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Hungary Introduced Foreign Investment Restrictions with Reference to COVID-19

Hungary Introduced Foreign Investment Restrictions with Reference to COVID-19

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The Hungarian Government issued a new decree on 25 May 2020 (“Decree”), in which restrictions on certain transactions involving foreign investors are introduced.

The subject of the Decree are certain transactions affecting so-called strategic companies, which require both notification to and acknowledgment by the Minister for Innovation and Technology (the “Minister”) as a precondition to implementing a foreign investment in Hungarian companies.

The Decree defines that foreign investors are (natural or legal) persons who are registered in (i) a country which is outside of the EU, EEA or Switzerland; or (ii) the EU, EEA or Switzerland, if they are under the majority control of (natural or legal) persons registered in a country which is outside of the EU, EEA or Switzerland.

The Decree lists more than 20 business sectors that are considered to be strategically important for the purposes of the restrictions. Any limited liability company or a public / private company limited by shares registered in Hungary, whose registered principal or ancillary activities fall into the list of activities in the selected sectors, is to be considered a “strategic company”. In particular, the following sectors and activities are affected: energy, transportation, tourism, health care, communications, finance industry, food sector and agriculture, information technology and building sector.

The decision of the Minister cannot be appealed, but may be subject to a challenge before the Metropolitan Court of Budapest, which has 30 days to deliver its decision. If the court establishes that the rejecting decision was unlawful, it will set aside such decision and order the Minister to conduct a new procedure.

The Decree sets out various sanctions in case of non-compliance. Any contract, declaration or corporate resolution which breaches the provisions of the Decree or the negative decision of the Minister must be null and void. In case of the absence of the Minister’s acknowledgment, foreign investors cannot be registered in the members’ list or the shareholder register of the respective company and thus cannot exercise ownership rights. If the Minister establishes that a foreign investor does not comply with the notification / acknowledgement requirement, the Minister may also impose a fine.

The new restrictions are applicable immediately, as of 26 May until 31 December 2020.

By Adrienn Megyesi, Attorney at lawKCG Partners Law Firm

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