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Merger and demerger of companies

Under Hungarian corporate law, companies may transform into another company form or merge with each other, as well they may resolve to demerge into separate entities.

A merger may either be executed as an assimilation, whereby all assets, rights and obligations of the merging company transfer to the receiving company as legal successor and the merging company terminates, or as an amalgamation whereby two or more companies, along with all of their assets, rights and obligations, merge into a new company as universal legal successor of all companies with the separates entities terminating. A demerger may be carried out as a division or a separation. In a division, the demerging company terminates and distributes its assets, rights and obligations to the surviving two or more new companies as legal successors. By a separation, from the demerging company a new company is carved out and established with selected assets, rights and obligations of the demerging company, all the while the demerging company continues to operate with its remaining assets.

Due to strict procedural and documentation requirements, the merger or demerger of companies require the close cooperation of legal, accounting, audit and tax experts.

The merging companies need to have a merger plan and conclude a merger agreement with statutory minimum content. The merging companies need to prepare merger balance sheets and asset inventories, first as a draft with a selected accounting date and then a final version with the effective date of the merger. The year-end financial statements may be used for the preparation of the draft merger balance sheets but only if the shareholder resolution approving the merger is passed within 6 months of the year-end. The merging companies may select the effective date of the merger with some limitations.

For the audit of the draft and the final merger balance sheet and asset inventories an independent auditor needs to be appointed who may not be the regular auditor approving the financial statements of either of the participating companies.

A notification on the merger and the main figures of the draft balance sheets need to be published twice in the Companies Gazette.

The corporate and accounting documents maybe filed with the Court of Registration by a Hungarian lawyer after the elapse of a 30-days waiting period during which creditors may request security for their claims. The court has 30 business days to register the merger. The whole process takes approximately 4-6 months.

The above-described rules apply to demerger as well.

Hungary implemented the rules of the European directive on cross-border mergers. The process is similar to domestic mergers but additionally, the preliminary publication of the common draft terms of the merger is required. If the receiving company is not Hungarian, the Court of Registration will issue a pre-merger certificate confirming the fulfilment of all statutory conditions for the merger under Hungarian law and such certificate needs to be provided to the competent authority of the receiving company’s state. A cross-border merger generally takes approximately 6-10 months.

The above is a non-exhaustive description of the relevant Hungarian legal provisions. The above summary should not be considered as legal advice and should not be relied upon when making business decisions. Before resolving on investment in Hungary, we recommend that you contact our law firm for detailed, tailor-made legal advice.