Corporate M&A 2020 Comparisons

Last Updated April 20, 2020

Contributed By Oppenheim Law Firm

Law and Practice


Oppenheim Law Firm has a corporate and M&A practice that focuses mainly on the energy, manufacturing, financial services, media, private equity and venture capital sectors. The intensive work of the corporate/M&A practice group contributes to Oppenheim being the second-largest law firm by turnover in Hungary, and the largest if international law firms are not considered. One of the main groups of the firm, the M&A practice group, has advised clients on a significant number of flagship transactions in various industries recently, including the acquisition of MKB Bank (the biggest M&A transaction in the Hungarian financial industry in 2017) and the sale of the Central and Eastern Europe (CEE) business of Anheuser-Busch Inbev/SABMiller, which was the largest M&A deal in the CEE region in 2016.

Both the number of deals and the total deal value in Hungary appeared to decrease in the past 12 months. Nevertheless, the average deal value rose. 

The analysis of highly ranked service providers, including CMS’ M&A report, shows that, while the number of deals in the telecoms and IT sector increased, the total number of transactions in the real estate and construction sector decreased. Nevertheless, real estate and construction still remained the most active sector in the Hungarian M&A market. Following real estate and construction, and telecoms and IT, manufacturing was the third most active sector in 2019.

The largest and most significant deals were dominated by domestic investors rather than foreign ones.

The industries experiencing the most significant M&A activity in Hungary in 2019 were real estate, followed by telecoms and IT, and manufacturing.

The primary legal technique for acquiring a company is through the purchase of shares (for a Hungarian private or public company limited by shares) or the company’s business quotas (for a Hungarian limited liability company). The acquisition may also take the legal form of a share swap, the contribution of the target company’s shares into the capital of the acquiring company, mergers, de-mergers or a combined form of these corporate transformations.

The primary regulators for M&A activity in Hungary are:

  • the Hungarian Competition Office (Gazdasági Versenyhivatal) for obtaining merger clearance; and
  • the Hungarian National Bank (Magyar Nemzeti Bank – MNB) for approving public takeover bids and certain transactions relating to financial institutions.

Furthermore, the approval of sector-specific regulators may be necessary if the target company is active in certain regulated industries, eg, the Hungarian Energy Office (Magyar Energetikai és Közmű-szabályozási Hivatal), the National Media and Communication Authority (Nemzeti Média- és Hírközlési Hatóság), and the Public Procurement Authority (Közbeszerzési Hatóság). The competent minister of the Hungarian Government is the authority competent to proceed with the national security screening of foreign investors, and to approve acquisitions by foreign investors in certain strategic sectors.

As a rule, there are no restrictions on foreign investment in Hungary, meaning that the same substantial and procedural rules apply to both foreign and domestic investors. In certain cases, however, foreign investors not resident in Hungary may be required to fulfil additional administrative requirements.

Transactions carried out by foreign investors may also be subject to the relatively new Act LVII 2018 on the Security Review on Foreign Investments (Security Review Act). This means that they will need ministerial approval for their investment, provided that the company to be acquired carries out strategic activities under the meaning of the Security Review Act (activities concerning national security, eg, defence, dual-use products, cryptography and wire-tapping products, etc).

In addition to the applicable EU antitrust regulations, Act LVII of 1996 on the Prohibition of Unfair Trading Practices and Unfair Competition is applied to business combinations. The Act sets out reporting obligations and the rules of approval of the Hungarian Competition Authority.

The Labour Code (Act No I of 2012) contains certain notification obligations to comply with regarding business transfers and mergers and other business combinations. First, for a transfer of a business unit (ie, the organised group of material or non-material assets) through a contract or transaction, the rights and obligations stemming from the employment relationships of the seller (as an employer) are transferred from the seller to the purchaser (as the new employer) by virtue of the law. The seller is obliged to inform the concerned employees – or the works council, if there is one operating at the seller – 15 days before the effective date of the transfer. Following the transfer, the purchaser is obliged to inform the concerned employees within 15 days of the effective date of the transfer.

Second, in the case of mergers and other corporate transformations, all employee representative bodies operating at the relevant companies must be informed of the merger or corporate transformation within 15 days of the final resolutions.

Also, the provisions of the Capital Market Act regulating public takeover situations govern certain obligations relating to employees. The public purchase offer must contain the possible consequences the purchase may have on employment conditions, and an operating plan must also be attached to the offer that sets out the bidder’s plans relating to the target company’s employees and management.

Generally, Hungary guarantees the protection and security of all foreign investments. Any expropriation or sequestration by the state is subject to immediate, unconditional and full compensation guaranteed in the Hungarian Constitution. However, the direct acquisition of property by foreign nationals (excluding the nationals of EEA States and Switzerland) is subject to the prior consent of a competent governmental authority. This limitation, however, is not applicable to Hungarian legal entities that are owned by foreign nationals (ie, indirect acquisition). Agricultural land involve stricter rules, its acquisition is subject to prior consent at all times, and a wide range of entities (including the Hungarian state) have statutory pre-emption rights.

In 2018, the Hungarian Parliament adopted the Security Review Act. Under the Act, transactions requiring ministerial approval (ie, that may not be implemented before such approval is granted) are:

  • those to be carried out by a foreign investor (an investor resident or registered in a country outside of the EU, EEA or Switzerland);
  • those relating to certain specific strategic activities (activities concerning national security such as defence, dual-use products, cryptography and wire-tapping products, government IT services as well as key services in the financial, energy and telecoms sectors); and
  • those whose implementation is considered a triggering event, eg:
    1. acquisition of at least a 25% (10% in the case of a publicly listed company) ownership ratio – direct or indirect – in an existing or newly founded Hungarian company;
    2. registering a Hungarian branch office for the purpose of carrying out strategic activities; or
    3. extending the scope of activities of a Hungarian company to strategic activities.

There has been no significant legal change in Hungary related to M&A in the past three years. Nevertheless, we have been experiencing a changed legal environment, crystallising court practice, as a result of and in relation to the new Hungarian Civil Code of 2014.

As for court decisions, the Hungarian Supreme Court rendered a significant decision in 2015 relating to acquisitions. The court decision No Kfv.I.35.417/2014/5 states that any currency loss resulting from performing a capital increase – originally resolved in HUF (Hungarian forints) – in a foreign currency is the risk of the founder, therefore it cannot be calculated as part of the profit before tax of the company. The court also stated that tax matters relating to a leveraged acquisition must be evaluated on the basis of the complex analysis of the entire chain of events and transactions. Here, the target company – a special purpose vehicle (SPV) – was established as the subsidiary of an international group with the intention of acting as intermediary for its mother company in the acquisition of further subsidiaries. The transaction was realised through a leveraged buyout structure in a series of complex financial steps.

The target company’s role included the provision of a loan to the other foreign project company taking part in the project, to facilitate further acquisitions. The final settlement between the parties of the transaction occurred by way of a set-off. The tax authority established that it violated the Corporate Tax Act if the amount that the target company received from the mother company, and the interests and costs that arose when providing a loan to another project company, was calculated as part of the target company’s profit before tax, since these costs did not arise for the interest of the target company.

As a result, the calculation was not in accordance with the requirement of rational management of funds as per the tax authority’s standpoint. The Supreme Court partially modified the decision of the tax authority and established that the violation is only present regarding the capital increase, ie, calculating the loss caused by the exchange rate in the course of the capital increase as part of the profit before tax. All in all, in this decision the court had to conduct a step-by-step analysis regarding the entire acquisition process – including international elements – in order to issue a decision, which rarely happens in practice.

Save for the Security Review Act, discussed in 2.3 Restrictions on Foreign Investments, there were no significant changes to the law on takeovers in 2019 or, at the time of writing, in 2020 in Hungary, nor is there any planned legislation that could result in significant changes in the coming twelve months.

Although bidders are at times the shareholders of the target company, it is not uncommon for a bidder to build a stake in the target prior to launching an offer. If the bidder would like to proceed with stakebuilding before making an offer, however, he or she may only acquire:

  • less than a 33% interest in the target company; or
  • less than a 25% interest in the target company, if none of the remaining shareholders have a participation interest exceeding 10%,

without also acquiring the obligation to launch a public purchase offer.

General ex post registration and disclosure requirements apply for the acquisition of:

  • a business quota in a limited liability company, regardless of the proportion of the business quota; and
  • at least 50% of the shares in a private company limited by shares.

In the case of mergers and other corporate transformations, all decisions on transformations need to be announced in the Hungarian Company Gazette and a special notification must be made to the concerned companies’ creditors. Announcements and notifications are the preconditions of the mandatory ex post registration of transactions.

A public purchase offer must be made in relation to the acquisition of the shares of a public company limited by shares if a person intends to acquire:

  • at least 33% interest in the target company; or
  • at least 25% interest in the target company, if none of the remaining shareholders have a participation interest exceeding 10%.

The public purchase offer must be submitted to the MNB for approval, the entire documentation must be sent to the target company’s management, and the approved purchase offer must be published.

Finally, shareholders (or persons having voting rights) in a public limited company must notify the issuer and the MNB if their voting rights based on the amount of shares held – either directly or indirectly – reaches or exceeds the following thresholds: 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 75%, 80%, 85%, 90%, 91%, 92%, 93%, 94%, 95%, 96%, 97%, 98% and 99%. Notification must be given immediately, at the latest within two calendar days of the change.

The rules of reporting thresholds are mandatory under Hungarian law, and a company may not deviate from these rules either in its articles of incorporation, by-laws or other corporate documents. Hurdles to stakebuilding may be restricted in a public company if the target company’s statutes so provide, and public companies are obliged to disclose their anti-takeover regulations. Anti-takeover measures are, however, relatively unrestricted in private companies in the form of, eg, pre-emption rights stipulated for members of the target company for share transfers intended for outsiders, implementing a capital increase (diluting shares to be transferred), stipulating transfer restrictions, including the company’s consent to the transfer of its shares, acquisition of own shares by the company, increasing the level of votes required for certain decisions in the company, etc.

Dealings in derivatives are generally not restricted. However, offering, sale and rendering other investment services are subject to licensing from the MNB based on Hungarian statutory regulations, which are mainly harmonised by the Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 (MiFID II). Within the EEA Area, licences can be passported into Hungary on the basis of the MiFID II and the directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 (CRD-IV).

Reporting obligations must be made in accordance with the Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 (EMIR). The acquisition of derivatives from the buyer’s side is not subject to any direct reporting obligation. However, other reporting obligations may apply pursuant to competition law and the requirements of a mandatory public offering based on ownership level and on takeover rules.

There may also be a notification obligation to the Hungarian Competition Authority, if the given trade or transfer of derivatives entails a change of control within the meaning of Hungarian merger control law and the applicable turnover thresholds are exceeded.

The Hungarian Competition Authority must clear a transaction for it to be implemented if a notification obligation exists (which assesses whether the transaction may lead to a significant impediment to competition).

If a public purchase offer is made in relation to the acquisition of shares of a public company limited by shares, the public purchase offer shall contain the plans of the offeror for the target’s future operations. The public offer shall be submitted to the MNB for approval, the entire documentation shall be sent to the target company’s management, and the approved purchase offer must be published.

Once the acquisition takes effect, certain rules of control will be set out in the effective articles of incorporation of the target company. Since the document must be submitted to the Hungarian Court of Registration and must become publicly available, all rules of control contained in the articles of incorporation will be available to third parties. 

Certain rules of control may also be set out in shareholders’ agreements or syndicate agreements, which are not to be submitted to the court of registration, and therefore usually remain confidential between the contracting parties.

Generally, a target entity is required to disclose a deal after it has become effective, by way of registration of the changes in the company register. In the case of a simple sale and purchase, the identity of the acquirer and his or her basic data are registered and thus announced, but the details of the transaction are not. For mergers and other corporate transformations, a public announcement on the terms of the merger must be made in the Company Gazette after the resolution on the merger. Since this announcement is a precondition of the (otherwise obligatory) ex-post registration, such mergers and transformations are rather transparent even before their date on which they take effect.

If the acquisition of a participation interest in a public company limited by shares is subject to a public takeover bid, the MNB must approve the bid and its details must be published. Accordingly, bids are already disclosed prior to the relevant agreement taking effect.

Market practice generally complies with legal requirements in terms of the timing of disclosure.

The scope of due diligence is determined by the buyer in the transaction and depends on several factors, eg:

  • the size of the target company (which may vary from a minor start-up to an enterprise with an extended business portfolio, possibly owning one of more domestic or foreign subsidiaries);
  • the amount of the participation interest to be acquired (a minority share in contrast to a majority share);
  • the type of the acquirer (eg, a financial investor with no experience in the specific industry, in contrast to a buyer having specific sectoral expertise); and
  • the aim and expectations of the acquirer (whether the acquirer intends to conduct business for a long period of time, or whether an exit is foreseen in the near future).

The scope of due diligence is likely to be extended and thorough if:

  • the target is a large enterprise;
  • a majority participation interest will be acquired within the target;
  • the acquirer has sector specific expertise; and/or
  • the acquirer seeks acquisition with the intention to further expand the business of the target.

Furthermore, the scope of the due diligence is usually in accordance with the volume and/or value of the transaction, meaning that transactions with higher deal values usually allow for a more in-depth due diligence exercise.

As a recent trend, shareholders and target companies involved in business combinations have become more conscious and diligent in limiting due diligence procedures, bearing in mind the following factors:

  • the target company’s interests in terms of protecting its business secrets;
  • compliance with the target’s contractual or statutory confidentiality obligations (if any); and
  • abiding by the legal requirements not to disclose certain data to third parties due to data protection restrictions and competition law requirements.

Such circumstances most commonly result in transferring shareholders and the target entities undertaking a due diligence of partially or exclusively redacted documents, and/or requiring the potential acquirer to sign a non-disclosure agreement.

It is common for acquirers to sign a term sheet or a letter of intent at the beginning of the negotiation process, where the other party is required to undertake exclusivity. In certain cases, exclusivity is not demanded at the beginning of the negotiation process but only following the submission of a binding offer or a binding letter of intent. In such cases the first phase of due diligence is conducted by several potential acquirers in a parallel manner, and then the acquirer, chosen based on his or her submitted offer, may lead the second phase of due diligence, based on exclusivity.

It is permitted, although uncommon, that tender offer terms and conditions are documented in a definitive agreement. Here, the binding offer(s) must be submitted together with a declaration on accepting the definitive terms and conditions of the tender offer, and the agreement must be concluded with the chosen bidder in accordance with the bidder’s declaration of acceptance.

The length of the acquisition/selling process varies, depending on the structure and the complexity of the given transaction. A simple share sale and purchase may be completed within days if no regulatory approvals are needed (excluding the court procedure for having the changes registered, which is not a precondition of the transaction’s effectiveness). Mergers, de-mergers and complex corporate transformations usually take at least three to four months and up to six months, provided that no difficulties arise, eg, mandatory preliminary announcements or problems with creditors. An acquisition by way of a public takeover may take up to one year.

There is no mandatory offer threshold in the case of the acquisition of privately held companies. However, under Hungarian law a mandatory offer threshold is applicable for a purchase offer for listed shares (ie, shares of a public company limited by shares) if the control to be acquired reaches the statutory limits (see 4.2 Material Shareholding Disclosure Threshold). The applicable minimum consideration will be the highest of the price:

  • calculated primarily on the basis of certain prior transactions made in relation to the given shares; or
  • based on the equity of the target, as detailed in the Capital Market Act.

Cash is more commonly used than shares in Hungary as consideration in M&A deals.

In the case of takeover offers, the legal structure already implies a certain level of conditionality. This is due to the fact that if a potential acquirer makes a public takeover bid, it becomes obliged to purchase all of the offered shares, while, at the time of submitting his or her offer, the acquirer cannot be certain of the exact amount of shares that will be offered. From the remaining shareholders’ point of view, they may be certain that their offered shares will be purchased. Otherwise, the only possible condition that could be applied is gaining the approval of the Competition Authority.

As an alternative to the above scenario, the acquirer is entitled to reserve his or her right to rescind the offer only if less than 50% of the target company’s shares could be acquired; more precisely, if the amount of shares that could be acquired would not guarantee an influence for the acquirer exceeding 50%. In this case the entire takeover offer is conditional upon the proviso that at least a 50% interest is acquired in the target company.

As explained in 6.4 Common Conditions for a Takeover Offer, the acquirer is entitled to make an offer that will be binding on the bidder on condition that the shares acquired would guarantee an influence for the acquirer exceeding 50%. The reason for this is the general Hungarian voting requirements, whereby (unless otherwise regulated in the company’s statutes) many decisions in the shareholders’ meeting may be made with 50% plus one vote.

A business combination may be conditional on the bidder obtaining financing, if agreed by both contracting parties and regulated in their agreement as a condition precedent to the closing of the transaction. In the case of a merger or other corporate combination, obtaining financing may be a precondition of the transaction, however, this needs to be fulfilled in advance because a merger or other corporate combinations cannot be made or resolved by the concerned entities conditionally. It is of note, furthermore, that in case of public companies limited by shares the target may not provide financial assistance to the acquirer for the acquisition of the target’s shares, unless under market conditions and from the target’s sources from which dividends could be paid and as approved by at least 75% of the shareholders’ meeting pursuant to the proposal of the target’s management board.

A bidder may demand exclusivity with the seller to increase deal security. Exclusivity is usually undertaken for an agreed period of time, during which the seller may not engage in discussions with any third person regarding the prospective deal with the acquirer, may not offer the deal to any other person, and may not respond to any such proposals from third parties. If this exclusivity is breached, the party in breach may be obliged to pay a penalty (if the agreement regulating exclusivity provides this legal consequence) and/or may be held liable to the original acquirer for the damages caused to this party (by virtue of law). In both cases the original acquirer must prove that a breach took place to receive a penalty or damages from the seller.

Without an exclusivity agreement, or if the breach cannot be proven in this respect, the potential acquirer cannot claim damages from the seller solely on the basis that the seller walked away. This is due to the Hungarian legal standpoint that the parties are not obliged to conclude the contract if they initiate negotiations. In most cases the seller will not even be liable for implied conduct. There is type of culpa in contrahendo (ie, a duty to negotiate with care, and not lead a negotiating party to act to his or her detriment before a firm contract is concluded) when the party may be held liable ex delicto (as a result of a wrongdoing) for the damages incurred by the potential acquirer. This is where the selling party breached his or her obligation to act fairly and in good faith at the start, during the execution or at the end of the negotiations of the transaction. In particular, this would apply if the selling party failed to inform and co-operate with the acquirer in the course of the negotiations.

All shareholders, irrespective of the amount of their participation interest, have the right to review the registers, books and documents of the company, and to request information from the management regarding the operations of the company. The management must fulfil such information requests unless:

  • disclosing the information would violate the business secrets of the company;
  • the shareholder requesting information is abusing its right; or
  • the management requests the execution of a non-disclosure agreement and the shareholder refuses to sign such an agreement.

Furthermore, all shareholders are entitled to contest the validity of a resolution of the supreme body, the management or the supervisory board of a company, if the resolution violates legal regulations or the articles of incorporation of the company (with the condition that the shareholder did not approve the given resolution with its vote). This type of action may be initiated within 30 days of the shareholder having become aware of the resolution, but no later than one year following the day the resolution was rendered.

In addition, minority shareholders have certain legal means to protect their interests in the company. These legal means are linked to a minimum participation interest, ie:

  • shareholders holding alone or together at least 5% of the votes of a private company; and
  • shareholders holding alone or together at least 1% of the votes in a public company limited by shares are entitled to these rights.

These so-called minority rights are as follows:

  • the shareholder may request that the management convene the supreme body of the company, if the shareholder specifies the aim and purpose of the meeting (ie, items on the agenda);
  • the shareholder may supplement the agenda of the already convened meeting of the supreme body;
  • the shareholder may request that the company engage an independent auditor to audit the last financial statements of the company or any economic event relating to management activity or any undertaking made by the company in the last two years; or
  • the shareholder may ask the supreme body to adopt a resolution on enforcing a claim against another shareholder, a member of the management or the company’s auditor. 

If the company’s management or supreme body does not grant the request in the final point above, the shareholder may turn to the Court of Registration to enforce these rights and if the request for an independent auditor is not granted, the shareholder may proceed and enforce the claim as a representative of the company.

As a special rule applicable to companies limited by shares, minority shareholders – owning together at least 5% of the votes in a private company and 1% of the votes in a public company – have the right to request that the court appoint an auditor to examine payments made by the company from its equity to the shareholders within one year of the payment.

Finally, in companies limited by shares, rights attached to a certain series of shares can be changed detrimentally only if the shareholders owning shares in the given series specifically consent to the change as set forth in the company’s articles of association. The same rule applies in case the registered capital of the companies is increased: if the capital increase would affect the rights attached to certain shares, the increase can be validly implemented only if all of the concerned shareholders approve.

Shareholders may be represented by a proxy at a company’s general meeting, which implies that shareholders may vote by proxy under Hungarian law. In such instances the shareholder must issue a power of attorney to the proxy, which must be in a document with full probative force. This means that the signature of two witnesses or the countersigning of a lawyer may be required if the document is signed in Hungary, and further formal requirements may also be needed if signed outside of Hungary (eg, execution before a notary, with or without apostille, or legalisation at a Hungarian embassy or consulate).

Where a company is limited by shares, the shareholder may also appoint a nominee as a proxy, who will be entitled to exercise the shareholder’s voting rights after the nominee’s registration into the shareholders’ registry. In any case, unless otherwise regulated in the company’s articles of association, a shareholder may not appoint a member of the company’s management, a member of the company’s supervisory board or the company’s auditor to act as the shareholder’s proxy.

Under Hungarian law, a squeeze-out mechanism is regulated to buy out shareholders that have not tendered following a successful tender offer. In the course of the squeeze-out, the bidder – having successfully acquired at least 90% of the voting rights within the target company – is entitled within three months to exercise a call option right if the following conditions are met:

  • the bidder declared his or her intention to exercise its call option right in its initial bid; and
  • the bidder verifies that he or she has sufficient funds to purchase the remaining shares that are the subject of the call option right.

The call option right may be exercised within three months of the closing date of the mandatory or voluntary purchase offer. Similar to public purchase offers, the purchase price applicable in the course of the squeeze-out mechanism is also prescribed by the Capital Market Act. The bidder must notify the MNB of his or her intention regarding the squeeze-out and must also arrange for publication.

Although it is not common, the bidder may negotiate with the principal shareholders to obtain commitments. Negotiations would usually take place before the bid is compiled and submitted to the relevant authorities for approval or to be published. A commitment would usually not provide a way out for the principal shareholder should a better offer be made. However, depending on its nature, a commitment may have different consequences if breached. If the commitment to tender is deemed a pre-contract, the bidder could claim the selling of the shares by the principal shareholder (ie, the conclusion of the sale contract and the transfer of the shares).

Nevertheless, such claims would take lengthy proceedings to enforce, triggering a long, uncertain period in respect of the relevant shares or control over the target, which may not be acceptable to a bidder. Hence, if a commitment is breached, the bidder might prefer to rescind and claim damages from the principal shareholder who has been in breach. On the other hand, commitments to vote (if breached) are more likely to be claimed and enforced in court.

Public takeover bids become public prior to them being made, through submission of the bids to the MNB for preliminary approval, and through their mandatory publication. The publication must take place before the approval of the MNB, with clear notice that the bid is pending approval.

There are certain exceptions when the purchase offer is not subject to the preliminary approval of the MNB and must be published after an acquisition. This applies where the bidder acquires shares:

  • without his or her own direct action;
  • based on the exercise of a call option right, repurchase right or a purchase agreement with a stipulated deadline;
  • in a procedure regulated by law and conducted by a state asset management organisation; or
  • as a result of the action of persons acting in concert.

In such cases the notification and publication obligations must be met within 15 days.

For a Hungarian company to issue shares, the relevant documents must be submitted to the Court of Registration together with a request to register the characteristics of the shares in the company registry (ie, type, class and series of shares, number of shares, nominal value, currency, etc). As a result of registration, such documents and data become publicly available. Following the registration process, the shares are given an International Securities Identification Number (ISIN) and are issued through the Hungarian clearing house (KELER Zrt). At the end of this process, the share data must also be available in the public database and by conducting an ISIN search of KELER Zrt.

The financial statements of Hungarian companies are to be prepared on the basis of the Hungarian Accounting Act. The Accounting Act prescribes the exact content of the balance sheet, the profit and loss accounts and the detailed rules of accounting. The financial statements of companies must be submitted to the electronic database of the Ministry of Justice and are published and accessible through the online platform of the Ministry.

Since financial statements are available publicly, there are no further requirements to disclose these documents as bidders.

Generally, only the corporate documentation relating to a transaction must be submitted to the Court of Registration, while the actual transaction document (eg, the sale and purchase agreement) is not. For example, corporate documents in a limited liability company will include:

  • notification on the acquisition of a business quota;
  • the list of members;
  • the managing director’s declaration of acceptance and signature specimen;
  • the effective version of the articles of incorporation;
  • minutes of the members’ meeting; and
  • delivery proxies for persons not having an address in Hungary, etc.

In the case of a company limited by shares, corporate documents will include:

  • the effective version of the articles of incorporation;
  • minutes of the general assembly;
  • a declaration of acceptance and signature specimen regarding the members of the board of directors; and
  • delivery proxies for persons not having an address in Hungary, etc.

In the case of public takeover offers, accepting the offer fulfils the transaction. As a result, no separate set of transaction documents is prepared while the actual terms and conditions are disclosed fully.

Documents regarding a merger, demerger or change in the company’s corporate form have to be disclosed in full, including inventories and balance sheets, by publishing the major contents in the official Company Gazette and by submitting the entire documentation to the Court of Registration.

Generally, the director of a company must fulfil his or her managerial tasks and duties in line with the company’s best interests under Hungarian law. This rule also applies to proceedings in business combinations and it is worth noting that the shareholders may not instruct the directors, with the exception of one-member companies where the management must abide by the instructions of the sole shareholder.

As regards business combinations, actions are usually made in line with the intentions of the shareholders, with a view to the company’s interests, and also for the potential new shareholder or investor, as the case may be. In particular, it is often the task of a director in the course of a due diligence process to collect and disclose the documents and information necessary, to manage the questions and further information requests and take part in the management interview (if any). Also, in the case of mergers and other corporate transformations, it is the responsibility of the directors of the affected companies to prepare the merger/de-merger deeds and the necessary corporate documentation, as well as to arrange for the preparation of the audited merger balance sheet and inventories and to liaise with the legal counsel for the registration of the changes. The management has to decide how to proceed regarding a takeover attempt in line with the company’s interests.

Nevertheless, the directors must also take certain measures in the interest of other stakeholders, such as employees and creditors, which include the obligation to provide true and timely information on the intended business combination and its effects on the company, as well as the financial situation or prospects.

It is not common for the management to establish special or ad hoc committees in business combinations. The management, or a person designated by the management, usually carries out tasks relating to facilitating transactions.

Otherwise, the management may naturally form committees and delegate certain of their powers to such committees or persons for supporting the operation of a company.

Under Hungarian law, the decision of a company’s board of directors may only be challenged on the basis that the decision violates legal regulations or the articles of incorporation of the company. The onus is on the person challenging the respective decision to prove the violation. The challenge will not succeed on the ground that the decision is impractical, unprofitable or gives priority to certain interests above others. This applies also to takeover situations, and the management’s actions or decisions made in relation to a takeover.

Nevertheless, because it is a legal requirement for the management to act in the best interest of the company, if the board of directors makes resolutions that do not serve those interests, the resolution may be contested and/or the board of directors may be subject to damage claims enforced on behalf of the company.

The form of independent, outside advice given to directors in a business combination depends on the nature and complexity of the deal. The parties need a legal adviser in almost all cases to design the structure of the deal and because most acquisitions result in the registration obligations of certain corporate changes in the company register. In most cases extensive financial documentation must be prepared and audited, which means that the parties must also engage accounting experts and independent auditors. In an acquisition by means of a public takeover bid, the Capital Market Act prescribes that a financial adviser shall also be involved. Tax advisers are often involved to assist in intra-group restructurings, as well as mergers and other corporate transformations. Also, public relations and human resources advisers may be involved if the size and structure of the deal so requires.

Conflicts of interest of directors and managers are regulated in the Civil Code, and such conflicts may be a reason for exclusion from a directorial or managerial position. There is a conflict of interest rule in the new Hungarian Civil Code – which entered in to force in 2014 – which needs to be interpreted by courts. This rule prescribes that a person who is the managing director of a company may not be appointed as the managing director of another company whose main activity is the same, since such a situation qualifies as a conflict of interest.

Another section prescribes that the mandate of a managing director must terminate automatically upon the occurrence of a conflict of interest event. Based on these rules there are several issues that are not possible to determine, eg, if the managing director has a position in one company and accepts another conflicting mandate, does the second mandate become valid and the first terminated, or is there no possibility to validly accept the second mandate, and both mandates become vacant? It is also unclear what happens if two mandates conflict and a third, fourth, etc, conflicting mandate is accepted by the same director. Since there is no mechanism whereby the Court of Registration can follow these conflict of interest events, the company register – as a public register – contains all directors, even those who have been conflicted before. As a result, the risks attached to this rule cannot be accurately evaluated. 

Conflicts of interests regarding shareholders may be taken into account upon voting: in instances of conflicts of interest listed by the Civil Code, the shareholders will be excluded from voting in the matters where they are conflicted (ie, personally interested). Such rules, if breached, may be enforced before a court. Conflicts of interests may be further regulated in a company’s articles of association, providing room for the company (ie, its competent body) to hinder, by refusing to give its consent thereto, the transfer of the company’s shares to a certain shareholders based on the reasons allowed in the articles of association.

Conflicts of interest regarding advisers are regulated in various sectoral rules (eg, rules on lawyers or auditors) the breach of which may be supervised and sanctioned by the respective chambers (the bar association or auditors’ chamber), but such breaches may also affect the existence of the mandate of the adviser. A few major rules are also included in the Civil Code, mostly for independent auditors acting in business combinations, the breach of which may also be a reason to contest the deal.

Hostile tender offers are not common in Hungary, although they are not prohibited.

The directors’ approach to hostile tenders is not restricted in any way in the case of private companies. This means that directors can attempt to prevent acquisition by any lawful means, including initiating a capital increase or by acquiring a company’s own shares (in the latter case: provided that this is possible based on the company’s financial situation and the shareholders’ meeting authorises the directors to do so).

In the case of public companies, their by-laws may prescribe that the management of the target company must remain neutral and cannot take any action that would be able either to prevent or disturb the acquisition process. Nevertheless, even in these cases, the directors are entitled to:

  • proceed in encouraging a counter-offer; or
  • decide to implement a resolution of the supreme body if it was made before the announcement (or having become aware) of the public takeover bid, provided that the resolution falls under the ordinary course of business of the target company.

Furthermore, the management may proceed as specified in any resolution of the supreme body rendered at a meeting convened after the announcement (or having become aware) of the public takeover bid.

The most common defensive measures are limiting the maximum proportion of votes that may be acquired within the company, or facilitating the dilution of the potential acquirer by the other shareholders at a discounted price. Further restrictions may also be set out in the target company’s by-laws, or change of control clauses may be inserted into the target company’s contracts. These measures may be able to discourage the potential acquirers from a hostile acquisition.

In private companies, hostile acquisitions may practically be hindered through setting out the general meeting’s approval for the transfer of any participation interest held in the company and/or granting a pre-emption right to the remaining shareholders, or even the company itself. The remaining members may also increase the registered capital of the company before the acquisition, which can result in decreasing the participation interest being acquired.

In all circumstances, the director of a company must fulfil his or her managerial tasks and duties in line with the company’s best interests under Hungarian law. Also, the directors must act in compliance with the laws, the company’s articles of association and the resolutions of the shareholders’ meeting.

Directors may initiate certain measures that can impede a business combination, but ultimately the target company’s actual shareholders must resolve pertinent decisions. Moreover, the shareholders are free to recall a company’s managing director at any time without providing justification, and are able to appoint another director if necessary.

Since arbitration clauses generally form part of M&A transactional documents, litigation in connection with M&A deals is usually conducted before an arbitral tribunal (either based in Hungary or abroad). As arbitration remains private and confidential between the parties and the arbitrators, it is difficult to determine how common litigation is in the M&A sector. In most known cases, M&A litigation/arbitration relates to warranty claims. It can be established, however, that litigation relating to M&A deals before the ordinary courts is not common in Hungary.

Parties to a deal usually attempt to reach an out-of-court settlement, with or without the help of legal advisers. This is almost exclusively the case for minor disputes. Nevertheless, out-of-court settlements are usually conducted with potential court or arbitral proceedings in mind. If, however, the dispute concerns the substance of the deal, or if the parties are unable to reach an out-of-court settlement, the dispute is likely to be brought to court or arbitration. There may be cases where litigation or arbitral proceedings are commenced by a party without the intention of following through with the lawsuit, but rather to ensure a better position for that party for an anticipated out-of-court settlement.

Litigation or arbitration is commonly used after the transaction, ie, in case of disputed warranty claims, and most rarely in relation to other stages of a deal.

Shareholder activism is not an important force in Hungary. In certain cases, groups of minor shareholders of public companies try to influence the decision-making process of the concerned companies, challenge certain decision of the respective boards or general assemblies or solicit information from the company. Public companies usually deal with these situations strictly on the basis of applicable laws and with due respect to the equality of shareholder rights.

It is not common for activists to encourage companies to enter into M&A transactions in Hungary.

It is not usual that activists seek to interfere with the completion of announced transactions in Hungary.

Oppenheim Law Firm

H-1053 Budapest
Károlyi utca 12

+36 1 486 22 00
Author Business Card

Law and Practice in Hungary


Oppenheim Law Firm has a corporate and M&A practice that focuses mainly on the energy, manufacturing, financial services, media, private equity and venture capital sectors. The intensive work of the corporate/M&A practice group contributes to Oppenheim being the second-largest law firm by turnover in Hungary, and the largest if international law firms are not considered. One of the main groups of the firm, the M&A practice group, has advised clients on a significant number of flagship transactions in various industries recently, including the acquisition of MKB Bank (the biggest M&A transaction in the Hungarian financial industry in 2017) and the sale of the Central and Eastern Europe (CEE) business of Anheuser-Busch Inbev/SABMiller, which was the largest M&A deal in the CEE region in 2016.