Project companies are typically incorporated in the form of a limited liability company (in Hungarian: “korlátolt felelősségű társaság”, “Kft.”) or, more rarely in the form of a private company limited by shares (in Hungarian: “zártkörűen működő részvénytársaság”, “Zrt.”).

Both Kfts and Zrts are legal entities and are treated as separate legal persons with their own rights, assets and obligations distinct from those of their owners. Therefore, a shareholder (or in the case of a Kft, a quotaholder) generally has limited liability for the project company’s obligations. Liability is restricted to the share capital contributed by the members except in those rare situations where the corporate veil can be pierced by the project company’s unsatisfied creditors (eg in relation to suspect transactions between the project company and a member).

Regarding capital requirements, Kfts must be established with a minimum capital of HUF 3,000,000 (approx. EUR 7,300), while a Zrt requires a statutory minimum registered capital of HUF 5,000,000 (approx. EUR 12,000).

The industry sector generally does not in itself affect the form of the project company but for public-private projects, the tender offer may set out requirements regarding the project company’s legal form and minimum capital.

According to Act V of 2013 on the Civil Code, the quotaholders of a Kft., or the shareholders of a Zrt. are free to establish the corporate governance structure of the project company, subject to certain limited restrictions (e.g. no member can be excluded entirely from sharing the profits and bearing the losses of the company). The rules on corporate governance are generally included in the project company’s articles of association, but the members of the project company are also allowed to conclude a separate shareholders’ agreement (or joint venture agreement), to outline additional rights and obligations between themselves and the company.

Additional statutory rules are also applicable in relation to concession companies or project companies conducting activities falling under public procurement rules, eg rules restricting the activities a project company can undertake or prohibition of the acquisition by the project company of any share in another company or any merger or transformation of the project company or the acquisition of any share in the project company by any third person other than the successful tenderer(s). Such rules are set out in the relevant legislation, tender documentation and ultimately included in the articles of the project company and/or the related public procurement contract or concession contract and are aimed at ensuring that the project company is ringfenced from activities and participants not approved in the tender process.

Regarding foreign investors, it is important to note that Hungary has two separate and different foreign direct investments (FDI) regimes in force currently and the need for FDI screening shall be evaluated under both separately. The first regime, the so-called “General FDI Regime” focuses on a narrower scope and covers sectors closely related to national security and public utility services, while the second FDI regime, the “New FDI Regime” covers a much wider part of the economy and affects more deals in general.

Hungarian companies are generally subject to the accounting rules and principles prescribed by Act C of 2000 on Accounting (Hungarian Accounting Standards), but under specific circumstances, they may decide to opt-in and prepare their financial statements in accordance with the IFRS (International Financial Reporting Standards).

In Hungary, the most typical form of support sponsors/governments can provide is guarantee or first demand surety (in Hungarian: “készfizető kezességvállalás”).

In addition, sponsors/shareholders often provide credit support in the form of (subordinated) shareholders loans, as well as in the form of in rem security, in particular, pledges over their shares in the project company.

Additional forms of support may be necessary in case of projects falling under public procurement rules, eg the successful tenderer may be required to provide performance guarantee or undertake joint and several liability with its project company (if the tenderer established project company for the performance of the public procurement contract).

A market standard Hungarian collateral package would usually include guarantees or sureties (in Hungarian: “készfizető kezességvállalás”).

In addition, it would include various security interests in assets, in particular:

• charge and security deposit over bank accounts;
• charge and/or security assignment of rights and receivables;
• charge over movable assets;
• mortgage over real properties ; and
• charge or security deposit over the shares of the project company.

Charges and mortgages, must be registered with the relevant public registries (such as the Land Registry, Company Registry or the Collateral Registry). The registration establishes the priority of claims, which can be particularly significant in an enforcement or insolvency scenario. The registration of security often requires a permanent Hungarian agent registered and authorised to act in the name and on behalf of the creditor in Hungary.

A security deposit over bank accounts (or shares in a project company which is a Zrt) provides stronger security but requires the cooperation of the relevant account bank (eg its agreement to the circumstances in which the relevant account can be blocked or payment orders from the secured creditor can be accepted in respect of the secured account).

A charge and/or security assignment of rights and receivables will become effective vis-á-vis the debtors of such receivables upon notification of the pledge/assignment by the creditor and/or the project company.

Pre-insolvency

A creditor may enforce the security if the debtor fails to duly perform its payment obligations in line with the secured documents and/or applicable laws.

If the project company goes under restructuring, reorganisation or bankruptcy proceeding, each aiming to restore the solvency of the debtor, and payment moratorium has been ordered, the creditors must refrain from accelerating the secured obligations and/or enforce the underlying security.

The enforcement method chosen depends on the type of security and is usually regulated under the security documents (subject to mandatory laws).

Generally, there are two sets of enforcement methods under Hungarian law: (i) out-of-court enforcement  or (ii) judicial enforcement. If the secured parties choose out-of-court enforcement, the sale can be effected by the secured parties in line with mandatory rules on enforcement of security and the terms of the security documents.  If the secured creditors opt for judicial enforcement, the sale can be effected by a judicial officer or bailiff on the basis of an enforcement order from a court or, in some circumstances, a notary public.

If the underlying security documents are incorporated into notarial deeds, an enforcement order may also be obtained from a notary public without the need for court proceedings.  On the basis of the enforcement certificate, the security assets are usually sold by way of public auction.

Post-insolvency

By force of mandatory law and without any further action, upon the commencement of the project company’s insolvency:

• all payment obligations become due and payable by force of mandatory law; and/or
• if an enforcement proceeding is in progress, it shall cease.

Following the commencement of the project company’s insolvency, liquidation of the debtor’s assets (including charged assets) is conducted by the court appointed liquidator and the creditor may only seek recovery from a charge or mortgage through and within the framework of the insolvency proceeding and subject to mandatory laws regulating the waterfall payments. Secured creditors holding security deposits are able to enforce directly against the secured assets for a limited period of time following the commencement of the liquidation proceeding.

In Hungary, it is customary for the creditors to require that the security documents are notarised in order to enhance their position (although this is not strictly necessary). Notarial fees can be a significant transaction cost (often higher than the cost of drafting and negotiating the security documents) and would typically be paid by the Hungarian security provider directly to the notary public on signing. The exact amount of the notarial fee will depend on a number of factors including the value of the transaction, the complexity of the transaction, the length of the documents and the number and nature (i.e. electronic or paper based) of notarial copies the parties request from the notary.

There is FDI legislation in Hungary which may be applicable if the assets over which security are taken are “indispensable” for the operation of a strategic business. The Hungarian FDI regime is exceptionally wide-ranging covering most aspects of economic activity. Security over shares of foreign (non-Hungarian) shareholders, bank accounts and receivables are unlikely to trigger an FDI notification requirement, but FDI analysis is usually necessary in relation to any real property or movable assets over which security is taken. If the FDI notification requirement is triggered, it can affect timing as the notification may only be done following the signing of the relevant security documents and obtaining the ministerial approval of the security can take 4-8 weeks.

Project risks such as force majeure, political risk, currency convertibility risk, regulating or permitting risk, construction/completion risk, supply or feed stock risk or legal and regulatory risk may apply but we are not aware of any Hungary specific risk. However, the following may be relevant to consider if dealing in Hungary:

• The Hungarian FDI regime is exceptionally wide-ranging (as discussed above) which can delay or prevent the completion of a transaction.
• Granting loans (and taking collateral for such loans) “in a business like manner” is a regulated activity and is generally licensable in Hungary.
• Project companies (eg concession companies, electricity service providers, mining operators etc.) must obtain certain sector specific authorisations as set out under specific legislation.
• The acquisition or lease of certain assets (eg national or municipal assets, agricultural lands etc.) by legal entities or foreign investors may be restricted or prohibited.
• We have seen the introduction of certain sector specific taxation, the same cannot be excluded in the future, which may adversely impact the projects or project companies.
• A state of danger has been introduced in Hungary, appointing the Hungarian Prime Minister as responsible for preventing/remedying the negative consequences of the state of danger caused by the ongoing war in the neighbour country. As a result of the state of danger, new laws and/or amendments are adopted relatively quickly and on a daily basis.

Financing documents do not generally need to be filed with any authority for them to be admissible in evidence in a court of law, valid, or enforceable in Hungary.

However, if Hungary’s foreign direct investment (FDI) rules apply, certain type of security will become effective after the relevant minister approves the underlying agreement (see further details above).

Charges and mortgages must be filed and registered with the competent court of registry, land registry or the collateral register maintained by the Hungarian Chamber of Public Notaries.

Only notarised documents may be relied on in certain types of proceedings (eg summary proceedings for the appointment of a court bailiff before a notary public).

Since a special regime was introduced due to the outburst of the Covid pandemic in Hungary, the Hungary has implemented an extensive FDI regime with the aim of protecting the Hungarian economy and Hungarian market players.

One key regulation of the new FDI regime is that taking security by a “foreign investor” over assets of a strategic company that are deemed indispensable for the purposes of the company’s strategic business activity is subject to FDI clearance and requires the approval of the relevant minister (currently, the Minister of National Economic). The minister in its sole discretion may prohibit the transaction, which makes the security agreement (and the security interest created thereunder) null and void with effect from its execution.

A financier/security holder will qualify as a foreign investor under the Hungarian FDI regime if it is a citizen or legal person registered outside the European Union, the European Economic Area or the Swiss Confederation or it is controlled (directly or indirectly) by such person.

A project company will qualify as a strategic company if any of its business activities fall under the list of activities specified under the applicable Hungarian and EU FDI regulations. Most activities include sectors such as manufacture, energy production, chemical sector (such as petroleum refining) and information technology.

In addition, sector specific rules and regulations apply as set out under specific pieces of legislation (eg royalties payable in respect of mining activities, since mineral resources and geothermal energy are state property at their natural occurrence sites in Hungary. Mineral resources extracted by a licenced mining entrepreneur become the property of the entrepreneur upon extraction, and the state is entitled to a share, known as a mining royalty, on the extracted mineral resources and geothermal energy).

Governmental support of renewable energy sector is available, eg by way of the operation of the mandatory electricity off-take system and electricity premium aid scheme). The original green energy subsidy system “KÁT” was replaced with “METÁR” in 2017. While KÁT was a fixed price system where all producers sold the electricity to the Hungarian system operator, MAVIR and MAVIR was obliged to take over certain amount of electricity at a fixed price, thus providing continuous guaranteed flow of income and therefore good basis for project financing, METÁR is a green premium system with the producers selling on the market, less predictable and therefore carrying higher risk in project financing. Due to its complexity, the METÁR system have become less attractive in the Hungarian market.

The Act CVIII of 2023 on the rules of corporate social responsibility considering environmental, social and sustainability aspects to promote sustainable financing and unified corporate accountability (ESG Act) transposed the Corporate Sustainability Reporting Directive (CSRD) into Hungarian law by completing the Hungarian Accounting Act (Act C of 2000) with the relevant reporting requirements.

In addition to implementing the CSRD, the ESG Act established a separate ESG reporting regime to address various data reporting requirements Hungarian companies must already comply with (e.g. in accordance with the German LkSG) and to emphasize supply chain due diligence. Consequently, the ESG reporting regime of the ESG Act operates in parallel with the CSRD reporting regime that is prescribed by the Accounting Act, and so the respective reports shall be prepared and submitted separately. The employee and financial thresholds for companies subject to the CSRD and the ESG reporting regimes are generally similar.

Additionally, project companies must also comply with the environmental protection regulations applicable to their projects, such as obtaining an integrated pollution prevention and control (IPPC) permit.

Specific reporting obligations may apply to concession companies or project companies conducting activities falling under public procurement regime. Such obligations usually regulated under specific pieces of legislation and/or the tender documentation. Additionally, sector specific reporting requirements can apply as set out under specific pieces of legislations.

Hungary does not have a dedicated public-private partnership (PPP) law that would establish a framework for PPP projects or provides definitions for PPP models within its jurisdiction. However, in theory, the existing regulatory framework permits the procurement of PPPs. The following key pieces of legislation could apply, depending on the project’s characteristics:

• Act CXLIII of 2015 on Public Procurement (“Public Procurement Act”), which governs general public procurement and contracts;
• Act CXCVI of 2011 on National Assets („National Assets Act”), regulating the legal status of national assets;
• Act XVI of 1991 on Concessions, addressing concession agreements;
• Act CXCV of 2011 on the State Budget, concerning financial matters.

As a general rule, the Public Procurement Act applies to all procurements by public entities, except for the general exceptions stemming from the EU Procurement Directives. Therefore, it could theoretically govern PPP projects across all sectors. Similarly, the National Assets Act, which defines the legal framework for national assets, could regulate PPP initiatives involving the creation or management of national assets in any sector. Since around 2010, the Hungarian government has shifted its stance on PPPs, making this model less favored for new projects.

Foreign judgments, arbitral awards, and arbitration agreements can be recognized and enforced in Hungary subject to certain limitations.

If a foreign judgment was delivered by a court of a Member State of the European Union, the Brussels Recast Regulation (Regulation (EU) No 1215/2012 of the European Parliament and the Council of 12 December 2012) is applicable. Pursuant to the Brussels Recast Regulation, any final, non-appealable judgment on civil or commercial law matters obtained in the courts of an EU member state will be recognized in Hungary without conducting a retrial or reassessing the merits of the case.

Hungary is party to several international and bilateral treaties regulating the recognition and enforcement of foreign judgments/arbitral awards and choice of court/arbitral agreements. Given its membership in the European Union, Hungary is a contracting state to both the Hague Convention of 30 June 2005 on Choice of Court Agreements (Hague Choice of Court Convention) and the Hague Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters (Hague Judgments Convention). In line with the Hague Choice of Court Convention, a judgment given by a court of a Contracting State designated in an exclusive choice of court agreement shall be recognised and enforced in Hungary. According to the Hague Judgments Convention, a foreign judgment can be recognized in another contracting state if it meets the requirements of jurisdiction, finality, and compatibility with public policy, and is not subject to any of the specified grounds for refusal. Hungary is also party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, under which Hungary must recognise the arbitral awards, falling under the scope of the Convention, as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon.

If none of the above apply, Hungarian courts may also recognise a foreign court judgment under the Hungarian act on Private International law if the jurisdiction of the court or authority is found to be legitimate under Hungarian legal rules concerning jurisdiction, the jurisdiction of such foreign court was stipulated by the parties in the manner prescribed by Hungarian conflicts law, and the decision is final according to the law under which it was adopted, and none of the grounds for refusal apply.

As a general rule, the parties may freely agree on a choice of a non-Hungarian jurisdiction and of foreign law in commercial matters provided that there is a foreign element in their legal relationship. The agreed courts have exclusive jurisdiction, unless otherwise provided by the parties.

Hungarian courts have exclusive jurisdiction in relation to proceedings against the Hungarian State (including any public bodies with state authority and any representatives of the state acting in such capacities), subject to certain exceptions. Exemptions may apply where, amongst others, (i) the subject-matter of the proceeding is a right or obligation of the Hungarian state arising out of a contract under civil law, (ii) the Hungarian state has expressly waived its immunity, (iii) the proceeding has been initiated by the State itself, or in which it has intervened or entered an appearance, or (iv) of a counterclaim presented in a proceeding initiated by the State, if based on the legal relationship in dispute. However, the waivers of immunity may not extend to certain national assets.

Also, contracts in relation to certain national assets must be governed by Hungarian law.

Green financing (and the financing of green projects) have been a dynamically increasing sector in the Hungarian market.

However, some characteristics of the Hungarian renewable energy market, and applicable laws and regulations, involve some challenges for the financiers in terms of project financing, such as:

• The currently applicable green energy subsidy (METÁR) is a green premium system with the producers selling on the market, ie less predictable in terms of flow of income, thus carrying higher risk in project financing.
• Some geographical aspects of Hungarian projects could increase financing risks: due to the regional focus of support schemes, most solar projects have not been built in the Southern and South-Eastern part of Hungary, where the number of sunny hours per year is highest and therefore the project could be operated the most efficiently, but in the North-East, where the conditions for solar energy are the least favourable in Hungary.
• Small solar power project licensees are typically project companies with no other assets, few employees and no other income for the project company, so the only income for project financing purposes is the income from the sale of the electricity generated. This resulted in almost half of the financing allocated being not a standalone project financing, but financing on a holding level, involving various other companies of the group and the assets owned by them.
• Both in the standalone and in the holding structure, the setup of a strong collateral structure can be difficult. To address the challenges and to encourage green investments/developments, the so called “building right” was re-introduced in Hungary in 2023, giving the right to the project developer to construct the power plant irrespective of the ownership of the land. A building right can be encumbered and thus used as a collateral in project financing.

The implementation of the Renewable Energy Directive III of the European Council and the Parliament, to achieve the aim to increase the use of renewable energy in the EU’s total energy consumption to 42.5% by 2030, is currently in progress in Hungary.

Hungary’s green energy transition includes changes of Hungarian legislation, aiming to, amongst others:

• further expanding wind power capacities in line with the conditions undertaken by Hungary under its recovery plan to the European Commission and the target numbers of the revised National Energy and Climate Plan (from the existing 330MW installed wind power to 1000MW of installed wind power capacity by 2030);
• further increasing the share of geothermal energy in the total heat productions (and to facilitate the financing of geothermal projects) in line with the National Geothermal Utilization Concept issued by the Hungarian Government in October 2024 (including the launch of Geothermal Investment Loan Facility providing preferential terms and conditions to facilitate geothermal project financing).

In Hungary certain sectors are subject to specific taxation regulation, which may have material impact on project financing besides the general tax considerations (like corporate, capital gain taxes, VAT and sales taxes etc.) that usually taken into account in case of tax planning and structuring in any jurisdiction of the European Union. For project financing matters individual and project tailored tax planning and structuring is recommended.

Several types of funding structures are in practice in Hungary. The most typical are:

• equity provided to the project company in the form of capital contribution or via intra-group loan;
• classic third party (e.g. bank) secured loan-type financing; and
• other, such as bond issuance by the project company, or – in case establishment of an investment fund, a specially regulated vehicle that may also be used for development of projects – issuance of investment units with redemption right.

Depending of the complexity of the project and its financing needs, the above types of financing may be combined.

The MFB Hungarian Development Bank (“MFB”) and the Hungarian Export-Import Bank (“Eximbank”) are the Hungarian development bank and export credit agency in Hungary, each wholly owned by the Hungarian state.

MFB’s priority is to provide funding opportunities in areas where commercial banks cannot provide loans efficiently. MFB focuses on providing financing for large-scale development projects within Hungary and beyond, particularly those related to infrastructure, energy, and regional development. Its core activities include the provision of preferential loans for domestic businesses and private individuals, the fulfilment of development requirements and fund management tasks in relation to the country’s European Union membership. Through its active participation in the performance of such tasks, MFB contributes to a balanced economic growth.

Eximbank is Hungary’s official export credit agency and, accordingly, is an instrument of economic policy for the Hungarian state rather than a for-profit commercial bank. Eximbank is charged with, among others, the public task of financing the export of Hungarian goods and services, as well as financing Hungarian investments abroad, thereby enabling entities operating in Hungary – primarily small or medium-sized enterprises but also large corporations – to maximise their export opportunities, while assisting in the maintenance and creation of jobs in Hungary, and also promoting the development of Hungary’s national economy by improving the competitiveness of Hungarian exports in foreign markets.

Certain risks related to the development phase and operation phase of the project are most commonly requested by the financing parties to be mitigated by insurance policies. Such risks are typically property damage, construction risks, liability and business interruption

The financing parties can be designated as the loss payees of the policies, and also the insurance proceeds may be assigned to them as part of the security package, however, this does not apply to the liability type insurances, where the payment of the insurance is being made to the injured/affected entity.