Directors’ Duties in Hungary

>> Powers and Duties in Hungary

Duties – general

According to the Civil Code, the most basic principle for directors is that they have to perform their management functions representing the company’s interests, and manage the operations of the company independently, based on the primacy of the company’s interests. Directors are expected to oversee the governance of the company and undertake any actions deemed beyond the competence of the members or founders of the company. Directors have a duty of care and loyalty towards the company, they are expected to work with the company’s best interest in mind and must act in accordance with the standard expected of an individual holding their position. The sole shareholder may instruct the director, and he is required to carry out these instructions.

At current, Hungarian legislation does not contain any precise rules on the general duties of managers – apart from the above mentioned – however, in general the following duties shall be performed by the managers:

  • All management tasks relating to the effective functioning of the company.
  • Directing the daily work of the company within the scope of the applicable laws and company resolutions.
  • Representing the company towards third parties and in front of the courts and relevant authorities.
  • Ensuring the undertaking and enforcing of the employer’s rights.
  • Issuing the member’s (shareholders) list.
  • Taking care of the company’s books and ensuring their adequate maintenance.
  • Notifying the Court of Registry when any changes or amendments to company documentation or information occurs.
  • Ensuring the preparation and filing of the company’s annual accounts.
  • To keep the members informed of the company’s activities, and to provide access to the company’s documents, records and registers.
  • Keeping the shareholders of the company informed of any matters concerning the company.
  • Ensuring the shareholders have access to the company’s documents, records and registers.
  • Ensuring that company confidential information is kept safe and secure;

the director may refuse to provide information and to allow access to documents if the requesting party refuses to make a declaration of confidentiality despite having been asked to do so, or he exercises his right in a manner which is abusive, or if this would infringe upon the company’s trade secrets

The director can manage the operations of the company either under a personal service contract or under a contract of employment, as agreed with the company.

Duties – other

Hungarian legislation establishes duties upon the company relating to anti-bribery and anti-trust (according to the Money Laundering Prevention Act and the Competition Act). However, regarding the specific obligations of directors, the law only imposes reporting obligations in the event of acquiring any knowledge, information, fact or circumstance that may suggest or imply the conducting of money laundering or terrorist financing. Therefore directors should be aware that if they gain any knowledge of any behaviour relating to the above, the onus is upon them to report it to the relevant authorities as soon as possible.

Anti-money laundering (AML) rules are applicable for companies who are engaged in activities auxiliary to financial services, investment services, activities auxiliary to investment services, insurance services and insurance agency activities; which may stipulate that the scope of the activities of the company fall under these responsibilities. However, duties deriving from AML rules are to be carried out by the company and, like above, only reporting obligations are provided for its director. Therefore the

administrative liability, including a fine of between HUF 200,000 (approx. EUR650) and HUF 500m (approx. EUR1,600,000), lies with the company.

Please note, directors may be directly liable for carrying out the company’s duties in respect of the above under their general responsibilities as a company director.

The director must understand that they have the specific duty to inform the sole shareholder without delay whenever it comes to their attention that:

  • the company’s equity dropped to half of the initial capital due to losses
  • the company’s equity dropped below the amount defined by law
  • the company is on the brink of insolvency or has stopped making payments due to creditors
  • the company’s assets do not cover its debts

Data privacy

General Data Privacy requirements can currently be found in Act CXII of 2011 on the Right of Informational Self-Determination and on Freedom of Information (“Data Privacy Act”).

Some of the most fundamental data protection obligations can be found below:

  • Personal data may be processed for specified purposes only, ie where it is necessary for the implementation of certain rights or obligations. The purpose of processing must be satisfied in all stages of data processing operations and the recording of personal data shall be done under the principle of ‘lawfulness and fairness’.
  • The personal data being processed must be essential for the purpose for which it was recorded, and it must be suitable to achieve that purpose. Personal data may only be processed to the extent and for the duration necessary to achieve its purpose.
  • In the course of data processing, the data in question shall be treated as ‘personal’ as long as the data subject remains identifiable through it.
  • The data provided must be accurate and complete, and if deemed necessary in the light of the aim of processing, up-to-date throughout the processing operation.
  • The data shall be kept for no longer than

is necessary.

Amongst several provisions, rules and obligations regarding data protection, it is to be noted that personal data may only be transmitted outside of the EU, eg to the USA, if:

  • the data subject has given his consent
  • the conditions laid down in the Data Privacy Act are satisfied and the laws of the country in question ensure an adequate level of protection

Annual accounts

The directors of the company must ensure that the annual report, including the annual accounts are electronically filed with the Company Information Service. There are no deadlines stipulating when the accounts are to be produced by, however the Articles of Association may stipulate deadlines. Further, there are no separate deadlines for having the annual accounts approved; therefore the decisions on approval have to be made by the filing deadlines.

The penalties for failure to file the annual report are monetary fines of up to HUF 1million (approx. EUR3250).

Additional reporting requirements

There is also an obligatory requirement for a company to update the Court of Registry within thirty (30) days from the time of the occurrence of a change to the company, for example change of address or director. The Court of Registry may impose a financial penalty of between HUF 50,000 (approx. EUR160) and 900,000 (approx. EUR2900) for any failure to comply with this duty to notify the authorities in due course.


Latest version updated 22nd March 2018

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9.8

Million

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Ft

Hungarian Forint

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