Hungary has introduced a bill to elevate emergency decrees adopted in response to the war in Ukraine into law.
One of the bill’s key features is to transform Government Decree No. 561/2022 (XII. 23.) (FDI Decree), which governs Hungary’s foreign direct investment screening regime introduced during the state of emergency, into law. This would transform FDI requirements, initially adopted as interim measures, into law.
According to the bill’s explanatory memorandum, maintaining the provisions of the FDI Decree is justified even after the end of the state of emergency in order to continue to prevent and deter hostile takeovers targeting Hungarian strategic companies. Therefore, the bill proposes that the FDI regime remain in force under its current framework until 31 December 2026 even if the state of emergency is lifted.
As a result, if a buyer intends to acquire a shareholding in a Hungarian strategic company, this transaction will continue to be subject to approval if the potential buyer is a foreign investor with the following profile:
- An entity registered in Hungary, the EU, the EEA or Switzerland whose majority owner is a citizen of, or an entity registered in, a country other than the aforementioned; or
- A citizen of or an entity registered outside the EU, the EEA or Switzerland.
The thresholds triggering the FDI screening mechanism would remain unchanged and would vary depending on the transaction value and the identity of the foreign investor. Also, the FDI screening mechanism under the bill would continue to cover acquisitions by entities incorporated in the EU, the EEA or Switzerland if they acquire majority control over the strategic target company and the total transaction value exceeds HUF 350 million.
In addition to the acquisition control of shareholdings in Hungarian strategic companies detailed above, in transactions where foreign investors may be granted security interest over essential assets of a strategic company, the creation of the security interest will remain subject to the notification procedure and written approval by the Minister of National Economy as required under the FDI Decree. In cross-border financing transactions involving Hungary, real estate and movable assets of borrowers that qualify as strategic companies are typically subject to the FDI notification process and hold significant importance to lenders.
The creation of a security interest over a strategic company’s shares, however, could also indirectly trigger FDI screening if the enforcement of the security interest results in the acquisition of shares by a foreign investor.
The bill does not affect the FDI screening regime introduced prior to the state of emergency through Act LVII of 2018, which controls foreign investments that could violate Hungarian national security. While no drastic changes in the FDI Decree are expected, the two FDI regimes will remain in force at least until the end of 2026, creating the possibility that a transaction might fall under both mechanisms, which could result in both FDI control procedures being initiated.
The article was co-authored by Márton Lázár.
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