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Hungary implements new EU cross-border conversion rules

EU businesses are free to cross borders and relocate their headquarters to another Member State. The amended EU directive and the corresponding new Hungarian rules aim to help companies doing so. In order to make it easier for companies to establish themselves in another Member State and to make cross-border operations more attractive, especially for small and medium-sized enterprises, the European Union decided back in 2019 to amend the EU directive on cross-border mergers, divisions and mergers. The amended Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019 amending Directive (EU) 2017/1132 as regards cross-border conversions, mergers and divisions (so called Mobility Directive) came into force on 1 January 2020 and Member States must bring into force the laws, regulations and administrative provisions that are required to comply with the Directive by 31 January 2023.In so far in Hungary specific provision applied only to cross-border merger of companies. It implied that ‘simple’ relocation of business from Hungary to another EU Member State could be done in two ways: by the owners dissolving the company in the country of origin without legal succession and then setting up a new company in the host Member State; or by merging two companies through a cross-border merger.

The new rule, while also providing simplifications for mergers and divisions, explicitly covers cross-border conversions as well, and allows for example, a limited liability company or public limited liability company registered in a Member State to convert its legal form into a limited liability company or limited liability partnership under the law of the host Member State at the same time as transferring its registered office. In practice this means that a Hungarian limited liability company can be simply transformed into, for example, a German GmbH or a Croatian d.o.o., or vice versa, while retaining its legal personality and maintaining its previous legal relationships, such as customer contracts, employment relationships with its employees or bank loan agreements. The new regulation focuses on the three key participants of such transformations: shareholders, employees and creditors; and sets out the main steps of a cross-border transformation. The Hungarian implementation enters into force as of 1 August 2022 (with some of the provisions as of 1 September 2022).