A new bill has been recently proposed to the Hungarian parliament, which aims to amend various acts that, among others, include a proposal to postpone the entry into force of Act XCII of 2021 on the Registry and Registration Procedure of Legal Persons from the originally planned date of 1 July 2023 to 1 January 2026. According to the bill's explanatory memorandum, entry into force of the Act is to be postponed to provide more time for legal practitioners to prepare for the systematic reforms the Act intends to introduce. The proposal has not yet been adopted by the Hungarian parliament.
Hungary has passed Act XCII of 2021 on the Registry and Registration Procedure of Legal Persons, which establishes a unified registry for all types of legal and non-legal persons (e.g. companies, foundations, law firms) and prompt procedures that will go into force on 1 July 2023. The Act fundamentally transforms the company’s registry and registration procedures, and repeals inter alia Act V of 2006 on Public Company Information, Company Registration and Winding-up Proceedings (known as the Companies Act).
Under current Hungarian regulations, different types of legal entities and non-legal persons are registered in separate registries and their registration procedures are regulated by different acts. With the adoption of the new Hungarian Civil Code in 2013, the legislator introduced unified rules for legal persons and maintained a unified registry of these entities. The Hungarian parliament adopted Act XCII of 2021 to unify procedural rules, facilitate registration procedures and establish a unified registry of legal and non-legal entities in Hungary.
The aim of the new Act is to expedite court registrations and register new company formations and simple corporate changes in an automatic decision-making procedure that operates entirely without human contribution.
Similar to the current rules under the Companies Act, the registration procedure under the Act begins with the examination of the application by the court’s IT system, which conducts automatic IT case preparation and consists of the formal examination of the application and the collection of data from other registries. The next step and a fundamental new addition to the Act is the decision on the application of a company registration or registration of changes (except for public companies limited by shares) in an automatic decision-making procedure. During this procedure, a decision will be delivered within one hour based on available and obtained data without the involvement of a human workforce. In the automatic decision-making procedure, the court either registers the requested company establishment or corporate changes, or refuses this registration. The court cannot request that the company perform a supplementary filing.
If no decision is issued within the one-hour timeframe or in the case of public companies limited by shares, a judge will examine the application. In this procedure, the judge may issue a request for supplementary information within five business days at the latest and the court will issue a decision within ten business days instead of the current deadline of 15 business days.
In case of new company formations, the Act retains the 30-day deadline from the date of countersigning the deed of foundation for filing a company registration application. However, the application for registration of any corporate changes (except for public companies limited by shares) must be submitted to the court within 15 days from the date when the change was made, which cuts the current 30-day deadline in half. The deadline remains 30 days for public companies limited by shares.
Under the Act, companies can still file a name reservation application in order to reserve their preferred name and, as an important change, the court not only examines whether there is another entity in the registry with the chosen name but also the chosen name’s lawfulness. This means in practice that if the application for name reservation is accepted, the name’s lawfulness will not be examined in the registration procedure, provided that the application for registration is filed within the name-reservation period.
Several other documents must be submitted with the registration application form. The exact scope of these documents have not yet been determined or published in a separate government decree. Nevertheless, a crucial change contained in the Act is that if the application relates to a change of a member based on a civil law relationship or a registration or deletion of a right encumbering a quota, a joint power of attorney must be attached that includes declarations by all affected parties.
Matters decided in the automatic decision-making procedures may fall under post-inspection, and either be picked in a random fashion by the court’s IT system or deliberately chosen by the court meaning that the entity may face a judicial oversight proceeding.
Establishment of a unified registry
The Act calls for the establishment of a unified authentic registry for all types of legal and non-legal persons, which includes the register itself and the registry documents submitted for filing purposes. In a notable change, the register under the Act contains less personal data for natural persons (e.g. a managing director) and is limited to their name, mother’s maiden name and date and – as a new addition – place of birth. The required personal data no longer includes their tax number and, most importantly, their address. If non-public data, such as an address, is included in any of the documents submitted to the registry, anyone may access them, making this non-public data effectively public. Thus, in such a case, the attorney-at-law must obtain the client’s consent prior to including non-public data in registry documents.
Liability of the attorney-at-law
According to the Act, even greater liability is placed on the attorneys-at-law since their liability from a lawfulness perspective not only covers the documents filed with the court in a registration procedure but also extends to other documents held by them. Furthermore, in the automatic decision-making procedure the attorneys-at-law are also required to make a thorough declaration pertaining to the individual contents of the attachments.
Increasing court fees and judicial oversight proceedings
Some changes in the Act seem to have increased the frequency in paying court fees. For instance, if a member of a company pays a monetary contribution after the company registration or the registration of the capital increase, then the payment of this contribution must be reported to the court in a registration of changes application rather than as a simple submission, which has been free of charge until now. Furthermore, an application of correction may only be submitted if the registration occurred in an automatic decision-making procedure or ex lege and only until the business day following the receipt of the court order of registration at the latest. Due to the brief deadline, this requirement will likely result in the reporting of corrections in the registration of changes procedure for court fees.
The Act implements new special judicial oversight proceedings in relation to, for example, the rights of minority shareholders and creditors or failure to publish the financial report in time. Since the Act introduces the automatic decision-making procedure, judges are expected to be more active in judicial oversight proceedings and to put more focus on ensuring the compliant operation of companies with the applicable laws.
Planned entry into force
As of the date of this article, separate government decrees have supposed to be issued which stipulate the mandatory attachments of the applications and the rules on the termination of companies without a legal successor. Neither of these government decrees have yet been adopted and published nor have the new webpage and IT conditions for the unified registry been introduced.
Therefore, it is doubtful whether the Act will actually go into force on 1 July 2023.
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This article is co-authored by Dávid Máté.