Temporarily or beyond? Important new rules for economic operators

During the state of emergency declared after the domestic appearance of COVID-19, a number of legal provisions were adopted, which helped all market participants to adapt to the situation. However, most of these provisions and restrictions were lifted after the end of the state of emergency, but some of them remained in force, since the end of the national emergency does not necessarily mean that life can automatically return to normal. Among the transitional provisions, special attention should be paid to the following rules, in order to allow the normal course of business to continue for economic operators as smoothly as possible. 1. A Facilitations for the annual reports The Government Decree introduced significant relief for companies by extending the deadline for preparing and submitting the annual reports until 30 September 2020, if the annual report was due between 22 April 2020 and 30 September 2020. The extension also affects the accounting obligations that are due from the date of submission of the annual report. It is important to emphasize, however, that the extension is only an option, not an obligation, thus each undertaking may decide individually whether they wish to take advantage of the deferral of the publication date or not. As the report primarily contains relevant information for other market participants, it should be also considered when making the decision, what message a deferral may have in the eyes of the company’s suppliers or creditors. Although, the effects of the crisis caused by the coronavirus epidemic can obviously be better reflected in a later report, than in one made in the original timeframe. 2. Temporary rules for legal entities It is beyond dispute that the decision-making process of legal entities and NGOs also changed during the pandemic, because the minimalization of personal contacts was a medical recommendation in all countries. Although, with the end of the state of emergency, it is possible to make decision by personal contact but based on the previous experiences it was also necessary to develop a procedure, which allows to make decisions without personal contact. The process of decision making According to the temporary rules, the meeting of the decision-making bodies can be held until 31 December 2020 by the way of using electronic communication devices or the decision can be made without holding a meeting. Generally, this would be only possible if the deed of foundation contains the possibility of decision-making without a meeting or the possibility to hold the meeting by the way of using electronic communication devices, and prescribes detailed rules for these methods. However, given the temporary rules, it is possible to make decisions remotely even if the deed of foundation did not initially authorize it. Obviously, this can be a great relief for many businesses, as in practice we find a negligible number of provisions that would allow these possibilities, thus the administration regarding the modification of corporate documentation can be avoided. It is important to emphasize however, that in the case of organizations, where the law explicitly requires the decision-making body to be open to the public (i.e. the decision-making body of entities with a public benefit purposes), the decision-making, even in the present situation, cannot take place without holding a meeting. Therefore, if the deed of foundation does not provide the rules for using of electronic communication devices or for decision-making without holding a meeting, but the company decides to take the opportunity and wishes to hold its meeting in this form, compliance with the following rules is essential. The first and most important requirement is that the absence of written guideline does not exempt the company from defining the framework and procedure of the decision-making, since the applicable legal provisions contain a number of guarantees for convening a meeting, which must be maintained even if decision-making is not held as usual. The managing director has a key role to play, as the temporary rules entitle and oblige the managing director to establish the rules to be followed and communicate them to the members of the company, during the course of which the following provisions shall be applied: detailed information on the agenda shall not be omitted and draft decisions shall be communicated to members in advance, in case of presence by electronic means • the tools and applications that can be used to identify the members and to communicate need to be identified, and • if the management of the legal entity does not know the members personally, the method of identification must be specified, • the meeting of the decision-making body shall be chaired by a designated chief executive officer of the legal entity, and the designated chief executive officer shall draw up the minutes, in which the conditions of the meeting shall also be recorded in case of decision-making without a meeting • at least 8 days must be given for the vote to be sent, but the vote can also be sent via e-mail, • the member's vote only valid if it clearly identifies the member (name, place of residence or registered office, in the case of an organization, the name of its representative), clearly indicate the draft resolution - in the case of multiple proposals for decisions, the serial number of the draft decisions - and the actual vote. In addition to the above, it can be stated in general that all corporate bodies of the company (audit committee, supervisory board, etc.) are entitled to hold their meetings electronically or have a written consultation and are able to make a decision in writing. If the rules of these procedures are not specified, in this case, similarly to the procedure of the supreme body, the chairman of the board is obliged to create and communicate the rules of the procedure to the persons concerned. It should also be emphasized that both the procedure itself and the decision-making can be done via e-mail. Mandates of the executive officers The temporary rules have also changed the rules concerning the expiry of the executive officers’ mandate, since, as a general rule, the extension of the mandate or the election of a new executive officer after the termination of the previous term also requires the meeting of the decision-making body. In view of this, the transitional rules introduced the following changes: - if the mandate of the chief executive, member of the supervisory board, other body of the legal entity or the permanent auditor expired during the state of emergency, under the new rules, the term of the mandate automatically extends until the 90th day from the end of the state emergency, ie.: until 16 September 2020. These officials, and in particular the chief executive, shall be required to perform their duties notwithstanding the expiry of their mandate, which obligation shall be waived only if the expiry of the mandate is due to revoke, death, termination without successor, the occurrence of a ground for exclusion or conflict of interest, or a prohibition decision by an authority or court; - however, if the mandate expires within 60 days of the end of the state of emergency, ie.: by 17 August 2020, the legal entity is obliged to convene a meeting of the decision-making body by 16 September 2020 at the latest, in order to take the necessary decision due to the terminated mandate. In this case the term of the mandate in question will expire on the date specified in the resolution of the decision-making body, but not later than 90 days after the end of the state of emergency. 3. A Different application of the provisions of the Act XLIX of 1991 on Bankruptcy Proceedings and Liquidation Proceedings In the event of insolvency, the temporary rules have brought an important change, as the legislator, unlike the previous general rules, significantly increased both the amount of the debt and the time allowed for debt settlement, presumably in order for the liquidity difficulties experienced in connection with the coronavirus epidemic to be somewhat offset by regulation. Accordingly, until 31 December 2020, the creditor may submit an application to initiate liquidation proceedings, if the final deadline for the debtor to pay its debt and the additional 75 days after the final deadline has elapsed. However, in order to offset the significant extension of the payment deadline, the court, instead of the 45-day deadline that can normally be imposed, must set a deadline of up to 15 days for the debtor to pay it’s debt, and if it is unsuccessful, the court orders to open the liquidation proceeding. As regards the amount of the debt, the transitional rules have also brought significant changes, as instead of the previously set threshold of HUF 200,000, until 31 December 2020, an application for liquidation can only be submitted if the amount of the claim (excluding interest and contributions) exceeds HUF 400,000. 4. The different application of the provisions of the Act V of 2006 on Public Company Information, Company Registration and Winding-up Proceedings For the proceedings that have been suspended based on the legal provisions applicable in the state of emergency, the suspension shall continue until 31 October 2020, without issuing a separate order. In the case of companies, where judicial oversight proceedings are in progress, the Court of Registration cannot make a decision on the declaration of the company’s termination until 31 October 2020. If the National Tax-and Customs Administration initiates a proceeding to declare the company terminated due to the cancellation of the company’s tax number, the proceeding will be suspended until 31 October 2020. If the company proves to the Court of Registration during the suspended involuntary cancellation proceeding that it has restored its legal status and operation by eliminating the violation of the law, the Court of Registration shall terminate the proceeding.