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Capital difficulties and their possible remedies in case of limited liability companies

Corporate law, News / / ,

Reading time: 4 minutes

 

The preparation and adoption of the annual accounts each year is an important step in the operation of a company as it clearly shows the results of the previous financial year. Act V of 2013 on the Civil Code (“Civil Code“) provides for a number of capital requirements and the obligation to intervene to remedy them for the purposes of protection of creditors. In our article below, we will examine the possible cases of undercapitalization and the legal solutions available, focusing on the rules governing limited liability companies.

Cases of undercapitalization

The Civil Code defines four cases, when the members are obliged to intervene and provide additional necessary funds or decide on appropriate restructuring of the capital structure. These are, in summary, the following:

  • the company’s equity capital has fallen below the minimum amount of registered capital laid down by law
    • an LLC can be established with a minimum registered capital of HUF 3 million, therefore this case arises if the equity capital is less than HUF 3 million
  • the company’s equity capital has fallen to half of the registered capital due to losses
    • with regard to the case of undercapitalization above, this can only arise if the registered capital exceeds the minimum amount, so for example its amount is HUF 10 million. In this case the members shall intervene, when the equity capital is HUF 5 million, or less
  • the company is threatened with insolvency or has stopped making payments
    • threat of insolvency is a situation where the directors of a company foresee, or with reasonable diligence should foresee, that the entity will not be able to meet its obligations as they fall due
  • the company’s assets do not cover its debts
    • this is the case when the company’s debts (e.g. debt, loans from members, other claims against the company) exceed the company’s total assets.

Obligation to intervene

In the event of undercapitalization, the Civil Code imposes specific obligations on both the managing director and the members.

The managing director shall without delay convene the members’ meeting (sole member) or initiate the decision of the general meeting without holding a meeting in order to take the necessary measures.

Members shall then decide on a solution to the situation and the adopted measures shall be implemented within 3 months. If the undercapitalization is due to the fact that the company’s equity capital dropped to half of the registered capital due to losses, and the members are unable to eliminate this within 3 month, the company’s registered capital must be reduced.

Possible actions by members

Members can remedy the cases of undercapitalization in several ways, as follows:

  • supplementary payment
    • in the event of authorization in the articles of association, the general meeting may impose a supplementary payment obligation on the members to cover losses
    • in addition to the authorization, the articles of association must specify the maximum amount of supplementary payment that members may be required to pay, as well as the frequency with which such payments may be imposed. If these conditions are not met, supplementary payment may not be made even with the support of the general meeting
    • in connection with the supplementary payment, it must be stated that its amount does not increase the financial contribution of the members. The supplementary payment may only be used to cover losses and, as a general rule, any unused supplementary payment shall be returned to the members
  • reduction of capital
    • in this case the members reduce the registered capital of the company, which entails a reduction in the member(s)’ business quotas;
    • it is important to note that this can only happen if the original registered capital exceeds the minimum value of the registered capital set by law, i.e. HUF 3 million
  • to provide equity capital by other means
    • it is clear that, compared to the previous measures, this is an open option, i.e. it is not possible to define in a taxonomy exactly what actions may be appropriate in this regard;
    • such possible solution for example: granting/cancelling loan by the members, assumption of (intra-group) debt from the company. However, it is also important to consider the tax implications of these possibilities
  • transformation, merger, division and dissolution without legal succession
    • if the members do not decide on supplementary payment, reduction of the capital, provision of equity by other means, the members must decide on transformation, merger, division or dissolution without legal succession
    • of course, there is no obstacle to members taking such a decision immediately, if they so wish and if their other conditions for such decision are met

Summary

As can be seen from the above, there are a number of options available to restore the limited liability company’s capital position. Which of these options is the most appropriate cannot be generally determined, as it is always necessary to look at the specific company, its characteristics and the underlying causes of undercapitalization on a case-by-case basis, and to identify which measures offer a real long-term solution.

Image source: Mikhail Nilov, pexels.com

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5 misconceptions about the general terms and conditions (“GTC”)

Commercial Law, News, Trade affairs / / ,

Reading time: 5 minutes

In everyday life and when concluding contracts, we often encounter the concept of general terms and conditions, or GTC for short, yet they are often overlooked. The primary function of GTCs is to simplify the contracting process by providing a framework for recurring, template-like provisions that can be uniformly applicable to all contracting parties (e.g., performance deadlines, invoicing rules, dispute resolution mechanisms, or the choice of governing law in the case of a telephone subscription). As a result, individual agreements between the parties can remain concise and focused, containing only the specific terms – such as the parties’ details, the precise description of the product or service, and any deviations from the GTCs.

Pursuant to Act V of 2013 on the Civil Code (“Civil Code“), contractual provisions that are determined in advance, unilaterally, by one party without the involvement of the other party are considered GTS. We would like to point out that these provisions only become part of the specific contract if the applying party allows the other party to become familiar with them prior to the conclusion of the contract and the other party expressly or implicitly accepts them.

However, there are a number of misconceptions about GTCs in the public perception, which we would like to clarify in this article.

  1. Only a document named “GTC” qualifies as GTC

The first common misconception is that only documents labelled “GTC” can be considered GTC. However, the scope, form, method of recording, or the fact that the terms and conditions are included in the specific contract or appear separately from it are irrelevant for the purposes of classification as GTC. For example, an announcement or business regulations, or even a unilateral statement, may qualify as GTC if it complies with the definition of the Civil Code. In other words, whether something qualifies as GTC or not must be examined and assessed in terms of content, not form.

  1. It is not possible to deviate from the GTC

It is a common misconception that the GTC is a kind of “take it or leave it” agreement, i.e., that they must be accepted in their entirety and cannot be deviated from. The GTC can only become part of the contract with the consent of the other party, and furthermore, individual agreements between the parties may deviate from certain terms of the GTC. If the parties agree on a certain condition (e.g., the amount of the late payment penalty), the individually negotiated condition becomes part of the legal relationship between the parties, not the relevant provision of the GTC.

  1. General Terms and Conditions cannot be applied in parallel

A common misconception regarding GTCs is that only one party’s GTCs can be applicable in a contractual relationship. In practice, especially in B2B relationships, it often happens that both contracting parties have GTCs that they wish to apply in their relationship with each other. Of course, the partieshave the opportunity to do so.. At the same time, an important question arises as to which GTCs should be considered applicable in the event of the simultaneous application of two GTCs, especially in the case of conflicting provisions, and how their terms and conditions can be reconciled.

According to the Civil Code, if the provisions of the GTCs conflict with each other in terms of their essential content, no contract is concluded between the parties. If there is a conflict between the two GTCs, but the difference does not affect an essential element of the contract, the contract is concluded between the parties, and the non-conflicting provisions of the GTCs also become part of the contract. In the event that there is no conflict between the two GTCs, both GTCs will form part of the contract.

Although the Civil Code basically regulates the possibility and manner of applying parallel GTCs, it is easy to see that this involves a number of uncertainties that may give rise to disputes over interpretation (e.g., what constitutes an essential condition, a contradiction, or a practice that deviates from market standards). In order to avoid these uncertainties, it is highly recommended that the parties thoroughly review each other’s GTCs during the contract negotiation process and properly reconcile their contents.

  1. The GTC may be amended unilaterally at any time by the party applying them

As mentioned in the introduction, a pre-condition for the application of the GTC is that the contracting partner has the opportunity to become familiar with the GTC and then accept its contents. The explicit purpose of this provision is to enable the contracting partner to familiarize themselves with the conditions that are binding upon itself. For this reason, the Civil Code also stipulates that the drafter of the general terms and conditions has a separate obligation to provide information if they wish to amend the GTC or any of its provisions. This is because the amended provision only becomes part of the contract if the other party accepts it, at least by implied conduct. This information is particularly important because the amendment may result in the other party refusing to accept it and thus terminating the contractual relationship.

  1. Any contractual terms, even those that deviate from general or previously applied practice, may be included in the GTC without restriction

GTCs, especially in the case of contracts concluded with consumers, are often accepted without the contracting parties having thoroughly familiarized themselves with their content. Although this behavior cannot be attributed to the party applying the GTCs, it can easily lead to abuse of rights.

For this reason, the party applying the GTC must specifically inform the other party of any general contractual terms that differ significantly from the provisions of the law or that differ in any way from the usual contractual practice established between the parties. An example of the first case is the ruling of the Court of Appeal of Budapest-Capital, which stated that the stipulation of a one-year limitation period in the case of an insurance relationship differs significantly from the five-year limitation period stipulated by law. Accordingly, the clause only becomes part of the insurance contract if the insurer expressly draws the contracting party’s attention to it and the contracting party makes an express statement of acceptance in full knowledge of this.

Summary

The everyday presence of GTCs greatly facilitates the conclusion of contracts, but their use can also carry hidden risks. The provisions of the GTCs become part of the contract in the same way as the separately negotiated terms and conditions, so it is extremely important that the parties are aware of the content of it as well. We would like to point out that the contracting party has the option to initiate the amendment of disadvantageous GTC provisions and to deviate from them by means of an individual agreement. Accordingly, it is advisable to exercise increased caution when applying GTCs.

Image source: Kampus Production, pexels.com

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The scope of employer control in assessing liability for damages

Employment, labour law, News / / ,

Reading time: 5 minutes

The concept of employer control is one of the most important aspects of labor law, determining the employer’s liability for damages caused to the employee. Strict rules apply to employer liability under Act I of 2012 on the Labor Code (hereinafter: “ Labour Code“), as the employer is objectively liable for any damage caused to the employee in connection with the employment relationship. The employer may be exempt from liability in two cases. The first is if it can prove that the damage was caused by circumstances beyond its control, which it could not have foreseen and could not have been expected to prevent or mitigate. Another possibility for exemption for the employer is if it can prove that the damage was caused solely by the unavoidable behaviour of the aggrieved party.

This article examines the scope of control relevant to the first exemption option, the definition of which is key to determining liability.

The definition of the scope of control

Liability for damages means that the employer is liable for damage caused to the employee in connection with the employment relationship. Several factors must be taken into account when assessing liability, such as:

  • the employee’s conduct,
  • the working environment provided by the employer, or
  • the working methods used.

In order for the employer to be exempt from liability for damages, it is necessary to examine the circumstances of the damage in order to determine whether they fall within the employer’s scope of control.

The difficulty lies in the fact that the concept of control is not defined in the Labor Code. According to the developed judicial practices, the scope of control refers to the extent to which the company  is able to control and direct the activities of its workers.. This includes all circumstances over which the company has actual influence, and which it must create in order to ensure that the employees have the necessary working conditions and a safe working environment. The scope of control therefore includes all objective circumstances that the employer had any possibility of influencing, including working methods that could lead to an accident.

The scope of control generally includes the following:

  • the place of work,
  • working hours,
  • work equipment
  • working methods,
  • performance of tasks, and
  • related personal conduct,
  • work organization.

The scope of control is not necessarily limited to the company’s registered office or premises, as depending on the circumstances of the specific case, the employer may also be entitled and obliged to create safe working conditions at other locations (e.g. at a construction site managed by the employer or in the case of international transport). so, in certain cases, transport conditions may also fall within the scope of the control.

The importance of the scope of control in relation to accidents

If an employee suffers an accident, it must be classified from both an occupational safety and social security perspective.

  • An accident is considered a work accident if it occurs during or in connection with organized work. For example, if the incident occurs while the employee is traveling, transporting materials, moving materials, cleaning, using organized workplace catering, occupational health services, or other services provided by the employer in connection with their work.
  • Accident at work is a social security category that classifies accidents in terms of entitlement to benefits. An accident at work is an accident that occurs to an employee during or in connection with work performed in the course of their employment, so work accidents generally fall into this category. However, an ccidents that happen to employees while traveling to or from work or their place of residence (accommodation) are also classified as accident at work, but these are not work accidents, but so-called accidents on the journey.

In the event of a work accident, the employer may be liable for damages, in which case the employer is obliged to compensate either the employee for the entire damage or, if the employee contributed to the accident, for part of the damage. The employer is obliged to investigate the work accident; in doing so, it must uncover the circumstances of the accident, such as the condition of the machines and equipment, the availability of protective equipment, and knowledge of and compliance with the rules of work, which are generally considered to fall within the employer’s scope of control. Thus, all circumstances that the employer has control over and that lead to a work accident constitute grounds for employer liability.

Judicial practice

The developed judicial practice is fundamentally very strict and considers all facts and circumstances that the employer had the opportunity to influence to be within the employer’s scope of control.

An extreme individual decision also evaluates the employer’s expectations and instructions in this context:

According to the findings, the truck driver was transporting raw leather and, following his employer’s instructions, spent the night in his truck at a rest stop, where he fell seriously ill after being bitten by an insect. The accident occurred during the employee’s rest period, over which the employer has no control. The court nevertheless ruled that the circumstance causing the damage, i.e., the insect bite, fell within the employer’s scope of control, since the employer had expressly required the vehicle and cargo to be guarded, thereby also giving instructions on how to spend the rest period. The employee thus acted in the employer’s interest even during his rest period. The Supreme Court found that the employer had influence over the conditions, but failed to avoid the circumstances within its control, as a result of which the employee suffered damage, and therefore ruled that the employer was liable for damages.

Summary

The employers’ liability rules established by the Labor Code set strict conditions for exemption in the event of damage, which is why it is extremely important for employers to ensure safe working conditions, take appropriate health and safety measures, periodically reviewing these measures, and, in the event of a work accident, applying corrective mechanisms to prevent further similar accidents. When an accident occurs, it is advisable to carefully document the circumstances, as these will form the basis for the court’s assessment.

Image source: pexels.com, Mikael Blomkvist

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The European Data Protection Board’s strategy and the proposal to ease the GDPR to reduce the administrative burden on businesses

Data protection, News / / , ,

The European Data Protection Board’s strategy and the proposal to ease the GDPR to reduce the administrative burden on businesses

Reading time: 4 minutes

The European Data Protection Board has published its report for 2024 (“Report“) again this year, setting out the fundamental goals of its strategy for the period up to 2027, one of them is to promote compliance with data protection rules. In May this year, the European Commission (“Commission“) submitted a proposal (“Simplification Proposal“) aimed at simplifying the GDPR in order to reduce the administrative burden on businesses, which was also welcomed by the European Data Protection Board. In this article, we summarize the main conclusions of the Report and future strategy of the Board, and address the Simplification Proposal.

The role of European Data Protection Board in the field of data protection

The European Data Protection Board’ has a multifaceted mission and legal mandate:

  • ensures the consistent application of EU data protection rules,
  • promotes effective cooperation between data protection authorities in the European Economic Area (EEA),
  • supports the harmonised enforcement of the GDPR,
  • examines issues relating to the application of the regulation,
  • issues guidelines, recommendations, and best practices to promote the consistent application of the GDPR and review their application where necessary.

Key findings of the Report

The European Data Protection Board may examine and issue an opinion on any matter of general application or having implications in more than one Member State, at the request of any supervisory authority, the Chair of the European Data Protection Board, or the European Commission. The European Data Protection Board continues its activities this year, adopting new guidelines on pseudonymization, which we discussed in this article. The European Data Protection Board announces coordinated enforcement actions every year. In 2024, it focused on the right of access, while in 2025, it plans to review the enforcement of the right to erasure, as reported in this article.

The European Data Protection Board also continued its active dialogue with data subjects and organizations involved in data processing, which resulted in the publication of articulate factsheets. For example, in a such factsheet, the Board presented the most significant positive and negative effects of artificial intelligence on cybersecurity. (The factsheet in English can be opened in this link).

Strategy for the period between 2024-2027

In its strategy for the period 2024–2027, the European Data Protection Board has set out four main pillars of objectives.

  • promoting consistent application of data protection rules and compliance,
  • strengthening international cooperation between data protection authorities,
  • ensuring data protection in an emerging digital environment covering multiple regulatory areas (e.g., artificial intelligence),
  • support for global dialogue on privacy and data protection issues.

The Board also confirmed that it intends to continue to play an active role in shaping the regulatory environment for small and medium-sized enterprises („SME”). In addition, it has set as a priority to help SMEs comply with the law through specific tools and to contribute to raising public awareness of the importance of data protection rights.

Simplification Proposal

The Commission pointed out that the complexity of EU legislation hinders market entry and limits growth potential. In order to achieve the objective, set out in the report, in May 2025 it published its fourth so called omnibus package, in which the Commission proposed amendments to various EU rules, including those relating to GDPR rules on record keeping obligation.

According to the GDPR the record of processing activities currently is a fundamental tool for data controllers and processors to identify and document their data processing activities. For illustrative purposes only, we mention that such elements the purpose of data processing, the categories of data subjects and recipients, the retention period, and, where applicable, the transfer of data to third countries.

According to the applicable regulation, data controllers and data processors are only exempt from the obligation to maintain their record of processing activities if they employ fewer than 250 persons. However, companies with fewer than 250 employees are also required to keep records if

  • the processing is likely to result in a risk to the rights and freedoms of data subjects;
  • the processing is not occasional;
  • the processing concerns special categories of data or personal data relating to criminal convictions and offenses.

Due to the subjective nature of the list, we recommend that companies striving for compliance keep records in all cases in order to minimize risks.

This was also recognized by the Commission, namely that even with a threshold of 250 employees, there were very few cases in which companies were exempt from the record keeping requirement. Therefore, according to the Simplification Proposal, in the future, companies that employ fewer than 750 employees and whose turnover does not exceed EUR 150 million or whose total assets do not exceed EUR 129 million will not be required to keep records. Data processing activities that are expected to impose a high risk on data subjects, such as employees or customers, would continue to be subject to the company’s record keeping obligation.

The Commission estimates that this measure would exempt around 38,000 businesses in the EU from the registration requirement and reduce the administrative burden on businesses by around EUR 400 million per year.

The European Data Protection Board expressed its endorsement of the Simplification Proposal. At the same time, it also made data controllers aware of the fact that keeping records of data processing activities not only makes it possible to comply with the regulations but also serves as a useful tool for meeting other GDPR requirements.

In summary, it is clear that companies are still expected to:

  • have up-to-date information regarding their data processing (whether with or without a record);
  • ensure transparency in data processing and to take data processing considerations into account when designing their processes.
  • consciously consider what documentation obligations they have;
  • to enforce the stricter regulations in key areas.

Image soruce: pexels.com, Marco

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The employer’s opportunities to enforce financial claims against the employee

Employment, labour law, News / / , , ,

During the employment relationship, the payment of remuneration is one of the fundamental obligations of the employer, which also constitutes the basis of the employee’s livelihood. Given its important role, Act I of 2012 on the Labour Code (“Labour Code“) contains detailed rules on the types, amounts, methods of payment, and protection of wages. We often encounter the question of how an employer can enforce its claim against an employee, for example in the event of damages or other claims arising from the employment relationship. In this article, we summarize the simpler options for enforcing the financial claims of employers outside of litigation.

Deduction from wages

In view of the rules on the protection of wages, the employer may only apply deductions from the employee’s wages within the legal framework and under certain conditions. While the provisions governing the categories and conditions of deductions are contained in the Labor Code, the limits on the amount of deductions are set out in Act LIII of 1994 on Judicial Enforcement („Vht.”).

Conditions for deduction:

    • As a general rule, employers are only entitled to deduct wages from employees on the basis of law or an enforceable order. In other words, the employer is obliged to deduct any taxes imposed on wages or claims deemed enforceable by a court. However, it is important to emphasize that in such cases, the employer is typically not pursuing its own interests.
    • With the employee’s consent, the employer is also entitled to deduct the employee’s wages. However, the consent must be explicit, and the deduction may only be applied to wages exceeding to the deduction-free part of the wages.
    • The employer shall also be entitled to deduct its claim from the wages if it arises from advance payment.

Limits on deductions in terms of their amount:

The Vht. stipulates that only the employee’s net salary may be used for enforcement. As a general rule, 33 percent of the debtor employee’s net salary may be subject to enforcement, but in exceptional cases, the deduction may reach up to 50 percent of the net salary.

We refer to the fact that with the entry into force of the relevant provisions of Act LXXIV of 2024 on the establishment of Hungary’s central budget for 2025 (“Amendment“), the exemption rules on income deduction were amended as of 1 July 2025:

    • Pursuant to the Amendment, the family tax allowance under Act CXVII of 1995 on personal income tax (“Szjatv.”) is exempt from the deduction. This means that when determining the basis for deduction, the amount arising from the debtor’s net salary due to the applicable family tax and contribution allowances must be disregarded. However, the exemption shall only apply to enforcement proceedings initiated on or after 1 July 2025.
    • A further change relating to deductions is that the portion of net income exempt from deduction has been increased from HUF 60,000 to 60% of the net minimum wage. This sum is currently HUF 116,029 which must be paid to the debtor employee in all cases.
    • The rule remains unchanged that if the amount payable to the employee after the deduction exceeds HUF 200,000, the amount exceeding HUF 200,000 may be enforced without restriction.

The payment notice as an alternative method of enforcing the employer’s claim:

As a general rule, the employer can only enforce its own claims arising from the employment relationship against the employee through court proceedings or payment orders. However, the Labour Code also provides for a special option for enforcing claims, namely payment notice. The biggest advantage of a payment notice is that it is much faster and simpler than litigation or payment order proceedings.

The employer may enforce claims against the employee and related to the employment relationship that do not exceed three times the minimum wage (currently HUF 872,400) by means of a written payment notice. However, it is important to note that in the case of claims arising from the same legal basis, the employer may only issue one payment notice. Thus, the employer has no opportunity to enforce its claim exceeding HUF 872,400 by issuing several different payment notices. In such cases, the employer may enforce its claim in accordance with the general rules, i.e. in court or through a payment order procedure.

The employer must always justify the payment notice. Therefore, a payment notice complies with the law if it is clear to the employee why it was issued. In addition to written form and the obligation to provide justification, notification on legal remedies is an essential element of payment notices.

This is because if the employee does not appeal against the payment notice within 30 days, the court will issue an enforcement order and it will become directly enforceable. It also means that, in the absence of notification on legal remedies, the payment notice cannot be accompanied with an enforcement clause.

Summary

Overall, we can conclude that the employer may only enforce its own claims arising from the employment relationship directly against the employee’s wages if the conditions specified in the law are fulfilled.

Given that the employee’s salary is the basis of his livelihood, in the event of deductions, the criteria set out in the Labor Code and the restrictions on the amount of deductions set out in the Vht. must always be taken into account.

A payment notice can be a quick and effective alternative to enforcing a claim, but it can only be issued up to a certain amount and under certain conditions.

If you have any questions regarding the above, please do not hesitate to contact us.

Image source: cottonbro studio, pexels.com

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Judicial reform’s new developments affecting civil proceedings

Dispute resolution, representation, News / / , ,

The Hungarian Parliament adopted Act XLIX of 2025 on the amendment of certain acts relating to the judiciary (“Amendment“), which, among other things, creates the possibility of expediting civil proceedings and imposes sanctions on courts for exceeding deadlines. The amendment also provides for the possibility of following the proceedings online in the future. In this article, we summarize certain provisions of the Amendment relating to Act CXXX of 2016 on civil procedure (“Pp.“).

The new litigation model, the rules for simplified civil lawsuit, new forms of decisions containing abbreviated reasoning, and the applicability of legal consequences due to prolonged proceedings will enter into force on August 19, 2025. From January 1, 2026, it will also be possible to participate online in court hearings.

Simplified civil lawsuit

The Amendment introduces simplified civil lawsuits as a new type of lawsuit, which can only be used in civil litigation arising from contractual relationships. The parties may stipulate in their written contract that any disputes shall be settled through simplified civil lawsuit, however, such a stipulation is excluded in disputes concerning personal status, labour law, and consumer rights.

Legal representation is mandatory in simplified civil lawsuits. The expeditiousness and efficiency of the procedure is ensured by its written nature and by the fact that the plaintiff must prepare the procedure in its entirety. The latter requirement means that the plaintiff initiating the lawsuit must attach all documentary evidence and expert opinions to the statement of claim, and no change of actions is permitted.

In simplified civil lawsuit, there is no separate case initiation or hearing as to merits stage; the proceedings are conducted exclusively with regard to the claim concerned by the action.

The courts shall act without delay and shall take their measures within a maximum of 8 days. The deadline to submit the defence statement is 15 days, which shall not be extended at any circumstances.

Furthermore, after the counterclaim  has been filed, the court shall – within a short period of time – call upon the parties to state whether they wish to proceed according to the general rules or whether they intend to reach an agreement. If the parties jointly declare that they wish to conduct the proceedings in accordance with the general rules, the court shall schedule a case initiation hearing and then must continue the proceeding in accordance with the general rules. In case the parties submit their settlement agreement to the court, the court shall approve it by its order, if the conditions for approval are fulfilled.

If the parties concerned do not request to conduct the proceeding in accordance with the general rules and do not reach an agreement, the court shall deliver its judgment within 30 days of the date on which on which the parties were called upon.

There are also short deadlines for legal remedies: the parties will have 8 days to submit an appeal, which may only be based on a substantial violation of the rules of the first instance proceedings or the incorrect application of the law on which the decision was based. Appeals against orders shall be decided by the court of second instance within 15 days and appeals against judgments within 30 days.

The Amendment introduces a reduced fee for this type of lawsuit, as the amount of the fee payable is 70% of the fee for proceedings conducted under the general rules.

Judgments with automatic abbreviated reasoning

In order to further reduce the administrative burden on courts and increase the time available for substantive work, the Amendment restructures the existing rules on abbreviated reasoning in the Pp. As a result, the parties will no longer be able to request a shortened reasoning of the judgment.

At the same time, the Amendment introduces two new cases in which a judgment may automatically contain abbreviated reasoning. The court that issued the judgment subject to appeal is only required to provide detailed reasoning for its judgment if the parties expressly request this. Therefore, if neither party appears at the pronouncement of the judgment, or if, despite the court’s request, none of the parties present requests a detailed statement of reasons, the court will automatically deliver a judgment containing a abbreviated reasoning.

Legal consequences of protracted hearings

If they fail to meet the statutory deadline for taking action, the courts shall, ex officio, grant the parties financial compensation equal to 1.5% of the minimum wage per day from the day following the deadline. With this step, the legislator’s declared aim is to persuade the courts to comply strictly with the time limits laid down in the Pp. in all cases. The Amendment also provides for legal remedies for the parties in the event that the defaulting court fails to order payment of compensation. In such cases, the party concerned may raise an objection.

Live-streamed hearings

The Amendment makes it possible for the audience to participate in civil proceedings via an online platform. However, this also requires that the necessary technological conditions be in place in the courts. According to the reasoning of the Amendment, this will allow for even broader social control over the courts. On the other hand, it also ensures that students studying law or state administration, as well as teachers and researchers, can directly participate in the hearings.

A maximum of the first 100 adult natural persons who successfully register may participate in the hearing as an online audience. Registration will be possible on a newly created interface, provided that the person wishing to register identifies themselves using the eAzonosítás service of the DÁP application.

Summary

With this Amendment, the legislator is attempting to ease the burden on the courts by making abbreviated reasoning the default option, a goal that is also served by the simplified civil lawsuit. In view of the introduction of simplified civil lawsuit, it is advisable to review existing and future contracts, as the provisions governing simplified proceedings allow for relatively rapid enforcement of claims.

The prompt handling of proceedings is to be facilitated by the introduction of a system of “penalty payments” for courts. Of course, the question arises as to whether the administration of financial compensation payments will require additional capacity from the courts.

As a result of the digital revolution of recent years, there has been an increased demand for court proceedings to be followed online using telecommunications tools. However, in practice, prior verification of persons registering as online spectators will place an additional burden on the courts and also increase the risk of misuse.

In connection with the Amendment, it is worth mentioning that on June 26, 2025, the National Judicial Council (“OBT“) filed a constitutional complaint (“Complaint“) to the Constitutional Court (“AB“). In its Complaint, the OBT requested, among other things, that the provision of the Amendment relating to financial compensation and simplified civil lawsuit be declared unconstitutional and be annulled with retroactive effect. The AB must decide on the complaint by September at the latest. If the AB annuls the provisions in question, we will provide information about the decision in a separate article.

Image source: Sora Shimazaki, pexels.com

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New provisions on foreign direct investment

Corporate law, News / / , ,

In 2022 the Government issued the Government Decree 561/2022 (XII. 23.) on the different application of certain provisions necessary for the economic protection of business companies in Hungary during the state of emergency („Decree”) under which it imposed restrictions on foreign investors acquiring ownership in strategically important companies owned by domestic investors, citing the crisis caused by the Covid pandemic. At the end of June, Government Decree 163/2025 (VI. 23) (“Amendment“) was published in the Hungarian Gazette No. 75, further tightening the rules on foreign direct investments.

A significant change in the regulations will be brought about by Act L of 2025 on the elevation to the status of acts of the emergency decrees issued in view of the armed conflict in Ukraine (“Act“), which will repeal the Decree with effect from August 19, 2025. It’s worth noting that at the same time, the general parts of the current regulations will be regulated at a statutory level, with some changes and additions. In addition to the currently effective Decree, our article summarizes the most important provisions of the Act applicable from mid-August and the related changes.

Scope of the regulation

In accordance with the regulations, all transactions involving limited liability companies, private share companies and public limited companies registered in Hungary and operating in strategic sectors must be reported to the Minister of National Economy, as the minister responsible for the domestic economy (“Minister”) if it would result in the acquisition of ownership or a certain degree of influence by third-country nationals or, in certain cases, by nationals of other Member States of the European Union, other states party to the EEA Agreement or the Swiss Confederation, where the value of the legal transaction reaches or exceeds HUF 350 million.

In addition, notification to the Minister and acknowledgement thereof are also required for foreign investors or companies over which foreign investors have direct or indirect majority influence to acquire operational rights necessary for the continuation of activities in strategic sectors. Strategic companies include, among others, pharmaceutical manufacturing, retail and wholesale trade, motion picture production, tobacco product manufacturing, temporary employment agencies, construction of residential and non-residential buildings within the construction industry, manufacturing of machinery and equipment, computer programming, consultancy and related activities.

The notification must be submitted to the Minister within 10 days of the conclusion of the legal transaction concerned.

Legal transactions include not only the sale of shares or stocks, but also any acquisition of ownership rights by way of transfer, including contributions in kind, transfer of ownership without any consideration, capital increase, transformation, merger, division and even the establishment of rights (e.g. convertible bonds, beneficial interest).

Natural person or companies that fail to comply with their reporting obligation may be subject to an administrative fine of up to twice the value of the transaction, provided that they are not subject to criminal liability.

After examining the notification, the Minister shall prohibit or acknowledge the legal transaction concerned. A prohibitive decision may be taken in the following cases:

  • if the acquisition of ownership, the acquisition of the bond, the acquisition of the right to usufruct, or the acquisition of the right to operate by the notifying party would harm or endanger the national interests, public security, or public order of Hungary, or if there is a possibility that this could occur;
  • the notifying party is directly or indirectly not controlled by the government of a Member State of the European Union, including state bodies or armed forces, either through its ownership structure or through significant financing;
  • the reporting entity has been involved in activities threatening security or public order in any Member State of the European Union,
  • or there is a serious risk that the reporting entity will engage in activities constituting a criminal offense.

Any legal transaction or corporate resolution that is contrary to a prohibitive decision shall be deemed null and void. The party affected by the prohibition decision may not be listed in the company register or share register, nor may it exercise any rights based on the legal transaction.

Rules applicable from 24 June 2025

  • Longer administrative time limits

As a result of the Amendment, the Minister must decide within 45 working days of the notification whether the circumstances for the prohibition continue to exist. In order to clarify the circumstances, the Minister may extend the period available for the investigation by a further three occasions, each time by 30 working days, thus extending the total period by up to four to five months.

  • Extension of the State’s right of pre-emption

With this amendment, the Government has significantly expanded its preemptive rights. The State may exercise its right of pre-emption through MNV Zrt. or another organization designated by it, under the same conditions as those specified in the relevant legal transaction, within 90 days of the date of the prohibitive decision. This right applies not only to strategic companies engaged in solar power generation activities, but to all companies in sectors of strategic importance.

Rules applicable from 19 August 2025

As mentioned in the introduction, pursuant to the decision of the legislator, the Decree will cease to be effective on August 18, 2025, and certain provisions will be regulated at the statutory level. The differences between the Decree and the Act are summarized below.

  • Shorter administrative time limits

Under the Act, the Minister must decide within 30 working days of the notification whether the circumstances for prohibition exist. An important element of statutory regulation is that the Minister has no opportunity to extend the deadline for investigation. With these changes, the legislator returns to the regulation that was in force prior to the June amendment.

  • Restriction of the state’s right of pre-emption

The extension of the right of pre-emption is also excluded from the provisions of the Act, meaning that, going forward, the State will not have a right of pre-emption, except in the case of strategic companies engaged in activities related to solar power plants.

  • Extended deadline for pre-emptive rights in the qualified sector

Under the Act, in the qualified energy sector, the time limit related to the State’s pre-emption right exercised through MNV Zrt. is increased – in deviation from the regulatory provisions – from 60 working days to 90 working days, counted from the date of receipt of the notification sent to the notifying party. At the same time, the response period of the minister responsible for energy policy in this matter is also doubled, i.e., increased from 15 working days to 30 working days.

  • Possibility of contesting the decision

From August 19, 2025, prohibitive decisions may be challenged in administrative court proceedings in numerous cases. For example, the prohibitive decision concerned may be contested if the Minister assessed incorrectly that the conditions establishing the notification obligation specified in the Act were fulfilled.  This right can still only be exercised at the Budapest-Capital Regional Court. Another new feature is that immediate legal protection is now also available in the event of an appeal. However, it is questionable whether the provision of further legal remedies in itself influences foreign investors during the stage of considering the structure of their investments.

Summary

Given that, according to our current knowledge, the provisions of the Act – will be applicable until December 31, 2026, foreign investors and Hungarian companies should take into account that the State will continue to have very widespread rights during transactions related to company acquisitions (M&A). It can be considered a positive step forward that, on the one hand, the scope of the State’s right of pre-emption is being narrowed and, on the other hand, the possibility of legal remedy against prohibitive decisions is being introduced. However, in overall, Hungarian regulations remain strict compared to international standards. It is therefore advisable to carry out a classification at the planning stage of the transaction, and to consider the possibility of state intervention in the letter of intent and the contract.

Image source: Andrea Piacquadio, pexels.com

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Cybersecurity – new regulations, new tasks

News, Commercial Law / / , ,

On January 1 this year, Act LXIX of 2024 on cybersecurity in Hungary (the “Cybersecurity Act“) came into force, which was adopted in accordance with Directive (EU) 2022/2555 of the European Parliament and of the Council of 14 December 2022 on measures for a high common level of cybersecurity across the Union, amending Regulation (EU) No 910/2014 and Directive (EU) 2018/1972, and repealing Directive (EU) 2016/1148 (“NIS2 Directive”) which aims to mitigate threats to electronic information systems due to threats to the information society and to ensure the continuity of services in key sectors. The Cybersecurity Act and related legislation impose strict requirements and provide for serious legal consequences in the event of non-compliance.

As we support many companies in preparing for compliance with the NIS2 Directive and the Cybersecurity Act, the purpose of this article is to draw the attention of all potentially affected companies to the provisions of the Cybersecurity Act that will become relevant in the near future, namely the obligations and deadlines related to contracting and conducting cybersecurity audits.

Scope of affected organizations

The Cybersecurity Act broadly defines the organizations that are required to monitor the security of their electronic systems and audit them. Private sector companies that reach a certain size and engage in activities classified as high-risk or risky fall into this category, as follows:

  • In terms of size, the companies concerned are those that qualify as medium-sized enterprises or exceed the thresholds set for medium-sized enterprises, i.e. those with a total workforce of more than 50 and an annual net turnover or balance sheet total exceeding the equivalent of EUR 10 million in Hungarian forints.
  • The condition relating to the scope of activity is that the enterprises operate in (highly) risky sectors, such as healthcare, telecommunications services, digital infrastructure (cloud service providers, data center service providers), food production, processing and distribution, computers, electronics, optical product manufacturing, or machinery and equipment manufacturing.

If it is unclear whether the obligations under the regulation apply to a given company, it is recommended to clarify this as soon as possible by reviewing the legislation.

Cybersecurity obligations

  • Audit contract:

The current obligation of the enterprises concerned is to enter into a contract with an independent economic operator authorized to perform cybersecurity audits registered by the Supervisory Authority for Regulatory Affairs of Hungary (SZTFH) in order to verify the cybersecurity of their electronic systems. The SZTFH is already sending out notifications to potentially affected parties, requiring them to provide proof of the conclusion of such a contract by September 15, 2025. Failure to comply with this obligation may result in a fine of between HUF 1 million and HUF 15 million being imposed on the company.

  • Cybersecurity audit:

Following the conclusion of the contract with the auditor, a cybersecurity audit must be carried out by June 30, 2026, during which the security classification of electronic information systems and the adequacy of protective measures according to the security classification will be checked. Failure to perform the audit may result in severe penalties, including fines of up to 2% of the previous year’s turnover, but at least HUF 1 million and up to HUF 150 million.

A cybersecurity audit may take longer depending on the size of the business and the technological and organizational complexity of its activities. For this reason, it is advisable to plan the timing and schedule of the review in advance so that the process not only serves the purpose of compliance, but also actually identifies areas where further action or deficiencies may exist. Examples include reviewing data protection compliance, updating information security policies, or fine-tuning risk management procedures.

The importance of compliance

Due to stricter cybersecurity regulations and the risk of high fines, compliance is not only a legal obligation but also a key business interest. Available benefits:

  • Reduced financial and reputational risk;
  • Strengthened cybersecurity protection and digital stability for the business;
  • With the right contract, the content, schedule, and definition of tasks and responsibilities of the audit become predictable;
  • At the same time, data protection aspects can be reviewed and, if necessary, data protection impact assessment documents can be revised, thus fulfilling the NAIH’s expectation of compliance with the principle of accountability.

Image source: Brian Penny, pixabay.com

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Personal data breaches and tasks related to their management

Data protection, News / / , , ,

Alongside technological development, numerous tools and methods have emerged with the aim of gaining unauthorized access to personal data. Although the tools used for cyber-attacks are becoming increasingly sophisticated, personal data continues to be most at risk from human error and carelessness. Regulation (EU) 2016/679 of the European Parliament and of the Council (the “General Data Protection Regulation,” “GDPR“) sets out detailed requirements for businesses and organizations regarding the collection, storage, and processing of personal data, compliance with which is essential for the protection of personal data and the proper enforcement of data security. The GDPR also contains provisions on how data controllers should act in the event of a personal data breach. In this article, we summarize the most important facts about personal data breaches.

Definition of the personal data breach

During the course of processing personal data, data controllers must take the measures specified in the GDPR to ensure the security of data processing. Personal data breach means a breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorised disclosure of, or access to, personal data transmitted, stored or otherwise processed.

For an incident to be considered a personal data breach, the violation of data security must be of such a nature that it poses a substantial risk to the protection of personal data. Data controllers need to be aware that it is not only the loss of personal data that constitutes a personal data breach. Personal data breach include:

  • Breaches of confidentiality, which may occur through the unauthorized disclosure of personal data (e.g., an email sent to the wrong recipient, or if documents containing personal data are saved in the wrong place, they may be shared with persons who are not otherwise authorized to access them, including other employees of the company). However, confidentiality breaches may also result from intentional conduct (e.g., unauthorized access through phishing attacks).
  • Breaches of integrity, which occur when personal data that has been processed is altered (e.g., when a person with access to accounting records – whether authorized or unauthorized – rewrites payments or breaks into the database in such a way that personal data gets deleted).
  • Breaches of availability, which refer to the destruction of processed data (whether accidental deletion or temporary server failure) or loss of access to data (e.g., loss or theft of a laptop or data storage device containing a copy of the customer database).

In summary, a personal data breach occurs when personal data is accessed without authorization, transferred without permission, or becomes inaccessible due to, for example, encryption by ransomware, accidental loss, or destruction.

Consequences of a personal data breach

Personal data breaches, if not handled properly and in a timely manner, can cause serious physical, financial, or non-financial damage to the people involved. Such consequences may include financial loss, identity theft, damage to reputation, or disclosure of confidential information. Furthermore, data protection incidents may lead to a loss of trust in the company as a data controller, and their improper handling may result in sanctions by the authorities.

Procedure to follow in the event of personal data breaches

Given that personal data breaches can have serious consequences, the data controller is obliged to handle the situation in accordance with the GDPR upon becoming aware of the breach. However, this requires that anyone who notices such a breach immediately report it to the designated data protection officer. It is advisable to set out the procedure for this in internal regulations.

Record of the personal data breaches

Under the GDPR, the data controller must keep a record of personal data breaches, including the facts relating to the breach, its effects and the remedial action taken.

Reporting personal data breaches

Personal data breaches shall be reported to the National Authority for Data Protection and Freedom of Information (“NAIH“) without undue delay and, where feasible, no later than 72 hours after the personal data breach has come to the knowledge of the controller. If the notification is not made within 72 hours, the reasons for the delay must be attached to the notification.

For the notification, the NAIH also provides a form available on its website, which can be submitted electronically (e.g., via official storage space or e-Paper service) by data controllers who are required to conduct electronic administration or who voluntarily undertake to do so.

The report must include:

  • the nature of the personal data breach including where possible, the categories and approximate number of data subjects concerned and the categories and approximate number of personal data records concerned;
  • the name and contact details of the data protection officer or other contact point where more information can be obtained;
  • the likely consequences of the personal data breach;
  • and the measures taken or proposed to be taken by the controller to address the personal data breach, including, where appropriate, measures to mitigate its possible adverse effects.
  • Last but not least, the report must include a copy of the relevant section of the report of the personal data breaches relating to the incident in question.

The report may be omitted only in the case of so-called ‘bagatelle’ incidents. Such incidents are those which are unlikely to pose a risk to the rights and freedoms of natural persons, but even in such cases, the incident must be recorded in the register.

Communication with the data subject

When the personal data breach is likely to result in a high risk to the rights and freedoms of natural persons, the controller shall communicate the personal data breach to the data subject without undue delay. The purpose of this measure is to enable the persons concerned to take the necessary precautions (e.g. reporting the theft of identity documents, blocking bank cards).

Risks should be assessed individually for each incident. During the process, aspects such as the type of personal data (e.g., special data) and the amount of data, the number of data subjects, and the possibility of identifying data subjects must be taken into account.

The data subjects do not need to be informed of a high-risk data protection incident if:

  • personal data is encrypted in such a way that it cannot be interpreted;
  • the data controller has since implemented appropriate protective measures;
  • or would require disproportionate effort on its part. (In such cases, the persons concerned shall be informed by means of public communication or similar measure whereby the data subjects are informed in an equally effective manner.)

 Summary

Personal data breaches represent a very broad definition of data security breaches. Such breaches can cause serious financial or non-financial damage to those involved, and if they are not handled properly, they can result in fines of up to several million forints. Data controllers are obliged to ensure the protection of personal data already during the processing of data. Therefore, prevention should be the primary focus. Properly implemented security measures (e.g., establishing authorization systems, adequate protection of passwords and devices) may be suitable for preventing breaches from occurring. In order to determine and comply with these, it is advisable to prepare internal procedures and action plans in advance and review them at regular intervals, as well as to provide data protection training to persons involved in data processing (e.g. employees) at appropriate intervals. In the event of a concrete personal data breach, it is also recommended to involve an expert, given the special rules of formalized official procedures and the need for individual assessment.

Image source: pixabay, pexels.com

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Practical issues relating to the written employment contract and the commencement of employment

News, Employment, labour law / / , ,

According to Act I of 2012 on the Labour Code (“Labour Code“) an employment relationship is established by an employment contract, which shall be made in writing by the parties. Thus, the establishment and existence of an employment relationship can be clearly established if there is a written employment contract. But what happens if the agreement is not concluded in writing or is concluded later? What happens if one party wants to withdraw after the written offer but before the signing of the employment contract? It is worth being aware of the detailed rules to ensure that your employer’s practices comply with the provisions of the law. Since a new ruling by the Curia on the subject was published in March 2025, we summarise the most significant information regarding the written form and the establishment and duration of employment relationship.

The importance of concluding in written form

As a general rule, an employment relationship is established by an employment contract. According to the Labour Code, the employment contract must always be concluded in writing, and it is enough for the parties to agree on the employee’s base wage and job. However, it is worth noting that in practice there are many examples where an employment relationship is established in the absence of a specific employment contract. For example, if an employer makes an offer containing the essential terms and conditions (job and base wage) and the employee accepts it, the employment relationship is deemed to have been established by the employee’s acceptance, without the parties signing the employment contract.

Failure to put it in writing does not result in the non-existence of an employment relationship. The Labour Code stipulates that the legal consequence of not having a written contract is invalidity, which can only be invoked by the employee, and only within 30 days of commencing employment relationship.

This interpretation was also confirmed by the Curia in its recent decision. In the case in question, the employee was employed for a fixed term but continued to work after the expiry of the fixed term, to which the employer did not object, and continued to fulfil its obligations to provide work for the employee and to pay wages. In the meantime, the parties wanted to settle their employment relationship, and the employer sent the employee an offer for an employment contract of indefinite duration, which the employee accepted, but the parties did not sign. In the meantime, the employer gave termination of notice to the employee, who claimed that it was unlawful on the grounds that, in the absence of a written employment contract, they were not in an employment relationship and therefore termination was not conceptually possible. The employee claimed that the employment contract was only signed after the termination of notice was given, so in in its view its employment relationship was established from that time.

In the case, the Curia ruled that the employee’s employment relationship had existed since the beginning of the fixed-term contract, which, after its expiry, had become an employment relationship of indefinite duration due to the parties’ implied conduct and which the employer was therefore entitled to terminate. This ruling also shows that the existence of an employment relationship is not solely determined by the written employment contract of the parties, in the absence of which the existence of an employment relationship can be established on the basis of the circumstances of the case.

The question legitimately arises: why then is there a need for a written employment contract? As an employment law counsellor, the answer is simple: to prevent disputes. In our experience, neither party wants to argue in court what kind of cafeteria allowance an employee is entitled to, what limits apply to the home office and how the annual leave can be granted. In addition, failure to conclude a written contract may result in sanctions applied by the Hungarian Labour Authority as a result of the inspection.

Important stages of the establishment of employment and a possibility of withdrawing

In addition to the written form of the employment contract, the dates – periods – at which the employment relationship is established are of paramount importance, as the parties have different rights and obligations at different stages.

At the time the employment relationship is established, we differentiate between the time when the employment relationship is established and the time when the employment relationship commences.

  • Establishment of the employment relationship

The employment relationship is established on the date of conclusion of the employment contract or on another date specified in the contract (offer). From that time onwards, the parties may not engage in any conduct that would prevent the employment relationship from being established. The question may arise as to what conduct can prevent the employment relationship from being established. On the employee’s side, for example, failure to attend compulsory medical examinations by the private induvial can be such case.

  • Commencement of the employment relationship

The commencement of the employment relationship is the date on which the employee starts to work. In the absence of a specific provision in the employment agreement, that is the day following the conclusion of the employment contract. From this point on, the “active” phase of the employment relationship begins, during which the parties can exercise their rights and must fulfil all the obligations arising from the employment relationship. If the parties have agreed on a probation period, the duration of the probation period also starts at the commencement of the employment relationship. Last but not least, this day is also significant from a social security point of view, as the start of the insurance relationship aligns with the commencement of the employment relationship.

The parties have the possibility to set an alternative start date in the employment contract, thus allowing the actual employment and availability obligation to be delayed by up to several months (e.g. in view of the employee’s previous notice period).

  • Right of withdrawal

Between the establishment and the commencement of the employment relationship, either party has the right to unilaterally withdraw from the employment contract, which will terminate the legal relationship between them with retroactive effect. This right can be exercised if, after the employment contract was concluded, there has been a material change in the circumstances of the party whereby carrying out the employment relationship is no longer possible, or it would result in unreasonable hardship.

It should be emphasised that only circumstances arising after the conclusion of the employment contract may entitle the parties to withdraw and that the parties must settle their claims against each other retroactively to the date of the conclusion of the employment contract.

Summary

It can be seen that, as an employer, there are a number of important aspects to consider and communicate when making an offer to ensure that the procedure complies with the law and to avoid disputes later on, such as:

  • When does the employee start work?
  • Are there any other conditions to starting work?
  • How long is the employer’s offer valid?
  • Are there any conditions to the offer that, if not accepted, will invalidate the whole employment relationship?
  • In what cases can either party withdraw from the offer?

Image source: Pavel Danilyuk, Pexels.com

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