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Current financial and legal issues in company restructuring

Current financial and legal issues in company restructuring

Current financial and legal issues in company restructuring

 - through the eyes of the auditor


Companies often face events in their business life that require them to restructure. When opportunities arise to benefit from business or financial synergies, to acquire know-how resources or market position, or to streamline a business in the context of a portfolio clean-up, a transformation is essential. A number of considerations, such as transfer pricing or tax issues, arise in connection with the preparation of the company's balance sheet and inventory, for which the involvement of external expert auditors and advisors, and in some cases legal experts, is always justified.

The company owners may decide to merge or spin-off, or to change the legal form of the company, or in many cases a combination of these. The legal and financial process of transformation is regulated by the Civil Code, the Transformation Act and the Accounting Act.

According to the statutory requirements, the audit is carried out under a two-stage legal procedure.

  1. Preparing legal and accounting documentation, transformation plan, resolutions of the general meeting, etc. and draft balance sheet for decision-making and approval by the Court of Company Law.
  2. After approval by the Company Court => Final balance sheet of assets and liabilities for financial documentation of the transformation.

The assets and liabilities balance sheet will be established by the auditor at both book value or market value.

Transformations may also generate tax requirements: in the case of asset revaluation, the income from the transaction is subject to taxation by the tax system (corporate tax, personal income tax), a tax liability may arise in the case of a change of ownership of real estate as defined in the Law on Real Estate. Cross-border transactions may also raise transfer pricing issues.

However, in the case of a beneficial transformation transaction, the company may benefit from a tax deferral: the transformed company(ies) and their owners are granted, subject to certain conditions, a tax deferral until the realisation of the effective profit, which is only expected on the future sale of the company or on a capital increase.

The extension of the EU Mergers Directive is also part of the EU's and Hungary's harmonisation efforts. Until now, it applied only to mergers of limited liability companies and public limited liability companies, as EU company law only covered cross-border mergers of these two forms and transactions, but since the codified company law directive was amended, the deadline for implementation was 31 January 2023, which Hungary has already implemented.

This has opened new perspectives and significant business potential for companies operating in European markets, as it ensures legal continuity (creditors, long-term contracts, tenders from government and multinational companies, employees!), allows branches to be transformed into legal entities, which can create a corporate presence in the market of the Member State concerned, and even opens up global opportunities for start-up companies. In the financial field, the harmonisation of legislation offers significant advantages: where resources are limited, even own shares can be used to cover payments. Or, for example, if the owners have different views on the prospects of the company, they could split up across borders, in which case the parties could consider a full division or a partial division.

Ideally, the process can be concluded in as little as three months.

VGD Hungary's audit and advisory teams have the expertise and know-how to advise you on M&A transactions in the domestic and European markets and will be happy to help you navigate the financial, tax, legal and accounting issues involved in M&A transactions.


Author of this article

Gyöngyi Ferencz Audit Partner

VGD Hungary Audit Kft.



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