Tips and considerations when planning an asset or business transfer

The number of asset deals involving branch offices in Hungary are increasing. Due to EU passporting opportunities, financial institutions and insurance companies are inclined to operate in the form of a branch office in Hungary instead of establishing an independent company, thereby sparing the hassles of obtaining local regulatory approvals. However, in the case of a branch office, a share transfer is not a viable option and companies must rely on asset or business transfers.

Asset and business transfers involve the transfer of various assets, resources, rights, or business units, and require different planning as compared to a share deal, when an entire company or a group of companies are sold.

Although it might seem obvious, a crucial first step of any asset or business transfer, is to draw up an asset list and to properly group the assets according to their type and transferability. This list will allow legal and tax advisors to begin structuring the deal to ensure an effective and smooth transition. In the case of large sellers, it may be worth conducting a sell-side due diligence to assess the volume of agreements, movable and immovable assets, employees, and IP rights involved. A due diligence may reveal certain issues and may necessitate preparatory measures prior to the signing of the sale and purchase agreement, for example, it may be necessary to deregister an encumbrance which no longer exists or to obtain consent of a creditor if an asset serves as a collateral.

For the proper allocation of assets and resources, internal restructuring may also be considered. Such restructuring may be useful if, for example, certain employees fulfil multiple positions or work in a shared service centre and it is not clear to which business line they pertain or if the assets to be transferred are scattered among various group companies of the seller group.

Additionally, the transfer of certain assets may require additional steps. Typically, the transfer of real property, vehicles, and certain IP rights require the registration of the purchaser by the competent authority or court in order to effect the transfer. Under the new Civil Code of Hungary it is possible to transfer entire agreements, however this needs to be effected in a tripartite agreement between the transferor (obligor), the transferee (new obligor) and the beneficiary (or at least with the beneficiary’s consent). Additional analysis will be necessary if the agreement was entered into as a result of a public procurement procedure. In any case, proper documentation required for these administrative steps in the required form (notarized, apostilled, official Hungarian translation etc.) must be prepared and, ideally, handed over to the purchaser on the day of completion.

Employment law may also come into play in asset and business transfers. The general rule in Hungary is that, if an independent business unit is transferred and it retains its identity following the transfer, then this qualifies as a transfer of undertaking and all employees working for such business unit will automatically transfer to the purchaser. Although, the transfer of undertaking triggers consultation obligations, employees are not able to veto the transaction and there is no need to negotiate with each and every employee and convince them to join the purchaser, instead, they are automatically transferred with the transferring business unit.

When considering the timeline, a split signing and completion may be required if the transaction qualifies as a concentration and requires competition approval from the Hungarian Competition Office or the European Commission. If the business in question operates in the regulated sector, such as a financial institution, insurance company or energy business, the approval of the competent authority may be required for the transfer of certain operational licences and permits or the entire asset (business transfer).

For more information, please contact Anikó Kircsi or Szilvia Kabács.