Our Expert on Radio Jazzy

The morning economic and public affairs programme on Radio Jazzy focused on typical problems with property sales contracts. The guest and expert of the Business Class broadcast on 19 February was Martin Gortva, LL.M., Head of our Global Immigration and Mobility Group and Deputy-Head of our Real Estate Law Group.

The interview can be listened at the following link: https://bit.ly/OurexpertonRadioJazzy

Increasing fines and expected labour inspections from March 2024

As of 1 March 2024, significant changes will enter into force related to labour safety and health and labour fines. According to the Ministry of National Economy, the government will pay special attention to the prevention of employment-related irregularities, with a special focus on the prevention of workplace accidents.

The lower limit of the labour protection fine per employee will be doubled, beeing increased to HUF 100,000, while the upper limit will be increased tenfold, reaching HUF 100 million. The lower limit of the labour fine will be increased fivefold to HUF 150,000, while the upper limit will be maximum HUF 20 million for medium-sized companies and HUF 25 million for companies employing 250 or more employees.

In order to increase the fines and meet the government’s preventive targets, labour inspections are expected to become more frequent in 2024. Employers should prepare for these changes and improve their health and safety and labour systems where necessary to comply with applicable legislation and minimise potential fines.

 

5 years with AutoWallis, a successful BSE player

The AutoWallis Group, listed in the Premium category of the Budapest Stock Exchange, is celebrating five years’ anniversary of its carreer on the stock exchange, which we have been providing legal advice to its domestic and international transactions since its listing. The automotive company commemorated the past years with a bell-ringing ceremony on 12 February, during which it became an international player with an outstanding, trend-setting growth and a turnover of almost €1 billion.

 

Artificial intelligence? New legal trends? Enough well-qualified associate despite the saturated Hungarian labour market? Dr József Kapolyi was interviewed by Budapest Business Journal

In its December edition of TOP 50 Legal Executives, the BBJ asked the head of our firm about, among other things, the impact of digitalization and artificial intelligence on the legal profession, what will be the next legal trend shaping the market, and whether it is easy to find well-qualified trainee lawyers despite the saturated Hungarian labour market.

If you are interested in his answers, read the interview below:

Business breakfast around DORA

On November 8th, our guests had the opportunity to ask their questions about the introduction of DORA and IT Governance issues affecting the domestic financial sector, while enjoying an exceptional breakfast at Larus Restaurant.

Viktor KREZINGER, Head of our Capital Markets Team, and Éva KAZELLA, Head of our IT Practice Group, gave presentations on behalf of our firm.
Their aim was to raise awareness among the institutions concerned about their management responsibilities under the DORA regulation and the supervisory sanctions that may result from a breach of the regulation. The presentations also covered practical methods for compliance.

At the business breakfast, organised jointly with Rubrik, our speakers were joined by Dávid BOKROSSY, Head of Customer Relations for the Central European region of Rubrik, presenting the most important information on the subject matter of the presentations and some practical aspects of the regulation.

If your company is also concerned by the issue, please contact our experts for help!

AutoWallis acquired Share Now Hungary: our legal team supported the acquisition

We played a significant role in the latest acquisition of Budapest Stock Exchange listed AutoWallis: we acted as legal advisors to Wallis Autómegosztó Zrt. and its majority shareholder Wallis Asset Management Zrt. in the legal preparational work for the acquisition of Share Now Hungary.

In addition, our colleagues with several years of transactional experience assisted AutoWallis in corporate and capital markets law matters from the preparation to the closing of the transaction and post-closing tasks. The team was led by dr. Martin Gortva.

Domestic legislation transposing the „Whistleblowing” Directive has been published

On 23 May 2023, the Parliament adopted the Hungarian Act No. XXV of 2023 on the Rules on Complaints, Whistleblowing and Reporting Abuses of Public Interest (the „Act”)  – implementing and transposing the EU Directive 2019/1937 on the protection of persons who report breaches of Union law (the “Directive“) -,  which has been also published on 25 May 2023 in the Hungarian Gazette. The Act sets a tight deadline for preparation, as most of those affected will have to apply the rules from the 60th day of the Act’s publication, while some business entities will have to comply by 17 December 2023 at the latest. Taking into account the provisions of the Act, the entry into force thereof will expectedly impose significant administrative burden on employers, so those affected will need to act quickly. In the following article, we briefly summarise the key provisions of the Act and our related comments.

Background and purpose of the regulation

The European Union has made it an objective and goal for the Member States to detect infringements of law. This objective has led to the adoption of the Directive, which aims to lay down minimum requirements for the procedures on reporting breaches of law. The Act sets out the detailed rules within the framework established by the Directive under which reporting persons may report information on breaches of law through various channels and under the protection, in the order established by the Act.

Which business entities are obliged by the Law

In line with the Directive, the Act requires all enterprises having 50 or more workers under an employment relationship to set up internal reporting channels. However, we consider it important to point out that, regardless of the number of workers, certain companies falling within the scope of the Act are affected by the obligation for setting up the mandatory internal reporting channels. These include, for example, credit institutions, financial service providers, auditors, fiduciaries and law firms.

The Act used the possibility of relief provided for by the Directive enabling employers with 50 and to 249 persons to jointly establish internal reporting channels.

It should be noted that the calculation of the number of workers shall not be reduced on the number of persons currently employed by the employer only. The personal scope of the notifiers and the potential difficulties in this regard are described in more detail below in this article.

What can be the subject of report

The Act defines the scope of the report more broadly than the Directive. Under the provisions of the Act, any unlawful or suspectedly unlawful act, default or other information related to infringement may be subject of the report.

Who can be a reporting person

The personal scope of the Act is defined broadly, in principle, reporting person can be an employed person, i.e. any natural person who performs an activity for and under the direction of an employer in the context of an employment relationship for remuneration or who performs an activity for his own account. It is important to underline that, in addition to employees, trainees and persons under a contract of mandate concluded with the employer may also be included. The Act establishes other categories of reporting persons too, therefore the scope of application also includes, for example, persons who are not yet considered as employed but have already started the procedures and processes for the establishment of a legal relationship, such as job seekers, as well as persons whose employment relationship has already ended, such as former employees. It is important to underline that the legislation thus provides employees with another means of enforcing their claims against their employer in the event of termination of their employment relationship, in addition to the already existing options, such as initiating an employment lawsuit or a procedure before a government office.

As emphasized above, in determining the number of employees in each business entity, not exclusively the currently employed persons shall be taken into account, but all persons who are considered to be employed in the context of the reporting parties. As such, it may be a suggested step for business entities to review their contractual relationships when determining the number of employees under the Act and determine any further steps that may be taken in this regard. Of particular interest is that the current legislation requires the system to be set up per employer for groups of companies also, which is likely to cause difficulties in the development of internal rules among employers under single management.

The Act also provides for the possibility of anonymous reporting, the investigation of which may be waived, but if a person has reported anonymously and the investigation has not been waived, the Act extends the protection to such anonymous persons, too. Logically, this may be relevant if the identity of the reporting person is later discovered. In view of the fact that the reports will thus expectedly be received under the assumption of the reporting person’s identity, the question of who will act in the cases in question is of particular importance.

How to make the report

Following the logic of the Directive, the Act also established three reporting stages: internal reporting channels set up by employers, separate reporting channels set up by designated public bodies, and the institution of lawful disclosure. The purpose of the above threefold structure is to encourage those concerned to seek to resolve the matter first through internal or separate reporting channels and, if these fail, to go public only.

The operation of the internal reporting channels

The reporting channels can operate through several communication channels, thus contact can be made in writing, verbally, in the latter case in person or even by telephone.

Due to the nature of the reporting channels, the Act requires the operation thereof by an impartial person or department designated within the employer for this purpose. A further possibility is for the employer to contract a whistle-blower protection lawyer or other external organisation to operate an abuse reporting system.

In both of the above cases, whether the responsible person is appointed within the organization or as an external professional, the impartiality of the person acting is of particular importance, as only by ensuring this requirement can a system be envisaged that works reliably in practice and complies with the requirements of the Directive and the Act. Impartiality can be more smoothly ensured in the case of an external expert, whereas if an employer wishes to set up internal reporting channels, it may be advisable to consider the possibility of creating a separate job title for this purpose.

In addition to impartiality, it is also important to ensure that the person acting in this capacity has the necessary expertise to ensure that its activities are always carried out in accordance with the law and the employer’s internal rules, for example, to effectively screen out unfounded or fictitious reports and to take appropriate action in accordance with the obligations laid down in the Act. For example, even by filing a denunciation if a notification justifies the initiation of criminal proceedings.

The detailed rules for the operation and functioning of the system are recommended to be laid out in a comprehensive and detailed internal regulation of the employer.

The protection for the reporting person

The Law lays down the rules on the protection of persons who lawfully report under a separate sub-chapter. The Act considers a whistleblowing report to be lawful if it was made through one of the reporting channels, the reporting person obtained the reported information in the course of his employment, and the reporting person had reasonable grounds to believe that the reported information was true.

In light of the above, it can be concluded, and should be emphasized, that the reporting person is therefore not protected in the case of intentionally false reports. Furthermore, employers have the possibility to develop an effective, proportionate and dissuasive system of sanctions against reporting persons who deliberately make false reports. In all cases, however, it is important to bear in mind that the prospect of sanctions should not be aimed at preventing genuine reporting.

The protection afforded to lawfully reporting persons includes, inter alia, that the reporting person should not be subject to adverse action, the reporting person should not be considered to be in breach of the law on disclosure of a protected secret and that, except in the case of a criminal offence, the reporting person should not be liable for obtaining or having access to the information contained in the whistleblowing.

Sanctions for the breaches of the law

The Directive requires Member States to provide for effective, proportionate and dissuasive sanctions for natural or legal persons who prevent or attempt to prevent the submission of the reports. The national legislator provides for the sanctions required by the Directive in the area of misdemeanours, according to which anyone who obstructs or attempts to obstruct the submission of the report on breaches of law under the Act on Complaints, Reports of Public Interest and Rules on Reporting Abuse commits a misdemeanour and is subject to the sanctions provided for in the Misdemeanour Act. The system of legal sanctions has not been precisely defined on the basis of the published provisions, therefore evolving practice and experience are expected to shape the system in the near future.

As in Hungary, the Directive has been implemented in several EU Member States in recent months, but in many cases with a significantly stricter sanction-system. The Italian legislation, for example, allows for sanctions against the employer ranging from €500 to €2,500 for non-compliance or breach of the rules, and from €10,000 to €50,000 for major grievance. In view of the above, it is recommended to domestic employers to implement and comply with the provisions of the Act in the strictest possible manner, as the consequences of non-compliance may become significantly more severe in the future.

In addition, it is important to stress that failure to carefully implement reporting channels and thus possible breaches of data protection rules may, inter alia, lead to the imposition of data protection fines on employers.

Summary

After a long wait, the Directive has been implemented into the domestic legal system through the recently adopted and published Act. The affected employers now have a short period of time to assess whether they are affected and, if so, to develop the necessary principles for their whistleblowing systems, appoint the persons responsible for the operation thereof, develop the details of their procedures, adopt their respective internal rules and provide adequate information to their employees. In view of the short timeframe and some specific aspects outlined in this article, we recommend to those concerned to seek assistance from an external expert for the successful preparation and implementation.

Kapolyi Law Firm on the BBJ list again

Kapolyi Law Firm has been included in the Budapest Business Journal’s (BBJ) ranking of law firms this year too.

BBJ‘s list includes law firms with international connections operating in Hungary that have been recommended in 2023 in a number of areas of legal activity, inter alia, on the basis of Legal 500’s ranking.

We are proud that our expertise has once again been recognised. This achievement reflects the dedication of our excellent team. We thank our staff for their work and our clients for their trust in us.

Placement of securities through Crowdfunding platform: domestic players still face legal uncertainties

It is not easy for companies wishing to issue securities through community financing platform to raise funds for a new investment. Although Hungary has been applying the EU Crowdfunding Regulation for almost 2 years, community financing is still in its infancy in Hungary, one of the reasons thereof is the deficiencies of the Hungarian regulation, according to analysis of Kapolyi Law Firm.

Community funding is an alternative to the traditional financial intermediation system, making it easier and faster for good ideas and start-ups to raise funds for achieving their goals. As common practice abroad, fundraising can be achieved by donation, for example, (these are the best-known cases where micro-donations are accepted), but to raise larger amounts of capital, it may be necessary to provide loans or issue securities. While this form of financing is becoming more widespread in the United States and, over the last decade, in the European Union too, the EU is also trying to catch up in terms of regulation. The EU’s Crowdfunding Regulation,[1] which came into force two years ago, aims to bring together enterprises seeking funding and investors with resources across borders in the online space. However, the harmonisation of EU and national regulations in this area is not straightforward either, and number of questions regarding the domestic regulation has been raised according to senior attorney-at-Law of Kapolyi Law Firm, dr. Balázs J. Ferenczy.

A transaction involving the issue of securities on a crowdfunding platform is subject to both the community funding and the issuance of securities rules. According to the applicable Hungarian regulations (Capital Markets Act[2], Prospectus Regulation[3], Crowdfunding Regulation), when a company issues securities through a community platform, it is considered as public offering. This raises two questions: is it necessary to publish a Prospectus and/or to involve an investment service provider?

The first question can be answered clearly: according to the expert of Kapolyi Law Firm, the rules of the Prospectus Regulation shall apply in the case of a public offering of securities under the Capital Markets Act. Accordingly, there is no obligation to publish a Prospectus if the public offering of securities is taken place on a Community funding platform up to a threshold of EUR 5 million, authorised under the Crowdfunding Regulation.

However, the question on the involvement of an investment service provider is more complex and while the answer is clear if there is no exemption – yes, in this case the involvement of an investment service provider is required – the legal ambiguity of the roles creates uncertainty if the crowdfunding provider is not authorised by the appropriate Financial Service Authority to provide investment services, too.[4] In fact, the actors defined in the Crowdfunding Regulation do not specifically include an investment service provider, so the Regulation does not define any liability for such a party, emphasises the expert of Kapolyi Law Firm. So, the question arises: what is the liability of an external investment service provider in a crowdfunding transaction? Is it perhaps the same as the liability of an actor involved in the fundraising? Would the liability be joint and several, or subsidiary, in nature? Why exactly would it be responsible: for documentation, administration, allocation, or all these together? Perhaps the investment service provider would only supervise these processes as a transactional advisor?

Dr. Balázs J. Ferenczy believes that if these issues cannot be resolved in a satisfactory manner, the obvious solution for participants in similar crowdfunding transactions may be – as unfortunately happened in this case – that the issuer of the securities shall be the parent or sister company, or SPV, registered in the EU, rather than the Hungarian company. Once completed, the raised funds will be made available to the Hungarian project in another allowed manner. However, the above uncertainty is also detrimental to the Hungarian pioneers of crowdfunding platforms, since it is also a question of what will happen to domestic bond and share issues, how the above risks can be managed and how responsibility structures can be developed in relation to the scopes of activity of the various participants.

An important conclusion is that, in addition to clear guidance from the NBH as supervisory body, the remedying of the shortcomings may require amendments to the Capital Markets Act and the Act on Investment Undertakings and Commodity Exchange Service Providers, too.

[1] REGULATION (EU) 2020/1503 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 7 October 2020

on European crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937

[2] Act CXX of 2001 on the capital markets

[3] Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC (Prospectus Regulation)

[4] Section (55) of the Regulation’s Preamble.

Kapolyi Law Firm is among the bests for years according to Chambers and Partners

Kapolyi Law Firm has once again been ranked among the best domestic law firms in the capital markets and real estate categories by the independent international legal ranking agency, Chambers and Partners. Based on the ratings, it’s not just our law firm that has held a prominent place in the professional rankings for years, but our colleagues too. Dr. Viktor Krezinger, head of our capital markets practice group, was ranked among the top five domestic capital markets lawyers. We are also on list in the real estate category and our real estate team leader, Dr. Sándor Habóczky, is among the bests, too. We are proud of the achievements of our colleagues and our law firm!