Market Talk: The Year That was, and the Year That Will Be

We asked a selection of Budapest’s top international lawyers to reflect a little on the year that has passed, and cast their minds forward to what they expect to be the major legal developments in 2021.

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By Robin Marshall

BBJ: What was the most important legal matter your law firm worked on in 2020?

Erika Papp: Not an easy choice to make and, needless to say in this profession, some of the most important projects are confidential. However, one of the most exciting projects our office has been involved in over the last year is the Managed Legal Services (MLS) project, which is ground-breaking because it goes beyond traditional legal services. As part of this project, a Budapest-based CMS team (including Chinese, German, U.K., and U.S. qualified lawyers) provides support to a global multinational by writing and managing their procurement and IT agreements internationally. The project involves a complex cloud software solution that allows in-house teams world-wide to utilize their time and deal with strategic advisory work as well as allowing the company to address cost and risk issues and optimize their legal operating model.

Ágnes Szent-Ivány: In 2020, we successfully closed a very complex real estate transaction that started in 2017. We advised our client, a multinational IT giant, on the sale of a former Nokia factory to a real estate investor. The factor which made the entire procedure complicated was that, just before the realization of the sale, the municipality had registered in the land registry an enforcement right (sales ban) on the property up to an incredibly high amount (many billions of forints) due to alleged unpaid local taxes. During this transaction, we had to find a solution for how to eliminate and/or decrease the unrealistically high amount secured by the enforcement right and to create a situation under which the municipality could conclude a settlement agreement with our client that made it possible to realize the sales transaction. During this long-lasting process, a complex lease agreement was concluded for the use of the property with the future buyer and a preliminary sale and purchase agreement.

Another very interesting and complex project from 2020 was a cross border merger of a Czech company (having a branch in Hungary) into a Hungarian company and at the same time establishing a branch of the Hungarian company in the Czech Republic. We worked in close cooperation with the Czech Eversheds Sutherland firm for about six months.

Péter Lakatos: This year has brought an end to the second chapter in the story of Facebook’s involvement with the Hungarian Competition Authority. The first chapter lasted from 2016 until December 2019, when the authority closed the case and ruled against Facebook (and imposed a very large, albeit 50% lower fine than the authority had envisaged before). The authority finally considered that the statement on the opening page of Facebook (“It’s free and always will be”) was a misleading price information, as consumers pay not with money but with their data.

The second chapter, during 2020, was about contesting that decision before the Hungarian court, and we are very proud to have written a happy ending for Facebook: the court fully annulled the authority’s decision, establishing that the statement was not misleading price information.

Zoltán Faludi: We completed an exceptionally successful 2020, which was not something we much hoped for back in last February when the pandemic broke out in Europe. We handled very prominent and highly complex transactions for our clients in their cross border acquisitions in a great variety of sectors, including renewables, manufacturing, digital services, automotive and retail. The most noticeable of these, attracting a lot of attention not only from the markets but also from the competent regulators, was the acquisition of Aegon’s remaining CEE business by the Vienna Insurance Group, among the largest M&A transaction in 2020 in CEE.

Ágnes Szent-Ivány

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Erika Papp

BBJ: What was the most important matter for Hungary overall that you were not involved with?

EP: The most important project for Hungary was the statutory payment moratorium, which prevented companies from going bankrupt and going into liquidation in the pandemic. At the same time, the new subsidized loan program of the National Bank of Hungary and its new bond program were also significant as they kept companies afloat while they were dealing with the effects of the pandemic.

ASz-I: It is difficult to get information on the major deals if you are not involved in them, but the sale of the Mid Europa Partners’ stake in logistics company Waberer’s to Travelin Holding, the sale of the former ABB plant in Ózd [156 km northeast of Budapest] to Hungarian bath and spa maker Wellis, and the financing of Green Source’s photovoltaic parks seem to be important deals on the Hungarian market.

PL: Probably the largest transaction on the Hungarian market in 2020 involved the shareholders of Budapest Bank Zrt., MKB Bank Nyrt. and Takarék Group jointly establishing a financial holding company called Magyar Bankholding Zrt., into which they contributed their respective shareholdings in the three banks. The holding started operating on December 15, 2020, and the merger of the banks will be prepared in 2021. The combined value of the three banks is estimated to exceed EUR 2 billion.

Second would be the sale of Aegon, where we were representing one of the non-winning bidders in the bidding phase.

ZF: It’s difficult to single out any single matter, but the continuing sectoral reshuffling one could observe in 2020 in Hungary in the fields of banking and energy will certainly keep the relevant markets exited for a couple more years. The creation of a new banking holding as well as the consolidation on the energy distribution and trading markets are not only very significant by their sizes, but I would not exclude that will even effect policymaking in Hungary.

BBJ: What are the most significant new laws you expect to be either developed conceptually or introduced in 2021?

EP: I think the new Hungarian law implementing the Preventive Restructuring Directive will be the most significant legislation for 2021, both from the economic and legislative point of view. The directive needs to be implemented by early summer, so we expect the new Hungarian law around or before then. We do have quite an old insolvency law and the new law will bring modernity to our insolvency system. Also, the timing of the new law could not be better because it will provide an additional tool for companies to stay solvent in the pandemic.

Zoltán Faludi

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ÁSz-I: In my opinion the most significant laws, introduced effective as of 2021, are the amendment of the new Civil Procedure Code, reducing the widely debated formalism of the new procedure rules and making significantly easier the evidencing phase and the change of petitum (claim), even after the submission of the letter of claim and once the counterclaim of the defendant has been delivered; the newly amended Act CXLVII of 2012 on the Fixed-rate Small Taxpayer Enterprises and Company Tax (known in Hungarian by its initials KATA), resulting in significant changes in the taxation of small taxpayers; a new bill aiming to shore up family farms, support generational handover and encourage cooperation between producers; as part of the COVID-19 government measures, the extension of the credit moratorium until June 30, 2021 for private persons, companies and entrepreneurs who are entitled to such moratorium for loans taken out before March 18, 2020; the reintroduction of 5% VAT on newly constructed flats; and housing renovation support, where the state contributes up to HUF 3 million, up to a maximum of 50% of the costs, for the renovation of the homes of families raising at least one child.

PL: The effect of many exceptional rules applicable due to the state of emergency caused by the COVID-19 pandemic (such as the Hungarian Foreign Investment restrictions, corporate governance rules, the moratorium, the prohibition of terminating the rents by the state in tourism and catering industry, tax redundancies, special taxes, government supports, employment and privacy rules, etc.) is maintained in 2021 (with minor changes).

As of January 1, amendments to the Civil Procedural Laws came into effect. There are no conceptual changes, the amendments react to the developments of the judicial practice regarding the new Civil Procedure Act introduced in 2018, resulting in the moderation of the formerly quite strict rules applicable to the parties with legal representatives. The entire recodification of the Hungarian Insolvency Act has been on the table for years now, but with no results as yet. However, Directive (EU) 2019/1023 of the European Parliament and of the Council of June 20, 2019 on preventive restructuring frameworks should be implemented in the Hungarian law by July 17, 2021.

It is planned that the Land Registry will undergo complete reregulation, along with the rules for the Registry of Birth Certificates. The ongoing digitalization of the different registries will accelerate change in the applicable little rules in many areas. Further, “Brexit” might have implications on Hungarian law-making processes in 2021, which are unknown at the moment. ZF: The legislative turbulence of 2020 is expected to become somewhat calmer now and, with a bit of luck, lawmaking will be less intuitive in 2021. Nevertheless, political innovation is never restful and the next significant sectoral transformation is already on the horizon: waste management. This, combined with the political signal conveyed recently to further tighten the belt for foreign retailers, will unquestionably keep the affected stakeholders entertained for the coming years.

Péter Lakatos

OUR MARKET TALK PANEL • Erika Papp, managing partner Budapest and head of finance for CEE/CIS, CMS Hungary (CMS Cameron McKenna Nabarro Olswang LLP

Magyarország Fióktelepe) • Ágnes Szent-Ivány, managing partner and founder, Eversheds Sutherland Hungary (Sándor

Szegedi Szent-Ivány Komáromi Eversheds

Sutherland Ügyvédi Iroda) • Péter Lakatos, managing partner and co-founder,

Lakatos, Köves and Partners (Lakatos, Köves és

Társai Ügyvédi Iroda) • Zoltán Faludi, managing partner, Wolf Theiss

Hungary (Wolf Theiss Faludi Erős Ügyvédi Iroda)