tag: new Civil Code

Since 2014, the “new” Civil Code has allowed companies to deviate from statutory rules in terms of their operation and organization. Up until now, however, it wasn’t clear what was included and what wasn’t: what they could actually deviate from and what they had to adhere to. A new amendment expected to enter into force in January next year will clear the rules up while also easing them off at the same time, thus increasing Hungary’s competitiveness in terms of company law as well.

To this day, the domestic legal system has remained silent on how contracts concluded by email should be treated. However, legislation recently adopted in relation to the COVID-19 pandemic explicitly allows communication via email between a company and its private-individual members. Could this be the first step towards a more comprehensive legal acceptance of emails?

The new Civil Code that came into force a couple of years ago broadened the autonomy of companies, which are now free to shape their internal organisation and operation to their own needs. Nevertheless, there are still several lesser-known, rigid company-law rules that, if ignored, can entail severe legal and financial consequences.

The “new” Civil Code, which entered into force more than two years ago, has made it possible for businesses to shape, in their own image, the regulations governing their organisation and operation. This opportunity has certainly captured the imagination of legal practitioners. All sorts of extreme ideas were mooted. For example it was suggested that a limited liability company (Kft.) could issue shares or other securities embodying members’ rights. The company courts soon put a dampener on things, however, creating the category of “status rules”: no matter how flexible the law, it still isn’t possible to depart from the rules that constitute the defining features of a particular form of business entity.

Under a less-known rule of the new Civil Code it’s now possible for a property owner to separate the titles to a plot of land and the buildings built on it, and to manage or commercially exploit these as separate properties. Businesses are taking a cautious approach to making use of this opportunity in practice: although splitting titles can make property development or borrowing more flexible, for the time being legal uncertainties are preventing it from becoming more widespread.

Although the new Civil Code that took effect in 2014 made it impossible to use a good few commonly used types of loan security, since then the legislature has gradually restored them to their rightful place. Indeed, the amendments to the Bankruptcy Act coming into effect on 1 July will go further than the previous rules, giving security options and security assignments, the same priority status as mortgages. This case is a good example of the effective cooperation between the legislature and the banking industry in Hungary.

Financing banks only had a short time to make use of the collateral structures transformed due to the revised pledge rules of the new Civil Code. A resolution recently passed by the Highest Court presents banks with a new challenge: financiers will, again, need to reconsider the collateral structures that have been developed and used over the years.

While dividends are the result of a happy process, namely the profitable operation of one’s business, the restrictions and difficulties associated with dividend payment have always given grounds for frustration. Particularly troublesome is the treatment of dividends in the course of corporate acquisitions, as the buyer and the seller need to elaborate special techniques for sharing the dividends among themselves.