Hungary: Introduction to the new Company Act
Significant changes in procedural rules on registering legal entities in Hungary
The procedural rules applicable to the registration of companies in Hungary have been largely unchanged since the entry into force of the present Company Act of 2006 (Act V of 2006 on Public Company Information, Company Registration and Winding-up Proceedings). Now, these long-established practices are about to change, as a new Company Act (Act XCII of 2021 on the Registration of Legal Persons and the Registration Procedure) is being introduced by the legislator.
The new Company Act was originally expected to enter into force on 1 July 2023. However, an amendment bill is currently being debated in the Hungarian Parliament that would postpone the entry into force of the law until January 2026.
This article will introduce the most important practical changes brought about by the new Company Act.
The objective behind the new rules is to ease the burden on company court judges by introducing an automatic decision-making procedure for registration. In the automatic decision-making procedure, the role of the company court judge is significantly reduced by the legislator; however, the new law places greater responsibility on lawyers and in-house counsels.
As of July (or as of the postponed entry date), lawyers and in-house counsels will be required to make an additional statement on the specific content of the documents submitted with the registration application, confirming that they have carried out a legal review of the documents. The aim is to replace legal review by a company court judge. This means an increase in the responsibility of lawyers and in-house counsels for the legality of the registration procedure.
A further aim of the reform is to standardize and speed up the registration procedure.
Companies will no longer be permitted to remedy deficiencies in their registration applications during the registration procedure upon individual court order (in Hungarian: ‘hiánypótlási végzés’) of the acting judge. Under current practice, such individual orders have been issued by company court judges at their discretion, creating a diverse legal practice that varies from court to court. By eliminating individual orders, the new rules are intended to provide more standardized court practice.
Technical errors will still block the registration procedure. If the system detects an error in the application for registration, the application will be rejected automatically, and the application will have to be resubmitted by a short deadline. The exact scope of errors the system will be able to detect is yet to be known, but we will probably be able to answer this question when the new application forms are published.
Another intention is to put more emphasis on and define a different role for the judicial oversight procedure. Rather than being used as a ‘last resort’ to restore lawful operation, as it has been until now, this procedure will take over the role of remedying procedural shortcomings upon judicial request, which was common in the registration and registration amendment procedures in the past.
During the post-judicial inspection, the company court judge will randomly perform the same formal and substantive inspection that it currently performs each time the court receives a registration application.
As a result of the automatism introduced by the legislator, registration is expected to be almost immediate. However, if the court detects an error during the post-judicial inspection, post-registration procedural tasks may arise, and companies may find themselves facing judicial oversight procedures or even procedural fines. Such post-registration processes could increase the legal costs of registration procedures for the companies as compared to current practice.
Adjustments that have been long-anticipated for privacy reasons will include that the ‘address of the natural person’ (e.g. managing directors and shareholders) listed in the new register will no longer be public information. It will be replaced by the ‘place of birth of the natural person’ (the date of birth of the natural person is currently mandatory information to be published in the company register).
The new Company Act will no longer make a difference between premises (located in the same city as the registered office, in Hungarian: ‘telephely’) and branch offices (located in a different city but within the country’s borders, in Hungarian: ‘fióktelep’), which also aims at a much simpler procedure, more in line with EU practices.
The importance of the Company Gazette will also be reduced, as the new Company Act links the public authenticity of the register to the registration of the data rather than to its publication in the Company Gazette.
The regulatory environment for the new Company Act is far from complete. Additional legislation is expected to be adopted before the entry into force in July (or as of the postponed entry date) (e.g. on the list of mandatory documents to be submitted in the registration procedure, standard documents, or the detailed rules on winding-up procedures).We are closely monitoring changes and emerging legislation related to the new Company Act. Whether as a client or an in-house counsel, if you have any questions regarding the practical implementation of the new Company Act, please do not hesitate to contact us.