Hungary: New rules on shareholder contributions

In the course of their day-to-day business, companies may experience capital shortfalls, forcing them to implement certain replenishment measures to protect the interests of their businesses and their creditors. If it becomes clear to a company’s management that (i) the company is on the brink of insolvency, (ii) the company has stopped making payments, or (iii) its assets do not cover its debt, immediate actions are needed to avoid insolvency or even total bankruptcy.

In such event, it is crucial for the management to inform the shareholders immediately and to take steps to convene the main decision-making body of the company in order to initiate crisis management by identifying and examining possible solutions.

One of the major capital replenishment options used by Hungarian companies is additional contributions to the company (in Hungarian “pótbefizetés”) by the company’s shareholders.

Before the most recent amendment of the Hungarian Civil Code, additional payments were admissible only for limited liability companies, and it was only admissible to initiate them if the company’s articles of association included the option of such payments (and rules regarding such payments and their amount, frequency, schedule and re-payment).

According to the new rules of the Hungarian Civil Code effective from 1 January 2022, all companies (irrespective of legal form) except public companies limited by shares can receive additional payments from their shareholders.

An important change is that under the new rules, companies are not obliged to repay any residual amount of such payment not used to cover losses, but this requires a decision by the main decision-making body. In case of limited liability companies and private companies limited by shares, additional payments for the shareholders’ own business quotas/shares do not have to be repaid.

In addition to the foregoing, for single-member limited liability companies and single-member private limited companies, such additional payments can be made even in the absence of detailed provisions in their constitutional documents. The conditions for such additional payments may be established by the founder/sole member in a resolution.