A Practical Guide to Cross-Border Company Transformations in Hungary
Navigating Mergers, Divisions, and Registered Office Transfers Under Hungary and EU Law
The ability for companies to merge, divide, or transfer their registered office across borders is a fundamental aspect of operating within the European Union’s single market. While EU directives aim to create a harmonized framework for this corporate mobility, the practical implementation is governed by national laws, which can differ significantly. In Hungary, these procedures are primarily regulated by Act CXL of 2021 on the cross-border transformation, merger, and division of companies. This legislation, which transposes the EU’s Mobility Directive, sets out a detailed but complex process. This guide provides a clear overview of the key steps and legal requirements for undertaking a cross-border transformation involving a Hungarian company.
What are Cross-Border Transformations in Hungary?
The Hungarian Act on cross-border transformations provides a legal framework for several types of cross-border operations, allowing companies to restructure within the EU. These processes are categorized based on the direction of the transformation and whether the company is merging or simply relocating its seat.
Cross-Border Merger into Hungary
This involves one or more foreign companies merging into an existing or newly established Hungarian company. Upon completion, the foreign companies may cease to exist without liquidation, and all or part of their assets and liabilities are transferred to the Hungarian successor entity.
Cross-Border Merger from Hungary
Conversely, a Hungarian company can merge into a foreign legal entity. In this scenario, the Hungarian company may be dissolved without liquidation, and all or part of its assets and liabilities are absorbed by the foreign successor company.
Relocation of Registered Office to Hungary
A foreign company can transfer its registered office to Hungary, thereby becoming a Hungarian company governed by Hungarian law. This process, often called re-domiciliation, allows the company to continue its existence seamlessly but under a new national legal framework.
Relocation of Registered Office from Hungary
A Hungarian company can also relocate its registered office to another EU member state, transforming into a company governed by the laws of that destination country while maintaining its legal personality.
The Step-by-Step Process for a Cross-Border Transformation
The transformation process follows a strict timeline and requires several key legal documents. The central document is the Transformation Project, which must detail all participating companies, the exchange ratio of shares where applicable, the legal and economic consequences for employees, and other essential information. This project is subject to statutory deposit and publication rules to ensure transparency. Shareholder approval is required, which often necessitates an elevated majority vote at a general meeting, as specified by the Hungarian Company Act and the implementing Act on transformations.
The Indispensable Role of the Court of Registration in Hungary
In the Hungarian legal system, the Court of Registration (cégbíróság) plays a crucial gatekeeping role in the cross-border transformation process. Before a transformation can be registered in the destination country, the Hungarian Court of Registration must issue a pre-transformation certificate. To do this, the court conducts a thorough verification to confirm that all requirements under Hungarian law have been met. This includes examining the transformation project, confirming that stakeholder protection rules have been followed, and ensuring the general meeting’s approval was validly obtained. Where notaries are involved, they may refuse to certify documents if the transformation is suspected of being for an abusive or fraudulent purpose. Without the final certificate from the Court of Registration, the foreign commercial register will not complete the transformation, effectively halting the entire procedure.
Protecting Stakeholders: Creditors, Employees, and Minority Shareholders
Hungarian law provides safeguards for stakeholders who may be affected by a transformation. Creditors whose claims may be endangered have the right to demand adequate security and can initiate remedies within statutory deadlines following the project’s publication. Companies also have a duty to inform and consult with their employees or their representatives about the transformation, in line with the Act and Hungarian labour law, detailing the reasons and the legal, economic, and social consequences. Hungarian law provides strong protection for minority shareholders; any shareholder who dissents from the transformation has a statutory right to exit the company in exchange for adequate cash compensation. Notably, no minimum shareholding threshold is required to exercise this right.
Consequences of Non-Compliance in Hungary
Failing to adhere to the strict procedural requirements can lead to severe consequences. The primary sanction is the refusal by the Court of Registration to issue the pre-transformation certificate, which blocks the entire transaction. Furthermore, non-compliance can lead to the invalidity of the transformation, administrative fines, and in some cases, civil or criminal liability for the management. Failure to notify the Hungarian Competition Authority of a transaction that meets the relevant thresholds can also result in significant fines.
Ensure Your Compliance and a Smooth Transformation
Correctly navigating a cross-border transformation is a critical legal and administrative challenge. Our team of experts provides a comprehensive service that covers everything from drafting the Transformation Project to representing you before courts and authorities, ensuring your compliance with both Hungarian and EU regulations. By entrusting this task to us, you can be confident that your cross-border restructuring will be managed efficiently, correctly, and without costly errors.
