Hungary: Changes in the operation of Hungarian companies due to the COVID-19 pandemic

By Balázs Rudinszky, Dária Szabó, Barnabás Simon

04-2020

Government Decree 102/2020 (IV. 10.) (the “Decree”), which entered into force on 11 April 2020, amends the ordinary decision-making rules of companies in response to the state of emergency. In general, the purpose of the Decree is to ensure an uninterrupted operation even in the current emergency situation.

I. Companies that are not hindered in their decision-making

The Decree does not apply to those companies where decisions can be passed while complying with the stay-at-home order.

II. Companies hindered in their decision-making, where the general meeting continues to make the decisions

If a company is unable to comply with the stay-at-home order when passing its decisions, it is considered to be hindered in its decision-making and therefore, general meetings may not be held in a manner requiring the personal participation of the shareholders, even if it has already been convened. Depending on the number of shareholders, the following rules apply to such companies.

(i) The number of shareholders is five or less and the decision-making can be secured through alternative decision-making processes (i.e. by electronic means or passing resolutions in writing).

If the above two conditions are met, resolutions of the general meeting must be passed by electronic means or, if the company's management so initiates, without holding a meeting (through voting in writing).

The Decree relaxed the rules of the Civil Code as the company's Articles of Association do not have to set out the rules of alternative decision-making process. Instead, the management is free to establish and communicate them to the shareholders.

(ii) The number of shareholders is six to ten

If the number of shareholders exceeds five but is not more than ten, the shareholders may, by 50%+1 of the votes, request the management to establish the rules for alternative decision-making process in order to hold the meetings in this manner.

(iii) The number of shareholders exceeds ten

In the case of such companies, the management may initiate an alternative decision-making process without requiring the majority of the votes of the shareholders.

III. Companies hindered in their decision-making, where the management takes over the general meeting’s decision-making functions

The management takes over the decision-making functions at those companies, where (i) the number of shareholders is less than five and the decision-making cannot be ensured by alternative means; (ii) the number of shareholders is more than five but not more than ten and a simple majority of the shareholders do not request the alternative decision-making process; or (iii) the number of shareholders is more than ten and the management does not initiate the alternative decision-making process. The management’s competence is however limited to the following matters:

  1. approval of the annual balance sheets;

  2. decision on the use of the after-tax profit;

  3. any decisions falling within the competence of the general meeting, which are:

    a) necessary in order to maintain the lawful operation of the company,

    b) necessary to handle a situation that occurred due to the current emergency situation, or

    c) urgent decisions to be made as part of the reasonable and diligent business operation of the Company.

Even in these matters, however, the management’s competencies are not without limits. The Decree itself establishes matters in which the management cannot decide, such as the amendment of the Articles of Association, the decrease of the capital, or the dissolution of the company without succession. Also, 51% of those shareholders who hold at least 25% of the votes can veto the proposal of the management and so can the shareholder having a controlling interest or a qualified majority.

Furthermore, the shareholders may amend or revoke the decision of the management at a general meeting to be held any time before or on the 90th day following the termination of the emergency situation. The amendment or revocation of the management’s decision, however, will not impact the rights and obligations stemming from the original decision. Finally, the management will also be liable for its decisions vis-à-vis the company.

IV. Special rules for public limited companies (in Hungarian: “Nyrt.”)

Taking into account the characteristics of the Nyrt. such as the usually large number of shareholders and transparency requirements, the Decree contains a number of specific rules applicable to Nyrt.s.

For those Nyrt.s that are hindered in their decision-making, the management takes over the decision-making powers of the general meeting as a general rule.

Even though there is a wide spectrum of decisions that the management can make, including the amendment of the Articles of Association or deviating from the proposals of in the published agenda, the management’s powers are not unlimited. The shareholders representing at least 1% of the votes may request, by 31 May 2020, that the general meeting is convened to review and possible overturn the management’s decision on the approval of the 2019 financials and the utilization of the after-tax profit. To review decisions made by the management on any other matters, the shareholders must request that the general meeting is convened within 30 days after the termination of the state of emergency.

V. The extension of the mandate of directors

The Decree extends the mandate of directors whose mandate expires while the state of emergency still lasts, until the 90th day from the last day of the state of emergency. This rule, however, does not apply to those directors who are called back from their position.

This summary provides general information only and should not be construed as a comprehensive analysis or as a legal opinion or advice applicable to individual situations.

Last reviewed: 30th April 2020