Longer Approval Process, Expanded State Pre-emption Rights

As of June 24, the rules governing foreign entities acquiring ownership in Hungarian strategic companies have been modified. The notification obligation still applies to a very broad scope, and in any sector, a transaction may involve a strategic company.

What is this notification obligation?
If a citizen or organization based in a third country, or, in certain cases, in a member state of the European Union, the EEA, or Switzerland, acquires a significant stake in a Hungarian strategic company, the transaction must be reported to the Minister of National Economy. Based on the notification, the minister may acknowledge or prohibit the reported transaction. In the latter case, the transaction cannot be executed, and an investor who ignores the prohibition may face a substantial fine and the invalidation of related documentation.

What has changed now?

• The deadline for the approval procedure has been extended from 30 to 45 working days, and the minister can now extend it up to three times, each by an additional 30 working days. This may significantly delay the closing of a transaction or even discourage a buyer from proceeding.
• A new development is that the Hungarian state’s pre-emption right has been expanded: from now on, it may be exercised not only in the case of companies producing renewable energy but in any prohibited transaction across any affected industry. The state may exercise this right within 90 days of issuing a prohibition decision.

What does this mean in practice?
Any foreign investor or owner of a foreign company considering the acquisition, financing, capitalization, or any other transaction involving a Hungarian company should take into account that the process is likely to involve longer lead times and extensive state rights throughout.

If you believe you may be affected or have questions for information purposes, please contact our expert, Dr Nándor Beck, at beckn@vjt-partners.com.