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Changing company law rules

As of 1 January 2022, the Civil Code has been amended on several points. In this article, we have summarised the issues that affect our clients the most.

Regulations affecting the organisation

Changes affecting the supervisory board
Although at first glance it seems that the previous provision on the supervisory board, that not less than a majority of votes may be required, has been deleted, it is still valid under the general rules and it is important that the companies concerned continue to comply with this rule.
A clarification has been made in the legislation: where the supervisory board member is a legal person, a natural person must be appointed to effectively perform the duties.

Repeated meeting of the supreme body
The quorum of the decision-making body shall be constituted when more than half of the votes that may be cast are represented by a person entitled to vote. If the quorum is not present at the general meeting of members of the limited liability company (Kft.) or the general meeting of the private company limited by shares (Zrt.), a new meeting shall be held. In the past, the Civil Code provided for a mandatory minimum and maximum period of time between the initial and the reconvened meeting, which was not practical and made decision-making unnecessarily difficult.
To remedy this, as of 1 January, the statutory time limits are discretionary, i.e. a repeated general meeting may be called for a date other than the date set in the Civil Code.

Composition of the Board of Directors of a Zrt.
The chairman of the Board of Directors of the company has so far been elected by its members. However, as from the first day of the year, this power of decision is only conferred on the members of the Board of Directors if the General Meeting has not exercised it.

Changes concerning limited liability companies

Deferred cash contribution
Although the wording of the legislation changes significantly, it mainly clarifies an objective that has been achieved in practice so far: members may make a cash contribution out of their dividends. Thus, if a member has an outstanding cash contribution, the dividend will first “make up” for this and, if there is still a dividend fund after the settlement, the members may decide on the actual payment of the dividend. It is important to underline that the new rule will only apply to company proceedings commenced after 1 January 2022, so companies applying the previous, partially more favourable rules will not have to change their articles of association due to the amendment of the Civil Code.

One member – several shares
A change is that the Civil Code now states that a member can own more than one share (a so called quota) in a company. Another new rule is that splitting is possible at any time with the consent of the general meeting. The new provision may be of importance in cases where there is an encumbrance (e.g. pledge, other option) on each share, as it will now be possible to separate the obligations on the shares, even though they are concentrated in one company.

Undercapitalised status
One of the rules on undercapitalisation is that if a company’s equity capital falls below the subscribed capital defined for the company form for two consecutive financial years, the supreme body must decide on a capital replacement or, failing that, on a transformation, dissolution without legal success or merger. Such an undercapitalised situation typically occurs when a company has a high level of registered capital or has been making large losses for a long period of time. The clarified wording makes it clear that in all cases two full financial years covering twelve months must be taken into account to determine the undercapitalised status, so in case of so-called ‘split’ financial years, the first shorter financial year need not be examined in such context.

Additional payment
An additional payment is typically a legal instrument used to temporarily resolve a capital shortage situation. It allows the owners of a company to inject capital into the company specifically to restore solvency. Until now, the capital injection were regulated at the rules of limited liability companies, but from 1 January 2022, general and limited partnerships, and companies limited by shares will be able to use this option. The amended text stipulates that the supreme body may decide that the additional payments not necessary to make up for the loss do not have to be repaid to the members – in a decision which, in our view, can be taken or even modified even after the additional payment has been ordered. It is a reasonable new provision that in case of a one-person limited liability company, no amendment to the deed of foundation is required to make the decision to make a top-up payment.

Should you have any questions regarding the above, feel free to contact us.

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