Within the framework of emergency measures stemming from the COVID-19 epidemic, the Hungarian Government introduced sweeping new measures to screen foreign investment during the ‘state of danger’ in May 2020 (see our Law_Point post at https://lawpoint.oppenheimlegal.com/showlawpoint?id=58MBD3jQWERZFrMlVQif_NHXEvSb3Bf_)
On 18 June 2020, the Hungarian Government terminated the ‘state of danger’, however, the Hungarian Parliament voted to continue certain protective measures – including foreign investment screening measures - in the form of a new law (Act LVIII of 2020 on the ‘interim measures and epidemiological preparedness related to the terminating of state of danger’, the ‘Interim Measures Act’).
The rules of the Interim Measures Act basically continue the screening framework established in May: notification is required to the Minister for Innovation and Technology (and possibly, under a parallel regime, to the Minister for Interior), if (i) a triggering event (ii) by a foreign investor (iii) concerns a Hungarian strategic company. Failure to give notification entails significant sanctions and fines (for details, see our earlier Law_Point post).
The new regime is applicable from 18 June 2020 and is currently set to expire on 31 December 2020.
Below, we note the most important changes.
The most important change of the Interim Measures Act is that it provides a sweeping exemption rule for those transactions that affect a Hungarian strategic company that is already a subsidiary of a foreign company. In such cases (pursuant to section 277 (5) of the Interim Measures Act), no notification to the Minister is necessary. In other words, if a transaction (triggering event) involves a Hungarian strategic company, but that Hungarian strategic company was already foreign-owned, then the indirect change of that foreign ownership falls outside of the Interim Measures Act. This exemption therefore essentially exempts all those transactions, where a change concerns foreign parties, seated outside of Hungary.
Another important change is that the HUF 350 million (approx. EUR 1 million) deal value threshold is now a general condition for notification, being applicable for all triggering events. As a result, no notification is necessary to the Minister, if the deal value remains below this amount.
An important question in this respect is the calculation of the deal value. While in other jurisdictions using deal value as a threshold, the Government published detailed guidance the method of calculation (see e.g. the German Competition Authority’s relevant guidance notes), this is not yet present in Hungary. In borderline cases, parties are therefore well-advised to double-check whether a notification obligation could be triggered.
The Interim Measures Act also made some streamlining to the notification procedure. For example, under the new rules, the Minister has to bring his affirmative or prohibition decision within 30 days (instead of 45) and that the applicant can be requested to provide certified translations of the relevant transaction documents for the purposes of the notification procedure.