On 10 April 2020, the Hungarian government adopted Decree no. 102 of 2020, which amends the rules governing how Hungarian companies are able to hold general meetings (GMs) and vests the management of companies with exceptional powers in response to the current epidemic and restrictions on the movement of people in Hungary, which threatened to hamper the decision-making powers of members/ shareholders.
Besides Hungarian companies, the Decree is applicable to all types of legal entities (including particularly associations and foundations) and also to other organisations which do not have legal personality.
The amendments contained in the Hungarian Government Decree on holding GMs, which went into force on 11 April, include the following:
Electronically held GMs and passing resolutions in writing
Under normal circumstances, a GM can be held via electronic means or written resolutions can be passed by members or shareholders (Shareholders) without holding a meeting only if permitted by the company's constitutional document. Now, due to the Decree, a company can hold its GM electronically or resolutions can be passed in writing even if these procedures are not contained in the constitutional document, as long as the currently effective restrictions on the movement of people in Hungary prevent the regular decision-making process of the Shareholders.
Specifically, the Decree states that if the number of the company’s Shareholders:
- is no more than five, the GM will be held electronically or the Shareholders will pass their resolutions in writing, provided that there is a quorum for the meeting and each Shareholder is able to participate in the voting;
- exceeds five but is no more than ten, the Shareholders holding the majority of the votes can initiate the holding of an electronic GM or a written decision-making procedure;
- exceeds ten, the management is entitled to initiate the holding of an electronic GM or a written decision-making procedure.
In case of single-member companies, general decision-making rules continue to apply (i.e. the sole Shareholder can pass resolutions in writing).
In accordance with the Decree, management is entitled to set out the Decree's detailed rules of holding an electronic GM or passing resolutions in writing and communicate these rules to the company's Shareholders. In this capacity, management will ensure that the GM's agenda and the draft resolutions are sent to the Shareholders. In case of electronic GMs, management must determine the electronic device that will be used for holding the GM and the method for verifying the identity of any Shareholder not known personally by the executive officer. In case of passing resolutions in writing, a 15-day deadline must be provided for voting, and a vote will be considered valid if the Shareholder, the number of the resolutions, and the content of the vote are clearly identified.
According to the Decree, the board of directors, the supervisory board, the audit committee and any other corporate body are also entitled to hold meetings electronically, conduct written consultations, or pass its resolutions in writing.
Decision-making by the management
If the GM cannot be held electronically or the resolutions cannot be passed in writing, the management is entitled to decide on the adoption of the annual report prepared for the financial year 2019, on the appropriation of after-tax profit, as well as on other matters that otherwise fall within the competence of the GM, provided that these decisions are urgent and necessary for the maintenance of the lawful operation of the company and for the management of the current crisis situation caused by coronavirus.
Management can pass any of the above resolutions if the Shareholders holding at least 25% of the votes do not raise objections in their prior written opinions and if they are supported by at least 51% of the votes. If one of the company’s Shareholders has majority control or a qualifying majority, the management cannot pass any of the above resolutions if this Shareholder raises an objection.
As mentioned in our previous reporting on holding annual GMs during the coronavirus crisis, the annual report for Hungarian companies whose financial year corresponds to the calendar year must be approved and published by 31 May 2020 (i.e. the end of the fifth month following the balance-sheet date of the company). Despite media reports suggesting otherwise, the Decree does not extend this deadline. Instead, it facilitates the process of adopting the annual report by entitling the management to pass this decision if an electronic GM or a written decision-making procedure is not possible.
Specific rules concerning the annual GMs of public companies
The Decree does not enable public companies limited by shares to hold their annual GMs electronically or pass resolutions in writing if it is not included in their constitutional document. It does, however, state that the management of a public company is entitled to decide on each matter that is included in the GM's agenda. This authorisation clearly concerns the decision on the adoption of the annual report and dividend distribution.
Nevertheless, to ensure the participation of Shareholders in the decision-making process, the Decree entitles those Shareholders jointly holding 1% of the vote to initiate the convocation of the GM within 30 days following the termination of the state of emergency for the purpose of seeking posterior approval of the resolutions passed by management. As for the adoption of the annual report and the resolution on the appropriation of after tax-profit, the above convocation right of Shareholders jointly holding 1% of the votes is valid until 31 May 2020 or – for those public companies whose financial year differs from the calendar year – within 30 days from the expiry date of the deadline provided for the adoption of the annual report.
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Article co-authored by Szabina Marsi.