The Energy Mergers & Acquisitions Review: Hungary


The Hungarian government laid out its long-term policy for the Hungarian energy sector in the National Energy Strategy 2030 with an outlook to 20402 issued in January 2020 and in Hungary's National Energy and Climate Plan3 submitted to the European Commission in 2019 under the new governance of the energy union and climate action rules of the EU. The main goal of the strategy is to ensure a sustainable and secure energy sector while supporting the competitiveness of the economy through focusing on:

  1. energy efficiency;
  2. increasing the role of renewable and low carbon electricity generation;
  3. replacing aging electricity generation infrastructure;
  4. the modernisation of heating and cooling solutions (district heating);
  5. increasing the efficiency of the transportation sector;
  6. green industrial and agricultural solutions; and
  7. energy generated from waste.

The strategy also flags the importance of increasing the state's involvement in the energy sector. Accordingly, in recent years, the M&A activity of state and state-owned companies has significantly intensified, perhaps seen most prominently in the acquisitions that the MVM Group (the state-owned, vertically integrated energy conglomerate) and the NKM Group (the national state-owned utility provider) recently completed.

There has been a considerable number of big investments in oil/petchem, electricity and natural gas infrastructure in recent years, including:

  1. MOL Group's developments at the TVK petrochemical plant;
  2. the construction of additional natural gas interconnectors with Slovakia and Serbia;
  3. the rollout of electric vehicle charging infrastructure by NKM and e-Mobi (both state-owned); and
  4. the construction of two new nuclear power generating units in Paks by Paks2 (also state-owned).

Renewable energy generation receives state support through two state aid schemes that now run in parallel: the feed-in tariff-based mandatory offtake regime (KÁT) and the premium-based renewable energy support scheme (METÁR). Renewable power plants that are licensed or that have submitted an application for a licence prior to 1 January 2017 may benefit from the KÁT system until their respective support periods run out. As of 1 January 2017, new renewable energy projects can apply for METÁR subsidies.

In Hungary, the Innovation and Technology Ministry is responsible for implementing the energy strategy through setting the policy and issuance of ministerial decrees. The main regulatory and supervisory body of the energy sector is the Hungarian Energy and Public Utility Regulatory Authority (HEA). In addition to its traditional competencies as a regulatory authority, the HEA is also empowered to issue legislation in the form of decrees in specific areas of sector regulation (e.g., determining transmission and distribution fees).

Year in review

2020 was anything but a normal year. In Hungary, like everywhere, investment activity was seriously impacted by the covid-19 pandemic and the travel limitations, in particular in the second half of the year.

As mentioned in Section I, the Hungarian energy market has seen strong state activity in the past years, and this tendency continued in 2020 as well.

The state-owned incumbent energy conglomerate, MVM Energetika Zrt, completed major transactions, including the acquisition of ÉMÁSZ Hálózati Kft, an electricity DSO, and of Status Power Invest Kft, the owner and operator of the Mátrai Erőmű, the country's second-largest power plant of 950MW nominal capacity. Further, as part of the implementation of its regional expansion plans, the MVM Group completed the acquisition of Innogy Česká republika a.s., a large electricity and natural gas supplier and trader in the Czech Republic.

One of the most notable energy deals of 2020 without state involvement was the acquisition of Hungarian power retailer E.ON Energiakereskedelmi Kft, owned by E.ON Hungária Zrt, a subsidiary of the German E.ON SE by Spanish renewable energy and gas supplier Audax Renovables SA.

Hungary remains on track to be considered as one of the most promising solar energy markets in Europe. After a record-setting year in 2018, the country more than doubled its solar energy capacity by adding 410MW of newly licensed photovoltaic (PV) installations and over 90MW of residential PV systems, increasing the cumulative PV power to over 1GW.4 The first and second METÁR tenders were successfully closed in 2020 and presented opportunities for financing companies with growing solar power plant portfolios (see also Section V), such as the investment of Széchenyi Tőkealapkezelő Zrt, a state-controlled investment fund, in Electron Holding Zrt, a company with a number of projects that have won on the first METÁR tender and projects prepared for the second. With respect to wind power, a recent noteworthy deal is the acquisition of Pannon Szélerőmű Kft by ALTEO (a privately owned Hungarian energy generation, trading and services company with a large renewables and CHP generation portfolio) from Renovalia and BlackRock. After the two previous successful METÁR tenders, the third METÁR tender was published on 30 April 2021 to further promote electricity production from renewable energy sources in Hungary with a total budget of 450 million forints per year and with the maximum subsidised volume of 300 GWh per year. However, there were mixed responses from the market that the maximum nominal capacity eligible to bid was decreased from 50MW in the second METÁR tender to 20MW in the third.

The most important regulatory development in the Hungarian market was clearly the introduction of a temporary foreign direct investment (FDI) screening mechanism on 25 May 2020 to mitigate the consequences of the covid-19 pandemic. The provisions governing this screening mechanism are currently set out in Act LVIII of 2020 on the Transitional Rules and Epidemiological Preparedness related to the Cessation of the State of Danger (Covid Act) and apply until 31 December 2021. The Covid Act takes a 'catch-all' approach that requires the parties of any transaction to, at least, consider whether the deal is to be notified to the competent authority. As we explain in Section IV.iii, despite the legislator's attempt to clarify the ambiguous parts of the Covid Act, material provisions remained unclear. The uncertainty created thereby has led to increased communication between investors and the government, which eventually resulted in prolonged procedures.

It was a long-awaited relief to the energy M&A market that the rules regarding approval and acknowledgement by the HEA of acquisition of influence over energy companies were somewhat relaxed (see section VIII.vii).

Finally, the covid-19 global pandemic undoubtedly has had a negative impact on the Hungarian market to some extent, although Hungary's GDP growth is forecasted to be third best in the EU, which suggests a clear and rapid bounce-back in terms of economic recovery.

Legal and regulatory framework

The Civil Code5 is the main source of legislation governing M&A transactions in Hungary, especially Book Three of the Civil Code (Legal Persons), which sets out the general rules applicable to all types of legal persons, including high-level rules on the transformation, merger and demerger of legal persons.

The provisions constituting the legal framework for transactions in Hungary implemented by way of transformations, mergers or demergers are set out in the Transformations Act.6 This contains the procedures to be followed in the case of a company transformation, and the documentation, transparency and financial requirements of mergers, demergers and spin-offs.

The Companies Registration Act7 sets forth the procedural aspects of registering corporate changes in relation to M&A deals in Hungary. The Companies Registration Act sets out the specific documents to be prepared and submitted to the competent court of registry to register an acquisition or a merger, and sets out the applicable procedural requirements.

M&A transactions reaching a certain market threshold must be reported to, or approved by, HCA, irrespective of the industry or sector concerned (see Section VIII.i for details).

Sector-specific regulations and restrictions applicable to energy M&A transactions (e.g., HEA approval for certain transactions) are included primarily in the Electricity Act,8 the Natural Gas Act,9 the Mining Act10 and the District Heating Act.11

Cross-border transactions and foreign investment

i Protection and promotion of foreign direct investment

As a Member State of the EU, legislation and policy at the EU level regarding FDI immediately affects the Hungarian market: openness to foreign investment is enshrined in EU treaties. Policy at EU level, including especially the Investment Plan for Europe (also called the Juncker Plan) and the InvestEU Programme (2021–2027), facilitates the protection and promotion of FDI among Members States as well as in extra-EU relations. Related actions continue to be taken at the EU level to, among other things, strengthen the Single Market, the Capital Market Union and the Energy Union.

While adhering to the regulations regarding FDI at EU level, Hungary has also implemented national legislation for the protection of foreign investments.12 In addition, Hungary is party to numerous bilateral and multilateral foreign investment protection treaties, providing security for cross-border investors residing in other jurisdictions.

ii HEA approval

In addition to the general rules on HEA approval and acknowledgement (see Section VIII.vii), the HEA's prior approval is required for the execution of any transaction that would allow a person or persons from a third country outside the EU to acquire control over MAVIR, the electricity transmission system operator (TSO) or FGSZ, the natural gas TSO, or their respective controlling shareholders (MVM and MOL, respectively). The HEA may refuse to approve transactions if it finds that the TSO would not, as a result of a transaction, be able to meet the relevant unbundling requirements.

iii FDI screening

There are currently two separate FDI screening mechanisms that apply in Hungary: one a permanent and the other a temporary screening procedure applicable during the covid-19 pandemic. If a transaction falls under both FDI screening mechanisms, these FDI screening mechanisms apply simultaneously; therefore, the approval of the Minister of Interior (MI) and the Minister of Innovation and Technology (ITM) is needed to complete the transaction.

Permanent FDI screening

Acquisitions made by foreign investors in Hungary in regulated sectors, including the energy sector, are subject to prior notification to the MI in specific instances.13 In the energy sector, the notification obligation concerns only:

  1. electricity transmission and distribution network operators, electricity system operators and electricity generators above 50MW, as well as natural gas transmission and distribution network operators, transmission system operators and storage; and
  2. services that are required for the provision of a crucial public service (e.g., healthcare, safety of life and property, the provision of economic and social services) or the outage of which may result in significant consequences because of a lack of the continuous provision of such services (required energy services).

For the purposes of the above notification obligation, foreign investors are defined as:

  1. non-EEA nationals and legal entities and organisations registered outside the EEA (Switzerland falls under the same regulation as EEA Member States in this respect); and
  2. legal entities registered in the EEA that acquire ownership of a company registered in Hungary that carries out required energy services if the qualifying holding of such EEA-registered legal entity is held by non-EEA nationals or legal entities or organisations registered outside the EEA.

A notification to the MI is required if a foreign investor acquires ownership in a target company providing required energy services where, through the acquisition, its stake directly or indirectly exceeds 25 per cent of the ownership stake in a company or, in the case of a public limited company, exceeds 10 per cent of the shares; or it obtains a qualifying holding.14 The establishment of a local Hungarian branch by a foreign investor for the purposes of conducting required energy services is also subject to the notification obligation.

The MI shall resolve on the submission within 60 days after the receipt of the notification by the foreign investor; however, the deadline may be extended under extraordinary circumstances for an additional 60 days. During the procedure, the MI examines whether the acquisition breaches the national security interests of Hungary. If not, the MI acknowledges the notification in writing; otherwise, the MI declines the notification. The decision of the MI cannot be appealed; however, foreign investors may challenge a decision before the Metropolitan Tribunal (Budapest) in the case of a breach of essential procedural requirements, or if the MI has qualified the contemplated investment of the foreign investor as breaching the national security interests of Hungary.

Foreign investors may only acquire the right to operate and use the infrastructure, equipment and tools necessary for the provision of the required energy services following the acknowledgement of the notification in writing by the MI. Additionally, the target company in which foreign investors have acquired the above ownership stakes or in which foreign investors hold a qualifying holding may begin offering services only following the acknowledgement of the notification in writing by the MI.

In the absence of an acknowledgement of the MI, a foreign investor will not be able to exercise voting rights stemming from its stake in relation to the target company and may not be entered into the shareholders' register or the members' register. The MI may levy a fine for a failure to notify.15 Further, if in the absence of notification the MI qualifies an acquisition as breaching the national security interests of Hungary, the foreign investor must sell its stake within three months, while in the case of an acquisition of a right to use or operate, the MI will file a claim with the courts to establish the invalidity of the sale and purchase agreement.

Temporary (covid-19) FDI screening

In 2020, the Hungarian government enacted the Covid FDI Decree16 as a covid-19 pandemic state of emergency measure, which introduced an additional temporary FDI screening mechanism. The temporary FDI screening mechanism was extended until 31 December 2021 by the Covid Act17. The Covid Act significantly widens the definition of strategic companies to include practically all Hungarian companies in the electricity sector, as it applies to all Hungarian companies engaged in the production, transmission, distribution or trade of electricity, regardless of their size or actual significance to the Hungarian economy.

In principle, the Covid Act defines four categories of M&A activities for which ITM acknowledgement is required prior to the closing of the reported transaction:

  1. a foreign investor or an EU/EEA/Switzerland company acquires majority influence in a strategic company either by the acquisition of shares, by increase of capital, by merger or demerger, by issuance of convertible bonds or by the establishment of use rights provided that the total value of the investment is at least 350 million forints (approximately €1 million);
  2. a foreign investor reaches the thresholds of 10 per cent shareholding in a strategic company as a result of any of the transactions mentioned in (a) provided that the total value of the investment is at least 350 million forints (approximately €1 million);
  3. a foreign investor exceeds the thresholds of 15 per cent, 20 per cent, and 50 per cent shareholding or two or more foreign investors' shareholdings altogether exceed the 25 per cent threshold; and
  4. a foreign investor acquires the right of use or right of operation of infrastructure, equipment or asset required for conducting activities.

Some transactions may be exempt from the application of the Covid Act, such as transactions between affiliates and transactions concluded at the parent company level in a foreign jurisdiction.

The ITM must be notified of the transaction subject to the temporary FDI screening mechanism within 10 days from conclusion. The ITM shall resolve on the notification within 30 business days after the receipt of the notification. However, the deadline may be extended under extraordinary circumstances for an additional 15 days. The ITM may decline to acknowledge the notification if he concludes that the acquisition breaches the national security interests or the public order of Hungary or the foreign investor intends to commit a crime or engage in illegal activities.

In the absence of an acknowledgement of the ITM, the foreign investor will not be able to exercise any rights stemming from its shareholding in relation to the target company and may not be entered into the shareholders' register or the members' register, as the case may be. Furthermore, the ownership changes may not be registered with the Court of Registration without submitting the acknowledgement of the ITM, preventing the circumvention of the FDI screening mechanism.

In the absence of notification and acknowledgement, or if the acknowledgement is denied, the agreement, statement or corporate resolution underlying a relevant transaction subject to the Covid Act is null and void. Such nullity resulting from a failure to notify may be remedied if the ITM issues a resolution approving the transaction. In addition to the above, the ITM may also levy a fine as high as two times the value of the transaction for a failure to notify.18

Controversies around the Covid Act may be a real concern for the Hungarian energy M&A scene. Most importantly, the wording of the Covid Act is not clear as to what type of transactions are notifiable; even a capital increase in a given energy company by its current foreign shareholders may trigger the application of the Covid Act if one would take a rather literal interpretation.

To mitigate such risks, market players started reaching out to the government more frequently to receive clearance for their contemplated transactions. This, of course, put an additional administrative burden on the already limited resources of the government. This is probably the reason for the growing number of lengthy procedures where the government prolongs its investigation by two or three months, causing substantial delays in the completion of transactions. Although the final decisions of the government in such procedures are not available to the public, market information suggests that in a limited number of cases clearance has not been granted.

Given the above developments, it is of utmost importance for foreign investors to consult their legal advisors at the beginning of each deal to ensure that the potential delays the Covid Act may cause are taken into account when the deal structure and timing are being planned.


A considerable part of financings that are carried out in Hungary focus on energy-related matters. In recent years, we have seen an increase in the number of energy financings relating to green and renewable energy projects where the majority of such financings are either new project financings or acquisition financings. The number of new projects in the non-renewables sector has been rather limited, thus primarily acquisition financings and refinancings have been carried out in this segment.

Given the significance of green and renewable financings in Hungary, we have focused on matters concerning these types of financings.

The increasing number of the green and renewable energy projects, in particular photovoltaic projects, can be attributed to the government's support for renewable energy production through the KÁT and METÁR systems. A project with a KÁT or METÁR licence may qualify as an attractive investment opportunity because such projects may generate stable and more foreseeable cash flow for project companies because of state subsidies, making compliance with debt service obligations more predictable.

Commercial banks are active in renewable energy sector financings in Hungary, and usually require equity in an amount of at least 25 to 30 per cent of the project costs (value) with a maturity period of around 10 to 15 years.

In cases of green and renewable energy project financings and refinancings, a project company (a special purpose vehicle (SPV)) is created for each project to ensure that assets and obligations are separated in each project. The facility agreements used in these projects are mostly Loan Market Association standard facility agreements. Lenders usually require a full scope of security interests to be established over all assets of a project company. Security interests usually include:

  1. a mortgage over a project's real property;
  2. a purchase option over the project real property;
  3. a pledge over receivables and claims of the project company;
  4. a floating charge;
  5. a pledge or purchase option, or both, on the project company's quotas; and
  6. a pledge and security deposit right over all project accounts.

It is also not unusual that the parent company or a sponsor (usually the indirect owner of the project company), or both, is required to provide a direct payment obligation or a direct undertaking in relation to the senior lender of the project, such as completion and good performance guarantees, or guarantees or suretyship for the outstanding obligations for the non-performance of the project company.

Nevertheless, green and renewable financings are not without legal issues and risks. The legal status and ownership status of a project's real property and the legal status of power plants are common concerns that have specific ramifications as to the right to encumber of assets and thus to the security package. Such concerns often arise if a project's real property is classified as agricultural land, which can only be acquired by project companies upon its reclassification as a non-agricultural area. In other cases, the land on which a power plant has been built is not acquired by the project company as part of the project; however, it is to be ensured that the piece of land can be used by the project company in the long run on the basis of a valid and effective legal title. The legal nature of power plants (i.e., whether they shall be qualified as real property or movable assets) may raise issues, in particular with regard to their encumbrance.

Due diligence

When conducting due diligence, it is essential to understand the business of the target company or group. In general, sector-specific focus must be given to licensing and environmental issues. Further, depending on the activities of the target company or group, the scope of due diligence must be carefully considered.

For example, in the case of a renewables project already undergoing or awaiting development, attention must be given to:

  1. the key project agreements;
  2. the project's eligibility for a KÁT or METÁR government subsidy;
  3. real property rights; and
  4. planning and zoning permissions.

In the case of a natural gas trading company, due diligence should pay specific attention to:

  1. the larger supply agreements and template supply agreements, and eventual deviations from these;
  2. the natural gas procurement and storage agreements (especially take-or-pay obligations and make-up provisions); and
  3. management of outstanding claims.

It may significantly expedite the due diligence process (and may also be less burdensome for the target) if a de minimis threshold is set with respect to material agreements and disputes.

Due diligence is most efficient if carried out in a manner that ensures continuous interaction between and among the internal team and the external legal, technical, business or other advisers. Staged discussions with the technical adviser may be key in identifying the licences and cable and easement rights required for the operation of the target company, and in understanding how certain real estate and facilities are used, all of which is crucial for identifying eventual legal risks.

Energy is a strategic sector subject to heavy regulation, and legislative changes are relatively frequent in the field, which magnifies the need for the team conducting due diligence to be up to date on the latest developments in regulation as well as market trends and dynamics.

Purchase agreements and documentation

In addition to the customary merger control approval of the relevant competition authorities, in most energy M&A deals the HEA's approval or acknowledgement is required, which the parties usually include as conditions precedent to closing.

Along with the standard warranties (e.g., corporate authority and approvals, financial statements), parties to an energy M&A transaction are likely to discuss certain additional or extended warranties (and indemnities), especially with respect to environmental issues, licences and pending administrative procedures, real estate, material assets and compliance with legal requirements.

Site contamination may pose long-term issues that may be hidden at the time of a transaction, but that may later result in high recultivation costs. Further, because of the application of the polluter pays principle, and the presumption that the current owner or user of the land is the polluter, contamination seeping into neighbouring lands may be the cause of additional liability for the target company or the buyer of the land and related assets. Therefore, buyers often request that environmental warranties and indemnities be exempted from limitation of liability provisions as well as the limits of the warranty period in which claims may be submitted (see also Section VIII.ii).

Pending administrative procedures may, in addition to fines, have far-reaching effects on the operation of the target company, including, for example, obligations to implement high capital expenditure investments (e.g., installing sulphur dioxide filtering equipment in a power plant), or, as a last resort, the withdrawal of the operating licence. Therefore, these issues and possible legal consequences must always be carefully analysed and reflected in the warranty and indemnity provisions of the share purchase agreement (SPA). It is advisable to include provisions in the SPA setting out the rights and obligations of the parties with respect to pending administrative procedures, including which party will take the lead on decisions regarding the procedure, notification obligations and rights to require information and comment on submissions to the relevant authorities, and whether consent from the other party is required for certain procedural steps.

Especially in the case of ready-to-build projects or greenfield investments, a stronger and more detailed set of warranties may be justified regarding real estate to ensure that a project's real estate is suitable for building the project.

For brownfield investments or the acquisition of licensed companies already in operation, it may well be justified to ask for specific warranties (or indemnities, or both) with respect to essential equipment and assets (including real estate), as well as compliance with applicable laws and regulations. It is also advisable to consult the team that carried out the technical due diligence to identify essential assets and their critical qualities, and thus make sure that the warranties in an SPA provide full and precise coverage.

In the case of energy trading companies, take-or-pay arrangement warranties may play an important role. Such warranties typically state that the target company has not entered into any take-or-pay or forward sale arrangements obligating the target company to either make payments after closing for quantities of electricity or natural gas not taken or make deliveries after closing without receiving full payment for such deliveries.

Key regulatory issues

i Competition


The HCA and European Commission are entitled to monitor anticompetitive practices in the energy sector under the general rules of competition law. Further, the HEA has the power to impose ex ante as well as ex post obligations on electricity and natural gas licensees in the case of anticompetitive or manipulative practices. In M&A transactions, the market position of the target (or, as the case may be, the merged entity or joint venture), may have to be assessed in the context of the material agreements from a competition law perspective to identify eventual risks that may arise from an abuse of dominance situation or arrangements unlawfully restricting competition.

Merger control


In terms of merger clearance, the parties are obliged to report a merger to the HCA if the combined Hungarian net turnover of all parties (i.e., the acquirer or acquirers and the target) exceeds 15 billion forints; and the individual Hungarian net turnover of each of at least two parties exceeds 1 billion forints.

Turnover of subsidiaries jointly controlled by one of the parties and a third party must be allocated on a per capita basis according to the number of entities exercising joint control. When assessing the turnover threshold, consecutive transactions by the same parties within two years preceding the date of a transaction must be added up (unless such transactions have already been notified to the HCA). Intragroup revenues and the turnover of the seller's group must be excluded.

The HCA may also decide to investigate mergers that fall below filing thresholds within six months of their implementation if it is not obvious that the concentration does not significantly reduce competition in the relevant market, and the combined net group turnover of all parties exceeded 5 billion forints in the previous financial year.

A special public interest exemption exists under the Hungarian competition regime that permits the government to qualify a merger as strategic in a government decree and exempt it from the merger control filing requirement. The government can do so if the merger carries national strategic interests; for example, if it is needed to protect workplaces or to assure security of supply. Such exempted deals included the acquisitions by the MVM Group of ÉMÁSZ Hálózati Kft (an electricity DSO) and of Status Power Invest Kft (owning the 950MW Mátrai Power Plant). Mergers that meet the EU merger control filing thresholds are assessed by the Commission in line with the one-stop-shop principle.


Non-problematic concentrations can be cleared in a fast-track proceeding, with a waiting period of only eight days. It is recommended that the parties engage in pre-notification discussions and submit a final and complete filing form in the course of such discussions for review and comments by the HCA, to establish whether a fast-track review is available for a given merger.

For a Phase I investigation, the waiting time is 30 days, while a Phase II investigation will last an additional three months. The HCA may extend its review by a maximum of 20 days in Phase I, and two months in Phase II. The HCA may also stop the clock until information requests are complied with. If the HCA fails to issue its decision within the applicable waiting period, its approval is deemed to be granted.

The implementation of a transaction has to be suspended prior to acknowledgement or clearance.

ii Environmental protection

The Hungarian environmental regulations are based on the polluting party pays principle and apply the legal presumption that the polluting party is the current user or owner of the land on which the pollution is present or from which the pollution originates.

Because of this strict liability regime, environmental issues can be the cause of major liabilities and thus warranty or indemnity claims in the energy sector. It is generally advisable to involve an environmental technical expert during the due diligence process to uncover eventual environmental issues and assess related liabilities and risks.

Depending on the activity, installations and facilities of the target, the due diligence must determine and check which are the relevant environmental licences required for the operation of the target company or assets (especially integrated pollution prevention and control, air pollution, noise emission and water management licences).

iii Employment

In Hungary, an acquisition of shares in a target company will generally not affect the terms of the individual employment contracts with the target company.

In the case of an asset deal, if the conditions of a transfer of undertaking specified by the Labour Code19 are met, then all the rights and obligations under employment relationships will transfer to the transferee company by operation of law. Whether a transaction qualifies as a transfer of undertaking has to be assessed on a case-by-case basis. For example, in a resource-intensive industry where various assets, equipment, subcontractors, intellectual property (IP) assets and human resources are crucial for the performance of the business activity, the transaction will most probably not qualify as a transfer of undertaking if only the employees are transferred but not the assets. However, if only human resources are necessary for the operation of the transferred business, the pure transfer of the employees can qualify as a transfer of undertaking assuming that the employees will pursue the same activity at the new employer under the same or very similar work organisation and operating methods.

In the case of a transfer of undertaking, the Labour Code prescribes a number of information obligations. Primarily, transferor and transferee employers must inform works councils or, if there are no works councils, the affected employees in writing at least 15 days prior to the date of transfer about the reason for the transfer, the date of the transfer, and the legal, economic and social consequences. If there is a works council, the transferor and transferee employer must initiate negotiation with the works council aimed at reaching an agreement concerning the proposed actions that affect the employees. The transferor employer must also inform the transferee employer before the date of transfer about the rights and obligations deriving from the employment, non-competition and study agreements. Furthermore, the transferee employer must inform the transferred employees in writing within 15 days following the date of transfer about the change in certain working conditions. In the event of failing to provide information, in general the transfer of employment relationships will not be invalid; however, the employees may require the provision of the relevant information.

Importantly, employers are not entitled to terminate employment relationships for the reason of the transfer of employees. However, companies may dismiss transferred employees for reasons related to their operations (e.g., restructuring, reduction of workforce) or for performance or behaviour-related reasons if the reason for a dismissal is true and valid.

Under the Labour Code, the transferor and transferee employers are jointly and severally liable for certain employment-related claims incurred prior to an asset transfer if such claims are enforced within one year of the date of the asset transfer.

iv Tax


Taxation of gains realised on mergers at the level of the shareholders may be deferred provided that the conditions of the EU Merger Directive20 are met. At their discretion, merging companies (terminating with legal succession) may revalue their assets and liabilities to fair market value. If they revalue their assets, this may create a taxable gain. However, such capital gains taxation may be deferred if the merger qualifies as a preferential merger within the meaning of the Merger Directive and certain other administrative conditions are also met.

Acquisition of real property by way of a merger is also subject to transfer tax under the main transfer tax rules. However, no transfer tax liability arises if a merger qualifies as a preferential merger within the meaning of the Merger Directive.

In general, VAT liability should not arise in the case of a merger, except for cross-border mergers, which in certain circumstances may trigger VAT liability.

Tax on capital gains in the case of a share sale

In the case of a share sale, if the seller is a Hungarian company, the capital gain arising from the sale, under the general rules, will be subject to corporate income tax. The corporate income tax rate is currently a flat 9 per cent. Participation exemption is available under Hungarian corporate income tax rules. Under the participation exemption regime, capital gains realised on certain investments may be tax-exempt. Accordingly, if a taxpayer holds a participation in a domestic legal entity or foreign entity for at least one year, the amount of gain deriving from the sale of such reported participation may be exempt from corporate income tax, provided that the taxpayer has reported its election for tax-exempt treatment to the tax authority within 75 days of the original acquisition of the participation. Capital gains derived by a non-Hungarian entity or person selling shares in a Hungarian company are not taxable in Hungary, unless they are shares of a real estate holding company.

Real estate holding companies

In the case of ready-to-build green field energy investments (e.g., renewables projects), the only assets of an SPV may be the relevant permits and licences for starting construction and the land on which the development is planned. In such cases, the land may be the highest-value asset of the SPV, and, if on the latest balance sheet date the book value of the Hungarian real property of the SPV represents more than 75 per cent of the total book value of its assets, the SPV could qualify as a real estate holding company.

If a real estate holding company has a shareholder (with any shareholding) on at least one day during the given year that is a tax resident of a country with which Hungary has no double taxation treaty, or the treaty allows Hungarian withholding taxation of capital gains realised on real estate share transactions, then the share transaction will be subject to 9 per cent capital gains tax.

In addition, the acquisition of at least a 75 per cent stake in a Hungarian real estate holding company is subject to transfer tax (except, for example, in the case of preferential transactions within the meaning of the Merger Directive and in the case of intragroup acquisitions). For transfer tax purposes, an entity holding at least a 75 per cent stake (directly or indirectly) in a real estate holding company also qualifies as a real estate holding company itself. The transfer tax base is part of the fair market value of the real property that corresponds to the ratio of the transferred interest. The transfer tax is payable by the acquirer. The applicable rates of transfer tax are 4 per cent up to 1 billion forints of the market value and 2 per cent above that amount, with the tax liability capped at 200 million forints per property. VAT is not payable on a share sale.

Asset deals

In the case of an asset transfer, corporate sellers will be subject to a flat 9 per cent corporate income tax on gains in the value of the assets (except in the case of preferential transactions within the meaning of the Merger Directive). An exemption may apply to gains realised on the sale of IP, provided that the seller reported the acquisition or development of the IP to the tax authority and meets the one-year minimum holding period requirement. The after-tax profit can then be distributed to the company's shareholders tax-free (unless the shareholders are private individuals, in which case withholding tax may apply).

If assets are transferred as a business (namely, they constitute an autonomous unit capable of operating on its own), then the whole transfer can be treated as a transaction not subject to VAT if certain conditions are met. If, however, the assets are not transferred as a business, the VAT consequences should be examined separately in respect of each asset.

In addition, the sale of certain assets (principally immovable property) is subject to transfer tax (except, for example, for the transfer of immovable property between related parties or if the immovable property is transferred as part of a preferential transfer of assets within the meaning of the Merger Directive, provided that certain other conditions are also met).

If the acquired asset is real estate in Hungary, the acquisition is subject to transfer tax in an amount of 4 per cent for market values up to 1 billion forints and 2 per cent for values exceeding that amount, up to a maximum of 200 million forints per property.

v Real estate

In principle, share deals should not have any impact on real estate, with the exception of the tax and transfer tax considerations in connection with real estate holding companies: see subsection iv.

However, in the case of undeveloped or ready-to-build energy projects, the restrictions applicable to agricultural or forestry land (cultivated land) may pose significant issues. The reasons for this are, on the one hand, that the ownership or use of cultivated land can only be acquired by natural persons (with certain very limited exceptions) who are Hungarian or EEA citizens and only up to 1 hectare (or, in the case of natural persons with an agricultural qualification, up to 300 hectares). On the other hand, although there is a procedure to remove the land from cultivation and have its permanent use reclassified, this can only be registered in the land registry once the piece of land in question is actually used for that other purpose. Consequently, taking the example of a ready-to-build solar project for sale in Hungary, the Hungarian SPV will have to build the solar power plant on alien land that it cannot lease or use under any title, and may only acquire the ownership or use rights over the land on which the plant is built after the power plant is actually constructed, and the concerned real estate is reclassified in the land registry. On the bright side, since 2018, a simplified reclassification procedure applies to solar micro (below 0.5MW) power plants, and the reclassification is exempt from land conservation fees.

In the case of asset deals, it may be important that individuals, companies or other entities of third (non-EU or EEA) countries cannot acquire cultivated land under any circumstances and may only acquire uncultivated land with a permit from the competent government agency (with very limited exceptions).

Such regulatory circumstances must be taken into account when structuring deals and drafting transaction documents. Further, as noted above, this may also have disadvantageous ramifications from a financing perspective.

There are also strict formal rules regarding the acquisition of real estate in Hungary: a written contract, countersigned by a lawyer or a notary public, is required for the registration procedure. These formal requirements must be borne in mind in the event that the transaction documents based on which registration of ownership or other rights over real property will be requested from the land registration authority.

vi Anti-money laundering and anti-corruption

Under the Money Laundering Act,21 financial institutions, insurance companies, real estate agencies, auditors, accountants, tax advisers, law offices and notaries public, among others, must comply with certain anti-money laundering and know your client obligations, and must report to the competent authority suspicious transactions and information that may relate to money laundering or terrorist financing.

The Criminal Code22 penalises money laundering as well as bribery, including active and passive bribery, irrespective of whether an offender is a government official or not.

Transparency requirements

Government bodies, municipalities and state-owned companies (together, state entities) may only conclude agreements with entities that are transparent under the National Assets Act.23 This may be important for three aspects in energy M&A transactions. First, if the seller or the buyer is a state entity, the other party to the transaction will also have to be transparent for the SPA to be valid. Second, if certain material agreements of the target company are concluded with state entities, especially if within the frame of public procurement procedures (e.g., assets or real estate leased from state entities, or where the largest suppliers or customers are state entities), such agreements may become invalid upon the closing of a transaction with a non-transparent buyer, or have to be terminated by the state entity. Third, state subsidies have to be repaid in full if the target company received a state subsidy that may only be granted to transparent entities, and it ceases to be transparent as a result of the transaction.

vii Energy regulation

Recently, the scope of prior approval and post-completion acknowledgement by the HEA has been narrowed and the relating rules clarified, which will make structuring of transactions and related conditions simpler.

The HEA's prior approval is required for an acquisition of voting rights or influence to control voting rights reaching a 5, 20, 25, 33, 50, 75 or 90 per cent threshold, or a 100 per cent acquisition of a natural gas, electricity or district heating licensee. In the case of the acquisition of ownership interests or voting rights in a natural gas or electricity public limited company licensee reaching or exceeding:

  1. a 5, 10, 15, 20 per cent threshold, HEA's acknowledgement shall be requested immediately after closing;
  2. a 25, 33, 50, 75 per cent threshold, HEA's prior approval shall be requested;
  3. a 40, 45, 80, 85, 90 per cent and every 1 per cent above 90 per cent after the prior approval of HEA has been granted, the acknowledgement of the HEA shall be requested immediately after closing.

Further, the transfer or other disposal of fundamental assets of a natural gas or electricity licensee, or the outsourcing of a substantial part of its licensed activity, are also subject to the HEA's prior approval.

However, no prior approval is necessary for the acquisition of voting rights or influence to control voting rights if a target is, in the case of an electricity licensee, a combined micro power plant licensee, a filling station operator licensee, an authorised direct lines operator or an authorised private lines operator; in the case of a natural gas licensee, an authorised operator of one-stop-shop international transmission systems, certain natural gas suppliers, restricted natural gas traders and providers of location-specific services. The HEA issues its approval or acknowledgement of the above-mentioned transactions within 60 days of receiving an application (or its supplements, if needed).

In the event of non-compliance with the requirement of notification of acquisition of influence, or in the absence of the prior approval or the confirmation of acknowledgement of the HEA (as the case may be), an acquiring party will not be able to exercise voting rights in relation to the company stemming from the acquired ownership stake (except for dividend rights), and may not be entered into the register of shareholders' or register of members. Consequently, the notification and acknowledgement requirement may pose difficulties because a buyer would not be able to exercise voting rights between closing and the date of the HEA's acknowledgement if an application of acknowledgement is only submitted immediately after the influence is acquired, as stipulated by the relevant legislation. The latest practice to tackle this problem has been that the notification is submitted to the HEA prior to closing, and the HEA issues a conditional acknowledgement that becomes effective at closing.

Further, within 30 days of completion, the acquirer must notify the HEA regarding the acquisition of influence.


The use of warranty and indemnity (W&I) insurance to smooth the path of M&A deals in the energy sector is on the rise in Hungary, but still in its early stages. W&I insurance is a solution designed to cover unknown or unforeseen breaches of an SPA.

For example, if a seller is a natural person, a mere shell or holding company or a special purpose equity fund, it may be hard or even impossible to execute eventual W&I claims. In such cases, W&I insurance can provide a plausible alternative to parent company or bank guarantees, or the withholding or the putting into escrow of part of the purchase price.

W&I insurance puts buyers in the comfortable situation of being able to make a claim against a presumably financially sound insurer rather than a seller.

Dispute resolution

The parties to an M&A transaction in Hungary are free to refer disputes to the competence of a court or arbitration tribunal of their choice (with certain exceptions under the Act on Private International Law,24 e.g., with respect to rights in real property situated in Hungary). Disputes relating to or arising out of M&A transaction documents under Hungarian law are in most cases referred to Hungarian ordinary courts or to arbitration before the Permanent Arbitration Court attached to the Hungarian Chamber of Commerce and Industry.

For a brief period between 2015 and 2017, a specialised permanent arbitration court for energy disputes operated in Hungary, but very few cases were referred to this court, so it was dissolved at the end of 2017 within the framework of the introduction of new legislation regarding arbitration.


Prior to the covid-19 pandemic, M&A activity of the state and state-owned enterprises had significantly increased in the past few years in line with the aim of the National Energy Strategy to strengthen the state's presence in the energy sector. Although the downturn of the market in terms of the number of deals because of the covid -19 pandemic continued in 2020, certain market dynamics suggest that the detrimental effects of the global pandemic in Hungary may be mitigated by both external and internal factors.

First, reports show that activity in the energy sector of both state-owned and private stakeholders is recovering from the slump caused by the effects of the pandemic. Second, significant interest on behalf of developers and investors for the METÁR tenders, primarily regarding solar power plant projects, clearly shows investors' interest in the Hungarian renewables sector even in such extraordinary times. Third, even though anxiety and ambiguity around the interpretation of the Covid Act remains with the investment community even one year after the Covid Act was enacted, recent legislative actions, such as the general revision of statutory corporate law provisions, show clear signs that the government is committed to creating an even more investor friendly environment in Hungary.

The National Energy Strategy confirms Hungary's commitments to ambitious renewables targets, including a 20 per cent renewables share in the total electricity generation in Hungary by 2030 and around 30 per cent by 2040. According to the Strategy, the expanding solar capacities are expected to take the lion's share in implementing the renewables targets. The declared aim of the Hungarian government is to have 3,000MW installed solar capacity in Hungary by 2022 and 6,000MW by 2030. Political support for renewables, especially solar, remains very strong in Hungary and by August 2022, five METÁR tenders are expected in total: one in each six-month period tendering subsidised amounts of 300 to 500GWh/year. This should provide the Hungarian renewables sector plenty of room to grow and will most likely attract significant investments in solar development.


1 Pál Szabó is a partner, Dániel Arányi is counsel and Eszter Gál is an associate at Bird & Bird LLP.

5 Act V of 2013 on the Civil Code.

6 Act CLXXVI of 2013 on the Transformation, Merger and Demerger of Certain Legal Persons.

7 Act V of 2006 on Public Company Information, Company Registration and Winding-up Procedures.

8 Act LXXXVI of 2007 on electricity.

9 Act XL of 2008 on natural gas supply.

10 Act XLVIII of 1993 on mining.

11 Act XVIII of 2005 on district heating services.

12 See especially Act CXX on capital investments.

13 The rules regarding the notification to and acknowledgement of the MI are regulated in Act LVII of 2018 on controlling foreign investments breaching the security interests of Hungary and Government Decree 246/2018 on the execution of Act LVII of 2018 on controlling foreign investments breaching the security interests of Hungary.

14 A qualifying holding, as defined by the Hungarian Civil Code, means that (1) the shareholder has the right to appoint or recall the majority of the target company's managing directors or board members or members of the supervisory board; or (2) based on an agreement, the remaining owners of the target company vote on identical terms with the shareholder holding a qualifying holding or that the remaining owners of the target company exercise their rights through the owner holding a qualifying holding, provided that together they hold more than half of the voting rights in the target company.

15 The fine is capped at a maximum of 1 million forints in the case of individuals and 10 million forints in the case of legal entities.

16 The Hungarian Government Decree No. 227/2020 (V.25).

17 Act LVIII of 2020 in connection with the covid-19 global pandemic. Our reference to the Covid Act covers all recently adopted rules that are applicable to foreign investments into Hungary.

18 The fine shall not be lower than 1 per cent of last year's net income of the target company in case of legal persons.

19 Act I of 2012 on the Labour Code.

20 Council Directive 2009/133/EC of 19 October 2009 on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States and to the transfer of the registered office of an SE or SCE between Member States.

21 Act LIII of 2017 on the Prevention and Combatting of Money Laundering and Terrorist Financing.

22 Act C of 2012 on the Criminal Code.

23 Act CXCVI of 2011 on National Assets.

24 Act XXVIII of 2017 on Private International Law.

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