Group financing: despite legislative changes conservative approach is recommended

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Frequent question on management meetings is whether lending in group financing structures would be possible for parent companies or real estate funds for purposes of development or acquiring assets, following the amendment of the definition on group financing set forth in Act CCXXXVII of 2013 on Credit Institutions and Financial Undertakings (Hpt.) effective as of 26 December 2019. A number of articles have been issued according to which the amendment will make life easier for company-groups thinking in group financing, as it will provide an additional legal basis for the realisation of other – and broader – financing purposes in addition to ensuring the immediate solvency expected by both the legislature and the Supervisory Authority. However, the situation is not so simple, we will show the reasons.

Section 108 (a) of the Act CXVIII of 2019 on the Amendment of Certain Legislation Affecting the Financial Intermediation System, the Public Finances and Economic Stability amended the definition of group financing set forth in the Act No. CCXXXVII of 2013 on Credit Institutions and Financial Undertakings (Hpt) with effect of 26 December 2019. According to the amendment the term “in order to ensure liquidity” were replaced by the term “for purposes of liquidity or allocation” in point 11 of Section 6 (1) of the Hpt (the Financial Institutions Act). Often arises the question as to whether the amendment could provide a basis in group financing structures for lending for development or asset acquisition by parent companies and real estate funds. According to the opinion of the Supervisory Authority this was not permitted on the basis of the previous regulations: the joint operation carried out in order to ensure liquidity was essentially exhausted by ensuring immediate solvency, stemming from section 79. (1) of the Hpt. As the National Bank of Hungary explains in one of its related resolutions, loans providing source of asset for purchase, unless specifically related to the purchase of liquidity-enhancing assets, or various investment loans cannot be considered loans for liquidity purposes for several reasons. On the one hand, because they do not fundamentally assist to meet existing financial commitments on time, and on the other hand, because they do not ensure the maintenance of day-to-day business, solvency and liquidity, but create the financial conditions for additional commitments for which there is no otherwise sufficient capital. Thus, investment and asset-purchase lending has already fallen outside the scope of group financing, although there would still be a demand for it, in the case of free parent or subsidiary funding.

The new wording of the legislation, i.e.: “for purpose for allocation” turns to seem indeed permissive at first reading compared to the restrictive approach of the previous “in order to ensure liquidity”, wording  , however it is difficult to outline what this exactly means. (i) To the best of our present knowledge, the Ministry of Justice has not issued any legal interpretation relating to the above provision since the publication of this legislation (the “amendments in the term” seem to be a rather concise explanation for the practice) and (ii) no resolution is available on the Supervisory Authority’s website either, analysing the content/concept or practical boundaries of the concept of “allocation purposes”. The latter is understandable, as the National Bank of Hungary is not a legislator at the statutory level, therefore it cannot add an independent legal interpretation or explanation to the amendment of the law. A specific question, it seems, has not yet been received by the National Bank of Hungary in this scope.

Based on the above, the precautionary principle still seems to be the most rewarding, as it is not appropriate for market participants to develop practices that run counter to the strict licensing practice of the Supervisory Authority. According to this, if a company-group is thinking about financing that goes beyond the classic group financing activities (liquidity/ensuring of immediate solvency, cash-pooling, etc.), the best is to create a separate entity for this purpose, which obtains permission from the Supervisory Authority for performing the said activity. In this way they put their related funding(s)into a supervisory perspective, which significantly reduces the risk of infringement.

A further argument in favour of caution is that the Supervisory Authority’s powers for investigation in relation to group financing activities are still granted. The Supervisory Authority always carries out these investigations within the framework of the current legal environment and its legislative explanations, as well as the resolutions/interpretations developed in relation therewith. Therefore, until the relevant regulatory practice is developed, it is the responsibility of the market participants to take a position related to the amendment

Starting from the above summary, it seems that there is nothing left but a conservative approach, based on which it can only be assumed that practice will not interpret this rule as full liberalization of intragroup financings. Meaning that the group members will still not use the above addition for asset acquisition and investment purposes, because a literal interpretation of the term “for allocation purposes” does not seem fit/ sufficient for this.

In our opinion, therefore, a legislative explanation/commentary on the amendment would be useful for the Supervisory Authority, the market participants, as well as for the legal practice. This would greatly help to avoid the interpretation uncertainties outlined above and any potential future fines (not to mention other, additional legal consequences) that might be imposed in some cases as a result of the investigations performed by the Supervisory Authority related to group financing activities.

Financial Arbitration – Expanding Possibilities

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A new provision of the Hungarian Arbitration Act entered into force on 1 January 2021, which may attract the attention of investors.

The stipulation of arbitration proceedings in consumer contracts was generally prohibited until the end of the last year. However, this prohibition, which is intended to ensure the better protection of consumer interests, is not necessarily appropriate in every situation – for example, in the case of legal relationships related to fiduciary asset management contracts. Consumer contracts may also occur in this area, in the case of which – according to the earlier rules – the stipulation of arbitration proceedings was not allowed.

This was not practical because the stipulation of arbitration is not rare in the area of fiduciary asset management due to the confidentiality of arbitration proceedings.  Also, the stipulation of arbitration can fully clarify the issue of jurisdiction in international transactions. Besides, such legal relationships are quite special and arbitration makes it possible to involve the specialists of this area as judges. It is also not irrelevant that, in this case, the language of the proceedings shall be chosen by the parties, which can lead to savings in translation and interpretation costs compared to proceedings before state courts to be conducted in Hungarian.

In recognition of these aspects, the legislator has made possible the stipulation of arbitration in fiduciary asset management contracts from 1 January 2021 even if a particular contract covers consumer relationship in a legal sense. (The general prohibition remained beyond these cases.)

The legislator has also made possible from the same date that parties can appoint the board members of the Permanent Court of Arbitration attached to the Hungarian Chamber of Commerce and Industry as an arbitrator.  This was not allowed earlier. However, the board members may still not act as party representatives in the proceedings before this arbitration court.

In case of high-value real properties even the professional property investors should consider to take out title insurance

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It is not yet widespread in Hungary, although common practice in Anglo-Saxon areas, that at the same time of purchasing a real property of higher-value, principally commercial and industrial ones, or a company owning the real property, buyers take out the so-called title insurance. What does this mean in practice? It will be summarized in the following article of the Kapolyi Law Firm.

By taking out title insurance, the buyer passes on to a third party, i.e. to the insurance company, in return for the payment of the insurance premium specified in the insurance contract, the risk that the title to the real property or the company owning the said property has been damaged, which limits or prevents the buyer from acquiring ownership thereof. In this case, according to the terms of the insurance policy, the title insurer indemnifies the buyer for the incurred damage. The question rightly arises that in Hungary, where the land registry is considered as an up-to-date, authentic public register, and the business register also provides comprehensive, reliable information, what hidden risks may arise, i.e. why may it be necessary to take out title insurance? The issue is further toned by the fact that, before purchasing a commercial or industrial real property of higher-value or the company that owns it, the buyer almost always entrusts a law firm before concluding a sale/transfer agreement in order to filter out all the legal risks associated with the real property/company and to identify any factors that may prevent or limit the buyer’s unencumbered acquisition of rights over the property/company. The buyer may, in the light of the risks identified, decide to enter into the transfer agreement on unchanged terms or for a possibly reduced purchase price, or with additional collateral included in the agreement. However, the buyer may also choose not to enter into the transaction.

Kapolyi Law Firm has been in a number of cases required by title insurance companies to assess the potential risks for the buyer (and indirectly for the insurance company) related to the sale and purchase of a real property of higher-value or the shares of company owning the property. Based on our experience in this field, we believe that although title insurance is primarily taken out by foreign investors who are new entrants to the Hungarian market and, therefore, do not yet know the relevant Hungarian legal provisions and official procedural rules, title insurance may still be justified for knowledgeable investors, too. Naturally, buyer’s risks are different when buying the real property itself (“asset deal”) or acquiring the company that owns the property (usually for tax optimization purposes) (“share deal”).

Generally, in the case of purchasing a real property, the authentic land register and the title deed of the real property – in general – provide reliable and complete information about the ownership and encumbrances of the real property or the litigations related thereto. Authenticity and reliability are ensured by the relevant provisions of the Civil Code and the Land Registry Act, according to which the ownership right on the real property as well as certain rights of third parties thereon (e.g. mortgage, call option right, pre-emption, judicial enforcement, easement rights, etc.) are created by the entry into the land register. This means, on the one hand, that before registration the competent land registry office checks the legality of the documents submitted, i.e. it exercises a certain degree of control over the contractual documentation. On the other hand, a real property is only encumbered by the encumbrances that have been registered/recorded in the land registry, basically. An important exception may be, however, the pre-emption right of third party that is based on law (e.g. in the case of many real properties located in Budapest, where the competent district municipality, the Budapest Municipality or the Hungarian State disposes on pre-emption right by law); this pre-emption right exists regardless of the land registry entry. Since a sale and purchase agreement concluded in breach of the pre-emption right may be challenged by the holder of the pre-emption right, the buyer may lose the ownership on the real property even if he had already paid the purchase price.

The situation is less clear, however, if the buyer does not purchase the real property itself but acquires partial or exclusive shareholding in the company that owns the real property. The vast majority of Hungarian companies operate as limited liability companies, therefore, in case of share deals, the buyer acquires the shares of the target company that owns the real property. However, the business register and the business register entry does not provide the same level of protection and real picture on the rights related to the business shares as the land registry does on real properties. In case of the transfer of a business share, the competent court of registration registers the change of ownership on the business share on the basis of the corporate documents submitted by the management of the target company. In this procedure, therefore, the court of registration does not examine the contract on the transfer of the business share; it carries out the above described control only for the corporate documents, but not for the contract on which they are based. It is rather the responsibility of the management of the target company to be acquired to examine whether the share transfer complies with the legal requirements. For example, whether the agreement on which the transfer is based has been duly signed or it contains any provision that may breach any legal prohibition. The management of the target company is also responsible for keeping the updated members’ list and notifying the court of registration on any changes made in the target company. Accordingly, it may imply a serious risk to the buyer if the management of the target company did not perform the above tasks in any previous change of ownership or did not exercise it with due diligence.

Due to the above, it is not revealed in the procedure on the registration of the new owner if the agreement on the share transfer suffers from an error which invalidates the transfer; therefore it might be very important in the case of a share deal to request and examine the share transfer agreements concluded after the establishment of the target company. In addition to the above, the business share may also be encumbered with contractual obligations (e.g. call option right, pre-emption right) that cannot be identified from the company register at all. Therefore, in order to offset his risks and exposure, the buyer, in practice, requires in the share transfer agreements highly detailed and extensive warranties from the seller on the fact that the share is free and clear of all liens, claims and encumbrances. Unfortunately, however, even a highly sophisticated and strict warranty structure might not provide sufficient security for the buyer if the business share is encumbered with unknown encumbrances or the transfer of the business share does not take effect due to a fault in the transfer chain. For example, when, as a result of the possible invalidity of a previous share transfer agreement, the beneficial owner of the share is not the seller. In many cases, however, investors focus mainly on tax optimization factors and “lose sight” of the financial and legal risks outlined above when deciding whether to acquire the given real property through an asset deal or share deal.

It is important to emphasize that even the authenticity of the land registry and business register, the proper legal due diligence of the real property or the company owning it, and the sophisticated warranty structure included in the sale and purchase/transfer agreement do not preclude a third party from challenging the sale/transfer agreement before court claiming the invalidity of a provision thereof. For example, a liquidator may challenge the agreement previously concluded by a company under liquidation on the ground that the seller under liquidation sold its real property at a purchase price that was significantly lower than the actual market value of the real property. Enforcing the buyer’s warranty claims can also be an extremely long, lengthy process if the seller does not cooperate with the buyer who has suffered damage. The buyer must prove that the seller has breached any of the warranties undertaken by the seller and the buyer must prove the extent of the damage resulting from the breach of the warranty, too.

The institution of the title insurance mentioned in the introduction might be a good guarantee for the uncertainties outlined above. The insurance company may indemnify the buyer, among other things, if the transferor of the real property/business share was not the legal owner thereof, the real property/business share is subject to unknown mortgage, call option right, pre-emption right or other third party’s rights, or the transfer of the real property/business share is invalid due to any transfer restriction. Title insurance can also be used in other cases. On the one hand, if due to the invalidity of a previous transfer agreement (e.g. a not dully signed agreement or an agreement signed without the approval of the general meeting), the transfer chain that apparently leads to the seller is not unbroken and therefore a third party may have a stronger title on the business share. Or, if the contractual or corporate documents related to the transfer of the business share are incorrect, and, therefore, the transfer cannot be registered into the business register. Title insurance can also be an appropriate tool for protecting the investor from damages arising from risks known or unknown to him (e.g. fraud, counterfeiting, invalid representation). By taking out the title insurance and paying a certain fee, the buyer can essentially outsource his risks, avoid higher losses and lengthy legal proceedings.

The impact of Brexit on EU trademarks

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Brexit will bring a number of changes to certain international legal relationships that we can’t anticipate yet; therefore a number of legal issues will arise related to the period beginning on January 1, 2021. Until then, however, there is a transitional period during which we should, as much as possible, prepare for the post-Brexit period. Fortunately, there is no legal uncertainty regarding EU trademarks, however, trademark owners will have to take actions, which we present in our article.

The institution of the European Union trademark, formerly known as the Community trademark, was created by the European Union in the first half of the 1990s[1] at the same time as the European Intellectual Property Office (EUIPO) was established. The first application for registration was filed in April 1996, followed by more than 22,000 more applications only in that very month. Seventeen years later, the one millionth application was received and half of this time was enough to reach the next million[2]. The success of the legal institution is evidenced by the fact that in the recent years 100-200,000 applications for registration in the European Union have been filed[3].

The European Union trademark was not intended to replace its national counterpart, but to supplement it. The concept of the legal institution is that it is sufficient to apply to any trademark office of the European Union for a trademark to be protected throughout the Union. It is therefore not necessary to apply individually in each Member State, and disputes over registration are decided by a central office (EUIPO) or a court at appeal level, therefore no risk of forum shopping or parallel disputes arise.

The UK-EU exit agreement has established a transitional period until 31 December 2020, while the application of EU law remains unchanged. Subsequently, however, EU law expires in relation to the United Kingdom, thus removing the United Kingdom from the EU trademark system. At that time (i.e. on 1 January 2021), the UK Intellectual Property Office will create (duplicate) existing European Union trademarks in the form of a national trademark in its register, without any application or reimbursement thereof. In practice, this will mean that the proprietor will have a European Union trade mark and a national trademark registered at the United Kingdom Intellectual Property Office with the same characteristics (including, among others, the same priority date). However, given that the proprietor will have two trademarks, it will be necessary to initiate proceedings with both the European Union Intellectual Property Office and the United Kingdom Intellectual Property Office in the event of renewal of the trademark or in case of the enforcement of the trademark right.

Nevertheless, duplication of a European Union trademark will only take place for trademarks that are already registered on 31 December 2020. Thus, in the event that the application procedure has been initiated but the registration has not yet taken place, the applicant may file a “special” national application with the UK Intellectual Property Office until 30 September 2021. The applicant must already take into account the procedural costs of this “special” national application and the fact that the priority date of the national trademark will be the date of filing of the European Union trademark application. It is also important to note that filing with the UK Intellectual Property Office will require the appointment of a local legal representative, the costs of which will also be borne by the applicant.

The above benefit is not granted if the application for registration of the trademark was filed after the transitional period, i.e. after 1 January 2021. The protection will thus not extend to the territory of the United Kingdom and the applicant will not have the opportunity to make a special national application. This means that a separate national application will be required, the priority date of which will be the filing date with the UK Intellectual Property Office.

Therefore, overall, in the case of European Union trademarks registered before the transitional period, the applicant will also be the proprietor of a national trademark through duplication, with the result that the procedures relating to trademarks will be doubled. In the case of trademarks already filed but not yet registered, a special national application may be filed until 30 September 2021, while applications filed on or after 1 January 2021 will require a separate registration procedure if the applicant intends to have trademark protection also in the United Kingdom.

[1] By Council Regulation (EC) No 40/94 of 20 December 1993

[2] Source: EUIPO press release: 2 million trade mark applications received at EUIPO

https://euipo.europa.eu/ohimportal/en/news?p_p_id=csnews_WAR_csnewsportlet&p_p_lifecycle=0&p_p_state=normal&p_p_mode=view&journalId=5176510&journalRelatedId=manual/

[3] Source: EUIPO Statistics

https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/contentPdfs/about_euipo/the_office/statistics-of-european-union-trade-marks_en.pdf

According to the government decree that entered into force on 11 November 2020 no general meeting of more than 10 attendees may be convened until 11 December 2020

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Subsection 1 of article 5 of Government Decree No. 484/2020 (XI. 10.) entered into force on 11 November 2020 according to which – with certain exceptions – it is forbidden to organize any event and it is forbidden to be present in person at the venue thereof regardless of the venue of the event.

The prohibition also includes so-called “private events” of more than 10 attendees in person, although the concept thereof is not defined either by this government decree or by other legislation. Nevertheless, from the provision of the Civil Code [Section 1 of Article 3:111.] according to which sessions of the supreme body shall not be public, it can be concluded that – until a specific regulation to this effect is provided – no general meeting may be held if the number of the attendees in person exceeds the above-mentioned number.

From this it also follows that, in the case of companies with a large number of owners, the already convened or announced general meetings cannot be held with attendance in person if the number of participants should exceed 10 persons. The prohibition applies in particular to public limited companies, since in their case no decision (resolution) shall be adopted without holding a general meeting on matters that fall within the general meeting’s scope of competence. Therefore, in the case of the supreme body, it is not possible to use electronic means of communication or adopt decisions (resolutions) without holding a meeting.

Given to the fact that the provisions of the government decree can be applied – at least for the time being – until 11 December 2020, a Plc., according to the current legal situation, may convene a general meeting by 14 December at the earliest and may hold it only if the provisions being in force on the scheduled date so permit it.

Therefore, in order to clearly regulate the operation of legal entities a specific government decree would still be needed such as it was government decree No. 102/2020 (IV.10.) in the spring of 2020. It would seem a practical solution if the government empowers again the executive body to decide on matters that would otherwise fall within the supreme body’s scope of competence.

We have joined IR Global to further strengthen our cross-border legal services

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Kapolyi Law Firm is expanding its international relations by a further cooperation. By joining the IR Global international network, we are expanding the range of our complex cross-border services primarily in the field of real estate and energy law, thereby enhancing the standard of our services in international legal transactions. IR Global is an international organization which provides professional services in several areas of speciality, assists companies and individuals with legal, accounting and financial advice. Since 2010, the IR Global community with over a thousand consultants, twenty workgroups and ninety-two practice areas has been at the disposal of clients seeking cost-effective cross-border solutions. The goal of our accession is to offer comprehensive legal support at the international level for all types of business transactions to our Hungarian and foreign partners both on the domestic and the international markets. Thinking in complex and innovative legal solutions, Kapolyi Law Firm is represented by dr. Sándor Habóczky in the field of real estate law and by dr. Gábor Horváth in the field of energy law.

 

The Government extended the temporarily reintroduced border control until 31 December 2020

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In the second wave of COVID pandemic the number of people infected has skyrocketed, forcing more and more countries to reintroduce restrictions despite of the economic crisis.

At the end of August, the Hungarian government announced that it tightens the conditions of entry into the country in accordance with the provisions of Government Decree No. 407/2020 (VIII. 30.) on the temporary reintroduction of border control as well as of Government Decree No. 408/2020 (VIII. 30.) on travel restrictions during the epidemiological preparedness period. Due to the restrictions, Hungarian citizens coming from abroad or their family members without Hungarian citizenship may undergo a medical examination upon entry into the country, and if they are suspected of being infected, they will be ordered to undergo official home quarantine. Otherwise, entrants will be placed in a quarantine designated by the epidemiological authority or in official house quarantine for 10 days.

From 5 September, special rule applies to entry and exit for business and economic purposes. Accordingly, if the purpose of the exit is a business or economic activity, the fact of which will be proved by the Hungarian citizen when returning to Hungary, he/she may enter into the territory of Hungary without restriction after the trip.

In view of the current epidemiological situation, the Government has extended the effect of the Government Decree No. 407/2020 (VIII. 30.) on the temporary reintroduction of border control until 31 December 2020. The Government Decree No. 469/2020 (X. 29.) on the extension was published in the evening edition of the Hungarian Gazette of October 29, 2020 (Thursday). The Decree entered into force on 31 October 2020, and, at the same time, the provisions of the Government Decree No. 408/2020 (VIII. 30.) on travel restrictions during the epidemiological preparedness period also remained in force.

In view of the current epidemiological situation, further tightening measures on social contact is on their way, expected to be decided at the government meeting this week.

Latest measures of the Hungarian Government concerning the COVID-19 epidemic

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The 195th, 195th and 201th of the 2020 issue of the Hungarian Gazette have published several Government measures related to the epidemiological situation. The most important are the following.

  1. On the temporary reintroduction of border control

The Hungarian Government, pursuant to the 407/2020. (VIII. 30.) Government Decree considering the existence of a serious threat to public order and internal security in Hungary, temporarily reintroduced border control at the entire internal border pursuant to Article 2 (1) of Regulation (EU) 2016/399 of the European Parliament and of the Council of 9 March 2016 on the Union Code on the rules governing the movement of persons across borders.

The Government Decree has entered into force on 1 September 2020 and shall expire on 1 October 2020.

  1. Travel restrictions during the epidemiological preparedness period

The 408/2020 (VIII.30.) Government Decree on travel restrictions during the epidemiological preparedness period deals with the most important restrictions in the following breakdown.

  • As a general rule, the scope of the Government Decree covers non-official border crossings with a private passport and other travel documents. For the application of the Government Decree, it is subject to the same treatment as a Hungarian citizen
  • who is entitled to permanent residence in Hungary and a family member, if he / she proves this right with a document, or
  • who has a valid residence permit issued by the Immigration Authority for a period exceeding 90 days, entitling him/her to stay in the territory of Hungary, and presents the relevant document upon entry,
  • who is a competitor or sports professional of a Hungarian sports organization according to the Sports Act, if he/she enters the territory of Hungary after participating in an international sports event held abroad,
  • who is a person participating in an international sports event held abroad by an invitation or delegation issued by a Hungarian sports organization – issued by name – if he/she enters the territory of Hungary after participating in an international sports event held abroad.

The scope of the Decree does not cover (i) border crossing in freight traffic, (ii)  crossing the border with an official passport pursuant to 6 / A. § (2) Act XII of 1998 on travel abroad, and (iii) a person who, upon entry into Hungary, credibly proves that he or she has already suffered COVID-19 (infection) within 6 months prior to the date of application for crossing the border.

For the purposes of this Decree, crossing the border for official purposes is the crossing the border for an official purposes with private passport or other travel documents.

  • According to the rules for the entry of Hungarian citizens into Hungary, a Hungarian citizen arriving from abroad or a family member of a Hungarian citizen who does not have Hungarian citizenship (hereinafter together: Hungarian citizen) may undergo a medical examination when entering Hungary (save for any exceptions, set out in an Act or Government Decree) which he/she is obliged to tolerate. If, in the case of a Hungarian citizen, the medical examination reveals a suspicion of infection, he/she shall be placed in quarantine designated by the competent epidemiological authority or, if – it does not pose an epidemiological risk – in official home quarantine.
  • If, in the case of a Hungarian citizen, the medical examination does not establish a suspicion of infection, and
  • the Hungarian citizen has a permanent residence or place of residence in Hungary, under official house quarantine for 14 days,
  • the Hungarian citizen not living abroad does not have a permanent residence or place of residence in Hungary, for 14 days in quarantine designated by the competent epidemiological authority,
  • the Hungarian citizen living abroad does not have a residence or stay in Hungary, will be placed in quarantine designated by the competent epidemiological authority or official home quarantine for 14 days.
  • At the request of a quarantined person as described above, the competent epidemiological authority may allow the quarantined person to take part in a SARS-CoV-2 PCR test twice within 5 days, at least 48 hours apart, during which, if the tests confirm that the virus was not detectable in the body of the quarantined person at the time of the inspection, the competent epidemiological authority shall grant an exemption from the provision requiring quarantine.

The Decree allows the first test to be carried out in the territory of a Schengen country, and the United States or Canada and the result can be certified by a document in Hungarian or English.

To the best of our knowledge, the costs of carrying out the tests are not supported by the Government, they must be borne by those concerned.

  • As a general rule, non-Hungarian citizens may not enter the territory of Hungary in passenger traffic (save for the exceptions, specified by Act or Government Decree). The competent police authority may grant an exemption from this strict provision on request. The police authority may grant exception and allow entry if the applicant proves that the purpose of entry is:
  1. a) participation in a procedural act related to court or official proceedings in Hungary, certified by a document issued by the given institution,
  2. b) participation in health care with a referral from a health care institution or other appropriate certificate,
  3. c) fulfilment of the obligation to study or examine on the basis of the student or pupil status, if this is approved by a certificate issued by the educational institution,
  4. d) travel in passenger transport concerning work performed in connection with a transport activity, the purpose of which is to reach the starting point of the transport (place of commencement of work) or to return home in passenger traffic after such work, if evidenced by a certificate issued by the employer,
  5. e) participation in family events (marriage, christening, funeral),
  6. f) care of a relative pursuant to Act V of 2013 on the Civil Code,
  7. g) participation in a sporting, cultural or spiritual event of major international importance, or
  8. h) an equitable reason other than points (a) to (g).
  • The above application may (i) be submitted only electronically in Hungarian or English, or (ii) submitted by a legal representative or a proxy indicated in a power of attorney included in a private document of full probative value. If the entry takes place at the same time and with the same reason, an authorized representative may submit an application on behalf of several persons, if the authorization of the persons concerned is attached. In the case of crossing the border for the same reason and in the same time, it is sufficient to submit one application for close relatives living in the same household as the applicant.

In order to prove the validity of the application, the original copy of the document certifying the validity of the application must be presented by the person (licensee) exempted from the entry ban upon entering the territory of Hungary at the request of the police officer. If the licensee does not present the original of the document proving the substantiation, or its authenticity is questionable at the time of entry, entry shall be refused.

  • The application will be rejected by the police if (i) there is doubt about the purpose of the entry as described above, or (ii) the entry is risky for (a) epidemiological, (b) public security or (c) national security reasons. Ministerial guidelines or official practices regarding these latter phrases are not yet known at the time of writing.
  • Upon entering Hungary, the permit applicant may undergo a medical examination, which he or she is obliged to tolerate. Anyone who is suspected of being infected by a medical examination may not enter the territory of Hungary. Any person who is not suspected of being infected during the health inspection shall be placed in quarantine or official home quarantine designated by the competent epidemiological authority for 14 days. From quarantine, the above 2.2.2. exemption may be granted in accordance with the same procedure as set out therein.
  • Pursuant to the rules on travel between affiliated companies, a person coming from abroad may enter the territory of Hungary without restriction from the territory of the states specified by the Minister of the Interior if the following conditions are met:
  1. a) a director or employee of a domestic company or a company incorporated in one of the states designated by the Minister of the Interior,
  2. b) with which another registered company is in a affiliated relationship in at least one of the states specified by the Minister of the Interior responsible for public security[1] pursuant to § 4. Clause 23 of Act LXXXI of 1996 on Corporate Tax and Dividend Tax.
  • Pursuant to the 33/2020 (VIII. 30.) Decree of the Ministry of the Interior on the relevant business travel between affiliated companies, in force since 1 September 2020, the Minister of the Interior provided that a person arriving from the territory of any state within the framework of the above-mentioned business trip may enter the territory of Hungary.
  • Entry without restriction as described above may take place if the traveller, in addition to the conditions set out in paragraph 2.4 above – confirms the probability of a business trip. A ministerial, legislative resolution or official practice is not yet known at the time of writing this summary, however, according to the more widely used business practice, the purpose of the business trip can be certified by a written and signed invitation letter and/or a declaration setting out the most important elements of the business trip (eg: object/purpose/location of the business activity, planned meeting/operation. date of project visit/tour, number of the decision of the governing body on the project/business (possibly short content), etc.) in Hungarian, signed by the director (s) / board of directors of the company operating in Hungary. It is expedient to confirm the existence of the affiliated relationship between the companies concerned in accordance with § 4. Clause 23 of the Act LXXXI of 1996.
  • In case of the frontier workers the Government Decree set forth that citizens of neighbouring states determined by the Minister of Foreign Affairs and Hungarian citizens living there can enter in the territory of Hungary for a period not exceeding 24 hours and within a distance of 30 kilometres from the state border. People being in the territory of Hungary according to above shall stay within the 30 kilometres zone of Hungary from the state border, and shall leave the territory of Hungary in 24 hours after the entry.

Hungarian citizens living in the neighbourhood of the countries determined by the Minister of Foreign Affairs according to above, in the 30 kilometres zone of the territory of Hungary from the state border, can enter from the neighbouring states without any restriction, if the duration of their stay in abroad did not exceed the 24 hours and they did not leave the 30 kilometres zone from the state border in that neighbouring state.

  • For travelling with business or economic purpose, the decree contains the following rules:
  • If a Hungarian citizen travelling abroad can certify at the time of the entry in the territory in Hungary that he / she comes back from a trip made with a business or economic purpose, the Hungarian citizen can enter the territory of Hungary without any restriction.
  • In case a non-Hungarian citizen entering into Hungary can certify, that he / she enters in the territory of the country for business or economic activities, he / she can enter the territory of Hungary without any restriction.

If any doubt arises regarding the certification of the business or economic purpose, then Section 2.3. (the general rules for non-Hungarian citizens to enter into the country) shall prevail.

  • Based on the rules concerning to the people travelling through Hungary (persons in transit), a not Hungarian citizen coming from abroad can enter in the territory of Hungary in passenger transportation for transit, if he /she undergoes a medical examination upon entry and the medical examination does not establish a suspicion of infection.
  • An additional condition for entry for the above purposes is that a non-Hungarian citizen coming from abroad (i) shall have the entering conditions set out in Schengen Borders Code, (ii) shall certify credibly the purpose of the trip and the aim country of the trip, and that (iii) the entry into the aim country and to this end, entry into the state neighbouring Hungary on the route of the planned trip is ensured.
  • The national police chief will determine and publish the road border crossing points for the entry and exit of transit traffic, the route of transit traffic, the resting places and the time frame available for leaving Hungary on the official website of the police. A not Hungarian citizen coming from abroad and entering according the above can only travel on a route determined above during transit through the territory of Hungary and can stop solely for the reason strictly necessary for the passage – i.e.: especially for health or technical reasons – at the resting places determined by the national police chief and shall leave the territory of Hungary within the exact time frame, but within 24 hours at the most. An exception to this is stopping in a technical or medical emergency requiring immediate intervention.
  • The Government Decree contains rules also concerning the epidemiological data management. According to these, the competent epidemiological authority registers the people placed in designated quarantine and official home quarantine.

The Government appoints the police as well as a public health administration (i) to comply with the rules on epidemiological restrictions, (ii) for the purpose of registration of persons subject to epidemiological segregation, epidemiological surveillance, epidemiological closure and epidemiological restrictions, and (iii) for the purpose of registration of persons at risk from public health and epidemiology, and of persons, who have been in contact with such a person and who are therefore at risk from public health and epidemiological point of view.

In case the police asks, the data controller – in order to fulfil the epidemiological authority tasks of the police – forwards to the police immediately and free of charge – with priority compared to its other data transmission obligations – the personal data processed according to Section 5 (3) of Act XLVII 1997 on the processing and protection of health data and personal data related to them.

According to the Act CLIV 1997 on health, or in case of ordering official home quarantine, the competent epidemiological authority forwards the decision about the epidemiological isolation, epidemiological surveillance, epidemiological closure and epidemiological restriction for the police with priority (i.e.: out of turn) in order the police to be able to fulfil its controlling tasks.

The police registers the data determined above in order to control the compliance with the rules of epidemiological control and official home quarantine. No data may be entered in the register, which is not necessary for the controlling of the compliance of the rules of epidemiological control and official home quarantine. The data being in the register shall be deleted at the time of termination of the official home quarantine, epidemiological isolation, epidemiological surveillance, epidemiological closure and end of epidemiological restriction.

  • According to transitional provisions and provisions for entry into force
  • The following constitutes a safeguard measure in the adaptation of the breach of a safeguard measure infringement determined in Section 239/A (1) of Act II 2012 on infringements
  1. the medical examination determined in Section 2.2 above,
  2. the presentation of the original copy of the document certifying the validity of the request in Section 2.3.1 above upon entry the territory of Hungary,
  3. the medical examination determined in Section 2.3.3 above,
  4. presentation of a document confirming that the travel is of business nature in accordance with the rules on travel between affiliated undertakings set out in Section 2.4 above,
  5. the territory and time-limits set out in Section 2.5 above concerning the frontier workers,
  6. the provisions regarding the transit people set out in Section 2.6
  • Government Decree 419/2020 (IX.1.) sets out lighter rules for Visegrad Countries, as follows:
  • A Hungarian citizen and a non-Hungarian relative of the Hungarian citizen can get a waiver from quarantine, (i) if they enter in the territory of Hungary from the Czech Republic, Poland, or from Slovakia (ii) and had an accommodation booked in these countries before the publication of the government decree (1 September 2020), (iii) and had one negative SARS-CoV-2 PCR test made once after the arrival.
  • A Czech, Polish and Slovakian citizen can get a waiver from quarantine during the entry into Hungary, who certify (i) that he / she has an accommodation booked until 30 September 2020, (ii) which was booked before the government decree entered into force, (iii) and had one negative SARS-CoV-2 PCR test in 5 days prior the entering.

It is important to emphasize that the above rules may change/tighten in the forthcoming period, as a result of other government measures, depending on the latest development of the epidemiological situation.

[1] 23. *  ‘affiliated company’ shall mean:

  1. a) *  the taxpayer and the person in which the taxpayer has a majority control – whether directly or indirectly – according to the provisions of the Civil Code;
  2. b) the taxpayer and the person that has majority control in the taxpayer – whether directly or indirectly – according to the provisions of the Civil Code;
  3. c) *  the taxpayer and another person if a third party has majority control in both the taxpayer and such other person – whether directly or indirectly – according to the provisions of the Civil Code, where any close relative holding a majority control in the taxpayer and the other person shall be recognized as third parties;
  4. d) *  a nonresident entrepreneur and its domestic place of business and the business establishments of the nonresident entrepreneur, furthermore, the domestic place of business of a nonresident entrepreneur and the person who maintains the relationship defined under Paragraphs a)-c) with the nonresident entrepreneur;
  5. e) *  the taxpayer and its foreign branch, and the taxpayer’s foreign branch and the person who maintains the relationship defined under Paragraphs a)-c) with the taxpayer;
  6. f) *  the taxpayer and other person if between them dominating influence is exercised relating to business and financial policy having regard to the equivalence of management;
  7. g) *  Paragraphs a)-c) notwithstanding, affiliation shall be considered to exist
  8. ga) for the purposes of Point 11, Point 53, Paragraph f) of Subsection (1) of Section 8 and Section 16/A even if the taxpayer holds directly or indirectly a participation in terms of voting rights or capital ownership of 25 per cent or more or is entitled to receive 25 per cent or more of the profits in an entity, with the proviso that for the purposes of these provisions compliance with Paragraph f) shall not be taken into account,
  9. gb) for the purposes of Section 16/B even if the taxpayer holds directly or indirectly a participation in terms of voting rights or capital ownership of 50 per cent or more or is entitled to receive 50 per cent or more of the profits in an entity, with the proviso that having regard to participation in terms of voting rights or capital ownership the influence of persons acting in concert shall count together and in the case of taxpayers within a consolidated group of companies for financial accounting purposes Paragraph f) shall be taken into account;

Kapolyi Law Firm strengthens with new practice leader and partner in the field of dispute resolution and debt collection

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A new senior lawyer with more than 20 years of professional experience in dispute resolution, public procurement, administrative procedure and arbitration law comes to Kapolyi Law Firm. Dr. József Antal leads the law firm’s dispute resolution and debt collection team in a position as partner. 

Dr. József Antal, the new senior lawyer of the Kapolyi Law Firm, has gained significant experience in dispute resolution, public procurement, administrative and arbitration proceedings, as well as compliance matters, and will lead the Law Firm’s dispute resolution and debt collection  team in a position as partner. Dr. József Antal graduated at the Attila József University of Szeged in 1999; with his knowledge, professional experience and international relations he will support Kapolyi Law Firm, member of the European Law Firm and being present on the international stage too, as strategic partner in the future. At the same time, as head of the dispute resolution and debt collection  team, he will further raise the professional standard of the services of Kapolyi Law Firm, market leader in banking, financing and capital market law and committed to provide reliable and innovative legal services.

Dr. József Antal began his more than twenty-year career at the Budapest office of the Baker & McKenzie Law Firm in 1999, where he also led the dispute resolution team for more than a decade, until 2019. In 2019 and 2020 he worked as head of legal and compliance at Unix Auto and Metro Cash & Carry Hungary. He represented domestic as well as international companies in civil, administrative, criminal, public procurement, competition and arbitration matters; he regularly assists clients, in particular, in contractual law, damages and other civil law matters as legal advisor. Since 2018, he has been working as arbitrator in the Permanent Arbitration Court of the Hungarian Chamber of Commerce and Industry. Since 2019, he has been a member of the Supervisory Board of the Hungarian Food Bank Association and the Vice-Chairman of the Hungarian Arbitration Association. As the only member from Hungary, he is strengthening the ICC Central and Eastern European Arbitration Working Group with his professional experience.

Kapolyi Law Firm participated as legal advisor in the preparation of the Duna House bond issue

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On 31 August, the bond issue of Duna House ended with a significant oversubscription. The largest property brokerage group in Central and Eastern Europe announced in early August that it was participating in the Growth Bond Program of the National Bank of Hungary. Duna House invited Kapolyi Law Firm, a market leader in banking, financing and capital market law, to prepare the legal background for the transaction. The success of the transaction is indicated by the fact that, exceeding expectations, institutional investors bought 10-year bonds with a nominal value of HUF 6.6 billion, which was rated by Scope Ratings.

The portfolio.hu financial and economic news portal also reported on the preparation of the bond issue and the bond auction.