the ultimate beneficial owner.

The concept of a UBO is important not only because of the existence of people’s curiosity as to who stands behind companies but also for other practical reasons. For example, when it comes to investigating economic crimes, what I’ve had an opportunity to see in practice is that intricate corporate structures can often shadow who’s behind what, and this makes things more complicated to be discovered.   

Although Hungary has already adopted most of EU rules and regulations – and the notion of an ultimate beneficial owner has been in use for years now – the UBO register we expected to be established simply was not happening. Our clients have been asking for two or three years now when will it happen; Hungary was among the final EU member states to establish it. This May saw exactly that.

CEELM: Walk our readers through the update – what are the critical action points?

Bognar: The first thing of note is that the UBO register will be run and managed by the tax authority of Hungary, while the data delivery itself will be performed, primarily, by commercial banks. The reasoning behind this is that every newly established company must set up a bank account – so banks are positioned quite well to be on the beat of things. Also, banks perform a rather thorough Know Your Customer (KYC) check with each and every customer, so they should know a lot about these companies.

Banks have an obligation to report any and all changes of the ultimate beneficial owner of a company on a monthly basis.

CEELM: What happens otherwise – what are the risks and liabilities? 


Bognar: Well, the biggest consequence for businesses failing to comply and report their ultimate beneficial owners honestly and timely will come into play next February.

Next February will see a wide plethora of state bodies such as courts and prosecutors, but also lawyers and the like, gain access to the UBO register. There will be little to no wiggle room for obfuscation of corporate ownership and transparency when it comes to corporate structures unless one wishes to face sanctions. And, on top of that, it will be far, far easier for us, as lawyers, to perform our own KYC while onboarding a new client – with access to the UBO register, it will be easy to compare the data the client gives us and that which is contained in the register. Should there be a discrepancy, we– as well as state bodies or other service providers – can report them to the tax authority rather easily which contributes to the transparency.

CEELM: Does this update affect everyone to the same extent – what are the main differentiators if not? 

Bognar: Well, yes and no.

Yes, in the sense that the same rules are applicable to all entities – e.g. the same data must be given to the banks irrespective of the entity concerned, same deadlines apply, etc.

No, in the sense that the EU AML directive concerns all entities meaning that all UBOs are to be registered irrespective of the type or form of the given entity. The Hungarian UBO act, on the other hand, applies to almost all entities but the legislation does not cover e.g. political parties or public foundations.

CEELM: What’s still left up in the air – what are the main questions you currently receive from clients on this?  

Bognar: Clients are generally interested in knowing what is their to-do with the newly established UBO and what sanctions come into play in case they do not comply.

As mentioned before, prosecutors, judges, lawyers, auditors, and the like will have direct access to the register and will have a chance to report discrepancies. If such a report is made, it will affect the given entity’s TT index. 

CEELM: What exactly is the TT index?

Bognar: The TT index is the trustworthiness or reliability index. Upon being registered, all entities start with ten points and ideally, all entities shall maintain ten points. However, in case a discrepancy is reported, the tax authority amends the entity’s TT index and decreases by one or two points depending on who reported the discrepancy. If the report is submitted by an authority, prosecutor or court, the TT index is reduced by two points while in the case of other service providers, the entity’s TT index is reduced by one point.

The tax authority will notify the entity on this and request it to amend the data – practically requesting the entity to visit the bank and update the data on the UBO, so this is the only time when the client is directly ‘asked’ to do something. If the data is corrected, the entity regains its ten points for the TT index. 

CEELM: Why does the TT index matter?

Bognar: If the TT index falls under eight points, the entity is considered to be “uncertain.” If the TT index falls under six points, the entity is considered to be “unreliable.” These will eventually be published on the tax authority’s website. In addition, service providers must reject any business exceeding HUF 4.5 million with an entity having an unreliable label. This could be quite a severe sanction for businesses. 

CEELM: What’s your opinion on the immediate future for the UBO? What do you think its application will bring?

Bognar: What we see now is that it is pretty easy to end up being “uncertain” or even “unreliable” because it only requires 1 or 2 reports by certain bodies. Realistically speaking, even if the entity reports a change immediately to a bank, the bank only sends updates on a monthly basis.

It is not hard to imagine that a different service provider notices a discrepancy, and therefore reports it, even before such a monthly report is even sent to the tax authority by the bank. This could be even more severe if an entity is, for example, sold twice within a month. For this precise reason, I remain a bit cautious and would very much like to see how these rules will be applied in practice, but I’m afraid we are going to have to wait at least a year for this.

The Hungarian Competition Authority (HCA) published its draft report of an accelerated sector inquiry on the Hungarian brick market. The interested and affected parties have only 8 days to submit comments to the authority’s draft report. As a main finding, the HCA has not found reasons to conduct an antitrust proceeding on the relevant market. It has, however, made recommendations for consumers and also for the government.

New powers of the HCA

The HCA has made use of its recently increased powers (conferred upon it by a government decree issued in July 2021) and initiated an accelerated sector inquiry in order to investigate in more detail the Hungarian brick market. 

An accelerated proceeding differs from a normal sectoral inquiry in several aspects: as an additional condition, it can be initiated if a fast intervention is justified. The HCA must prepare its draft report within one month, whereas a normal sectoral inquiry can last even longer than a year. Moreover, the HCA can even conduct dawn raids on the relevant market players to collect evidence. Market players may comment on the draft report within 8 days instead of the normally available 30 days. The right to access to file is also limited to after the investigation.

Otherwise the goal of an accelerated sectoral inquiry is the same as that of a normal sectoral inquiry: to uncover and analyse market trends if price movements or other circumstances on the markets indicate that competition could be distorted on a specific market. Other than through dawn raids, the HCA has issued data requests and approached several market players in and outside Hungary, including manufacturers and distributors, including procurement groups and building yards (“tüzép”), to collect information and data for its findings.

The HCA will analyse the received comments and publish the final report on its website, along with a summary of the comments, as well as the individual comments of the market players, with their consent.

The HCA’s findings

The HCA has not found sufficient evidence to support the initiation of a competition supervisory proceeding, which basically means that it has not uncovered evidence which would indicate the existence of a (price) cartel or an abuse of dominance. As a result, there were other reasons behind the price increases (the extent of which was in fact smaller than on other markets in the building material sector).

The sector inquiry has uncovered significant differences between the prices of these building materials based on where exactly they are purchased. The natural recommendation in this respect is that builders and consumers should not request or rely on only one offer but should request more offers from different distributors to find a more favourable price.

One of the reasons for the price increase was that certain manufacturers decreased their production due to the uncertainties caused by the Covid-pandemic, which, due to the increased demand, has led to temporary shortages. However, it has mostly been remedied by now. 

Higher transport, packaging and logistics costs also contribute to a price increase on the brick market. 

Distributors, especially building yards were also investigated and it was found that they receive large volume discounts from specific manufacturers, which results in them focusing on a few suppliers, strengthening their market position. However, this is balanced by the lower prices they can offer to buyers as a result. Furthermore, procurement groups, especially those which are made up of smaller distributors, are recommended to enhance the larger manufacturers’ significant negotiation power. 

The HCA has made recommendations also for the state, namely that competition between the manufacturers could be enhanced by state measures to support an increase of domestic manufacture, as there are free capacities for this.

The outlook

The HCA has signalled that it will conduct further sectoral inquiries in the Hungarian building sector, as part of the systematic investigation of price increases in the building sector.

Companies, including non-Hungarian ones should be on a watch-out for this, as a reply to request for information is mandatory, and a failure to provide answers (on time) can result in significant procedural fines on the undertakings. Commenting on the draft report itself is optional, but market players should pay attention not to miss the short 8-day-deadline for such comments.

Furthermore, as the building sector is under high scrutiny, the HCA can initiate an antitrust proceeding with or without a sector inquiry, as it has done so this year, for instance in case of the cement and the gravel market (where it conducts a proceeding based on a potential abuse of dominance). HCA has also indicated that it will continue to investigate further market signals and complaints submitted to it.

By Anna Turi, Head of Competition, Schoenherr

In Hungary, immunity to COVID-19 may be verified on the basis of Government Decree 60/2021 by way of an immunity certificate or the mobile app of the National eHealth Infrastructure (EESZT). While in principle both methods may establish immunity based on either vaccination or recovery from the illness, only the immunity certificate has been available for use since February 2021, as the EESZT mobile app is currently still in its introductory phase.

At this moment, presentation of the immunity certificate may be lawfully requested by employers or specific service providers. Either way, the disclosure of personal data – in particular, health data – is unavoidable when complying with such a request.

Although there is no specific data protection legislation or established decision-making practice in the matter, key advice has already been provided by the Hungarian Data Protection Authority (NAIH) regarding the limits of requesting such disclosure of personal data.

Verifying Immunity Towards Service Providers

Hungarian law currently allows those who are able to verify their immunity by presenting their immunity certificate upon entrance to use specific types of services (theaters, gyms, indoor dining, etc.).

During a press interview in late April, NAIH President Attila Peterfalvi confirmed that the above-mentioned method of verifying immunity does not raise any data protection concerns since data processing by the service provider is limited to checking the existence and validity of the certificate, and does not involve the recording of any personal data. He also emphasized that such data processing is prescribed by law, which provides an adequate legal basis according to the GDPR.

Verifying Immunity Towards Employers

Since the beginning of the pandemic, the NAIH has given high priority to addressing the lawfulness of processing employee health data by employers (e.g., by providing guidance on mandating measurement of employees’ body temperature).

In its latest information notice, the NAIH specifically focuses on the ability of employers to process information related to their employees’ immunity certificates. The information notice points out that, as they are responsible for the lawfulness of the data processing, employers must first and foremost be able to identify the purpose and lawful basis of their data processing activities.

As to the lawful basis, the NAIH stresses that the fact of immunity to COVID-19 (either due to vaccination or recovery) shall qualify as data concerning health – one of the special categories of personal data. The NAIH emphasizes that, when unable to verify the lawful basis in accordance with Article 6(1) and 9(2) Points b), h), or i) of the GDPR, the processing of immunity data by employers shall be prohibited.

Nevertheless, according to the Hungarian Labor Code, it is also the employer’s responsibility to provide a safe and healthy work environment. In order to achieve this goal, requesting verification of immunity from employees may be a necessary and proportionate measure for specific types of jobs or employee groups, but only when based on an appropriate risk analysis.

From a data protection viewpoint, the risk analysis and the measures introduced by employers based thereon should accord with the principles outlined in Article 5 of the GDPR. For example, the purpose of data processing shall be real (immunity cannot be checked without any reason and the measures must actually be introduced), data processing shall be limited to what is necessary for the given purpose (only the immunity data should be processed), and measures should be proportionate (only the fact and expiry of immunity can be recorded, and copies cannot be made).

In addition, the information notice declares that all other obligations of data controllers set forth by the GDPR must be met by employers when processing employee immunity data.

In conclusion, presentation of the immunity certificate and data processing activities related thereto do not seem to raise any privacy issues if service providers and employers stay within the boundaries set out by law. No significant changes may be expected in relation to this when the Digital Green Passport is introduced by the EU this June.

Nevertheless, as the NAIH also points out in its information notice, the Hungarian legislature still needs to create unambiguous legal provisions regarding the possibility of checking immunity for other types of working hierarchical relationships.

By Peter Berethalmi, Partner, and Zsuzsanna Lukacs, Associate, Nagy & Trocsanyi

This Article was originally published in Issue 8.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Even with the summer holidays firmly established in Hungary, the country is seeing activity across the board and a couple of interesting legislative updates stand to improve the landscape even further, according to Schoenherr Managing Partner Kinga Hetenyi.

“It’s the middle of summer holidays, almost everybody is on vacation,” Hetenyi begins. “The Parliament is not in session until September and the courts are closed until August 20 – it’s a veritable relaxation period after a very busy Q2, with a huge number of M&A transactions running in parallel.” Still, despite the holidays, she reports interesting legislative updates of late. 

“A major piece of new legislation that got all the lawyers excited is the new act on the registration of legal persons and the registration procedure,” Hetenyi continues. The new act, she says, is a comprehensive reform of the system which resulted in the creation of one single electronic register for all legal entities in Hungary. “Everything will now be joined in one register, it’s a major step forward! Companies, NGOs, associations, foundations, investment funds, and finally even law firms will be there.” 

This, according to Hetenyi, tries to solve the existing problem of a “fragmented registration” reality for legal entities in Hungary, with often varying practices, even within the same type of register, depending on the location or the relevant judge or official actually doing the registration. “The new Act aims at standardizing and simplifying the rules, and it even introduces automatic decision-making.” She explains that “this procedure means that the documents submitted will not be examined by the registering body for their legality, but the responsibility will be shared between the registering body and the legal representative, who will have to file a declaration confirming that the documents are adequate and suitable for registration.” Hetenyi says that the new law will come into effect in July 2023, which “indicates how important and wide this reform is, if the lawmaker considered two years a necessary period for adjusting.” 

Also, Hetenyi reports that a new land registry procedure is now in place in the country. “Most parts of the new law covering land registries will enter into force at the start of 2023,” she says. “This was one of the last areas in Hungary where things were mostly paper-based and will be digitalized now – everything from buying properties, all the way up to registering mortgages.” Hetenyi feels that this update will speed things up significantly and make it easier for businesses, especially in the real estate sector. 

And, speaking of the real estate sector, Hetenyi reports that, in addition to the general M&A market, real estate is also booming again. “The construction market has been on quite of a rise, there are a lot of new projects everywhere, as well as planned renovations,” she says. Also, Hetenyi mentions that the banking sector is set to experience a shake-up. “There are a lot of consolidations going on right now and some interesting acquisitions and mergers are expected – the result of which could be a bank that would be a true competitor to OTP,” she says. Additionally, she mentions that Commerzbank Hungary is up for sale and it remains to be seen who will buy it. 

All of this, Hetenyi says, points to a booming economy of the country. “Hungary is a front runner in terms of vaccinations in Europe and, with almost all the Covid-related restrictions being lifted, the country can only go up from here,” she says.

There are still some hurdles ahead, however, with the fact that tourism hasn’t reverted to pre-pandemic levels, Hetenyi says. But regardless of that, domestic and international financial institutions predict an uptick in Hungary’s GDP. “There is generally not a high degree of fear for a fourth wave of the pandemic, which spells out why there is such faith in a bounce-back for our economy,” she says.

DLA Piper’s Andras Nemescsoi and Gabor Molnar Talk About The Deal of the Year in Hungary.

CEELM: First, congratulations on winning the Deal of the Year Award in Hungary!

Nemescsoi: Thank you, very much appreciated. It is an honor to have been selected as the winner amongst such high-profile candidates.

CEELM: Can you describe the deal for us and DLA Piper’s role in making it happen?

Nemescsoi: The ECB has pressed repeatedly that the European banking sector still has too many banks. Statistics also clearly show that in the U.S. consolidation has been progressing at a much faster pace. The transaction on which we acted is a prime example of the ongoing consolidation. The project has created the second largest universal banking group in Hungary by bringing together the fully state-owned Budapest Bank Group and two privately owned banking groups, MKB Bank Group and Takarek Group.

Molnar: Turning to the specifics, in our case the shareholders of the three banking groups established a new financial holding company, and then they transferred their bank shares as in-kind contributions to the newly established holding company via a capital increase. The three banking groups have thus become part of the same banking group, with a jointly owned holding company at the top. DLA Piper’s role was rather non-conventional. We acted as the central transactional legal advisor, i.e. the joint advisor to the merging shareholders advising them on everything from structuring, to corporate governance, regulatory, and other issues with the overall responsibility of coordinating all legal workstreams of the project. Where conflicts of interest existed between the shareholders, we intermediated between the shareholders’ own legal advisors as the neutral legal advisor.

CEELM: How did you land the mandate and what do you believe it was about your team that got it for you?

Nemescsoi: To advise on such a complex transaction you need to have deep and wide competencies locally and internationally as well as a critical mass. Being a truly global law firm and having a highly-respected full-service Hungarian practice with a very sizable team we had satisfied the basic selection criteria.

Molnar: I believe that our track record in these types of transactions and in this sector also contributed to our selection. To give just one example, in 2014 MKB Bank was put under resolution by the Hungarian Central Bank (HCB). In that procedure we acted as the legal advisor to the HCB, leading up to the successful privatization of MKB Bank. The knowledge accumulated on that mandate was very useful in our current transaction as well.

CEELM: What was the most difficult part of this deal and how did you/your team circumvent it?

Nemescsoi: There was an army of challenging issues. The transaction took place in the banking sector, one of the most highly regulated sectors. If we add that this transaction created a banking group relevant on a national economy scale, you can imagine how closely the process was monitored by the HCB, the Hungarian banking regulator. This workstream necessitated almost daily consultation with the regulator to ensure that the transaction always proceeded on track. I must say that we had an excellent experience with the HCB – they were extremely professional throughout the process.

Molnar: From a transactional perspective I would highlight two aspects. The transaction concerned the merger of three competing banking groups where mutual disclosure was essential for planning and ultimately for deciding on the merger. To comply with competition law requirements, we had to construct and operate a sophisticated information-sharing regime from the outset that applied to all transaction participants. Second, the Hungarian state’s involvement (being the ultimate shareholder of Budapest Bank) also brought with it the usual public sector-related issues (such as scrutiny of EU state aid issues) and the high formality requirements of public-sector decision making.

CEELM: In contrast, what, from your perspective, went particularly smoothly and what do you believe contributed to it?

Molnar: The dedication of each and every participant in this transaction was a truly pleasant surprise. From shareholders to management members, authorities, and all advisors, everybody looked in the same direction and there have not been any major fallouts between the transaction team members. I think that the necessity of the transaction helped a lot to have such a cooperative atmosphere.

Nemescsoi: Without the supportive attitude of the regulator it would have been very difficult, if even possible at all, to complete the transaction within the timeline. I would also add that all representatives of the state who took part in the transaction were also very business-minded, hardworking, and provided very valuable inputs on the transaction. We did not experience any of the usual stereotypes associated with the public sector being bureaucratic or slow.

CEELM: How do you believe the context of the pandemic affected the deal?

Nemescsoi: It is the impact of the pandemic that I would highlight. COVID-19 set in at a very early stage of the transaction. As you can imagine, the project had been built on a series of personal daily meetings – these were all promptly canceled. Migration from the physical to the virtual collaboration space proved unexpectedly swift and smooth. I must say that this forced change did not hinder, but actually contributed to the efficiency of the transaction process, even though I am sure that a number of cab drivers in Budapest would challenge the positive nature of this change.

CEELM: In your view, what is the significance of this deal for the Hungarian market? Why do you believe the judges voted for this deal over the others?

Nemescsoi: The merger of the three major Hungarian banking groups was a clear necessity to improve efficiency. The combined banking group that resulted now serves almost two million customers and is amongst the truly top banks in Hungary. As a law firm or as a lawyer you rarely have the opportunity to work on such a historic deal in Hungary.

Molnar: The transaction was also an unprecedented test of our capabilities. We are very proud that we had the opportunity to contribute to this transaction and that we did so – we believe – to the satisfaction of all stakeholders.

CEELM: Asking if you believe we can expect another similar deal might be overly optimistic. We’ll simply ask if you believe further consolidation in the banking sector can be expected?

Nemescsoi: The transaction was only the first step on the road leading to a truly integrated “super bank.” Accordingly, our work has not finished with the creation of the bank holding. We continue to support the holding company on various issues aimed at creating a harmonized, integrated operation.

Molnar: Bank consolidation will and must continue in the region and in Hungary. We hope that we will continue to have the opportunity to support our clients in these challenging opportunities.

This Article was originally published in Issue 8.7 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Legislation concerning remote work is once again in the spotlight, as Government Decree 487/2020. (XI. 11.) on the application of teleworking rules during the state of emergency modified the provisions of telework as of 3 July 2021. According to the Decree, home office should be considered as remote work during the state of emergency and the provisions of the Decree are applicable instead of the provisions of the Labour Code on remote work.

As a change, the Decree broadens the scope of remote work to jobs by non-computer means as well. Accordingly, unless it is otherwise agreed by the parties, telework means that the employee shall work at the workplace for up to one third of his/her working days, and remotely on the other working days. Hybrid solutions of companies, allowing employees to work from home office partially or full time during the epidemic situation, may result in the application of the provisions of the Decree (i.e. application of the provisions of remote work) if the conditions are met.

The application of permanent home office requires the consensus of the employer and the employee and it must be regulated in the employment agreement. Therefore, in the absence of the parties’ mutual agreement, the employer can only order unilaterally to the employee to work from home office for 44 scheduled working days.

Contrary to the provisions of the Labour Code, unless it is otherwise agreed by the parties, the employee is obliged to work according to his/her original working time schedule (therefore, flexible working hours are not applicable automatically during remote work). Provisions on work safety and the employee’s right for the reimbursement of his/her expenses for the period of remote work are also covered (either itemised costs or a flat rate of 10% of the applicable monthly minimum wage, i.e. HUF 16,740/month).

The new provisions are applicable during the state of emergency, which means that the general rules, including the Labour Code, will be applicable once the state of emergency ceases to exist.

By Levente Csengery, Partner, KCG Partners Law Firm

The provisions creating the legal framework of the Special Employee Stock Ownership Plan (“Special ESOP”) entered into force on 13 July 2021, providing a new special ownership opportunity for employees or board members of limited companies to acquire stocks at a more favourable rate than before.

The Special ESOP is based on certain general provisions of an employee stock ownership plan, however, it offers a special, more favourable opportunity to employees, members of the supervisory board or the board of directors / managing directors of a joint stock company or limited liability company to acquire the company’s shares or stocks.

Special ESOP may be established upon request of its employees with the launch of the plan, at the inaugural general assembly with at least ten participants, by the adoption of the statutes and the election of a body responsible for the operational management of the Special ESOP and the managing directors. Employees, simultaneously to the establishment of a Special ESOP, may create an asset managing foundation as well.

The number of the participants of the Special ESOP cannot be increased after its establishment, and as a principle, a membership cannot be terminated (with the exception of the transfer). In case of a Special ESOP, the membership may be inherited. The plan may be operated for an at least ten year-long limited period, after which the assets acquired by the implementing entity or their equivalent value must be transferred to the participants and the implementing entity must be dissolved.

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

According to a decision of the Court of Justice of the European Union made on 8 July 2021, Hungarian employees can make claims before the Hungarian courts against their Hungarian-based employer for breaching the minimum wage rules of the Member States where they are posted.

The ruling follows Hungarian lorry drivers who brought a lawsuit in a Hungarian court against their employer, who “appeared to be based in Hungary”, claiming that their wages at the time of their employment in France were not equal to the French minimum wage, but that they were paid the basic minimum wage under their Hungarian employment contract, which is about the third of the French minimum wage.

The Hungarian court asked the European Court of Justice whether Hungarian employees can rely on a breach of the French minimum wage rules in France before the Hungarian courts against their Hungarian-based employer.

In the decision, the European Court of Justice recalls that the EU Directive on the posting of workers applies to all cross-border services involving the posting of workers, including road transport, in particular the transportation of goods. Consequently, the possibility to enforce the terms and conditions of employment and working conditions under the Directive should be given to employees, including the minimum wage condition.

Based on the decision, in general, employees may sue their employer in Hungary for breaching the domestic minimum wage requirements of an EU country where they work as ex-pat employees. However, as a prerequisite, the Hungarian court must examine whether the employer has its seat or domicile in Hungary under Hungarian law.

By Rita Parkanyi, Partner, KCG Partners Law Firm

At the beginning of July 2021, a new Government Decree (402/2021. (VII. 8.)) entered into force on the registration procedure of raw materials and products with strategic importance for the security of supply in construction and on other measures. The aim is to control the purchase and export of certain building materials abroad from Hungary. It applies to building materials which are intended to be exported or to be sold abroad from the territory of Hungary, for instance gravel, pebbles, crushed stone, portland cement, bauxite cement, cinder cement, fireproof cements, mortars, concretes, iron bars and wood, however, it is not applicable to building materials supplied in the framework of transit traffic.

A natural person, individual entrepreneur and legal person or other organisation intending to sell or export building materials abroad must submit a written notification in Hungarian to the Minister responsible for the domestic economy (Minister). The notification must be made by using the form published on the authority’s website. A copy of the contract of sale or the accepted offer and, if available, the invoice, and the contract for delivery or other document proving the delivery abroad must be attached to the written notification. In case these documents are issued in a language other than Hungarian, a certified Hungarian translation must also be attached.

The Minister checks whether the notification complies with the formal requirements. In justified cases, the Minister forwards the notifications to the Government Commissioner responsible for the coordination of measures in the construction industry, who examines whether the sale or export of construction material abroad significantly impedes or renders impossible the construction, operation, maintenance or development of critical infrastructure, thereby endangering public services or posing a risk to the security of supply of the construction industry.

The Minister must pass a decision within ten working days from the receipt of the notification at the latest on whether (a) the minister responsible for the supervision of state property does not exercise the pre-emption or purchase right of the State in respect of the building materials, and certifies the acknowledgement of the notification in writing, (b) the minister exercises the pre-emption or purchase right of the State and terminates the notification procedure or (c) certifies the acknowledgement of the notification in writing. The final decision of the Minister can be challenged in a lawsuit, for which the Budapest Capital Regional Court has exclusive jurisdiction. The court decides on the application within 30 days from its receipt in a non-contentious proceeding.

The pre-emption and purchase is exercised on behalf of the Hungarian State by the minister responsible for the supervision of state property through MNV Zrt. (i.e. the Hungarian National Asset Management Private Limited Company). If MNV Zrt. and the notifier do not agree on the amount of the purchase price, the minister responsible for the supervision of state property shall pay the amount corresponding to the current market value of the building material to the notifier within eight days of the information on the exercise of the pre-emption or right, who may then pursue his claim in civil proceedings for the amount exceeding the purchase amount already paid.

If the minister responsible for the supervision of state property exercises the right of pre-emption or purchase through MNV Zrt., the sale of the construction material owned by the Hungarian State shall be attempted by MNV Zrt. through the electronic auction system route, in the framework of an electronic auction, once in two rounds. Only those natural persons, individual entrepreneurs, legal persons or other entities may participate in the auction who undertake to use the purchased building materials for the construction, operation, maintenance and development of critical infrastructure in Hungary or for governmental population policy and social purposes.

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