In order to boost corporate lending and thus increase economic competitiveness, the legislator recently implemented changes to the Hungarian Companies Act. From 1 January 2024, companies will have to provide additional information about the finances of the company in the registration or modification procedures. In this article, we summarize the new rules and the related deadlines.
The background of the amendment
The share of a member of a limited liability company (LLC) is represented by the business share, which is a marketable asset with a pecuniary value and can therefore serve as collateral for a lien. This is achieved by the mortgage on the business share. In order to ensure that the share thus pledged remains intact, a restraint on alienation and encumbrance of the business share is usually imposed in favour of the banks.
Until now, however, the extent of the right of pledge has not been known to third parties from the register of companies, but only the fact of the right of pledge.
The preamble of the Companies Act states that the purpose of the register of companies is to ensure the publicity of the data contained in the authentic register of companies in the interests of the constitutional rights of entrepreneurs, the security of economic transactions and the protection of creditors' interests.
However, the existing legislation has left a gap that has not allowed full transparency, making it difficult for the lending practices that fuel the economy.
The need for the above has long been recognised, as the public and authentic land register, which also operates in respect of real estate used as collateral, has long been operating according to the same principles and contains detailed information on liens and restraint on alienation and encumbrance.
What will change?
The lien on the business share had to be declared, but until now only the details of the contracting parties and the subject of the lien had to be indicated.
From 1st January 2024, the following information has been added to the registration requirements for LCC:
- in the case of a lien on a business share, the amount of the claim secured by the lien or the amount up to which the lienholder may seek satisfaction,
- restraint on alienation and encumbrance or on separate alienation,
- the sub-lien (a sub-lien may be created by pledging a claim secured by a lien)
Deadline
Therefore, from 1st January 2024, a lien on a business share, restraint on alienation and encumbrance or on separate alienation of a business share and a sub-lien created by pledging a lien on a business share must be notified as above.
Those who have registered the details of a pledge on a share under the previous rules will be required to do so in the next amendment to other details of the register of companies, in a company modification procedure submitted by 31st December 2024 at the latest, without paying any fee or publication costs.
By Agnes Bartus, Junior Associate, SmartLegal Schmidt & Partners
