How to Force Out a Minority Shareholder in Hungary (90% Squeeze‑out & Drag‑along Rules)

Understanding how to force out a minority shareholder is one of the most consequential questions in Hungarian M&A, particularly for bidders closing a public‑to‑private transaction or private‑equity sponsors consolidating a target. Hungarian law provides several distinct routes, the statutory squeeze‑out following a public takeover bid, contractual drag‑along mechanisms in private companies, negotiated buyouts, and court‑ordered remedies, each with its own threshold, pricing regime, and regulatory filing obligations. The primary mechanism, governed by Act CXX of 2001 on the Capital Market (the Tpt. ), allows an offeror who reaches 90% of voting rights to compel remaining minorities to sell.

This guide maps every step, from the initial MNB filing to final settlement, and identifies the pitfalls that can derail or delay the process.

How to Force Out a Minority Shareholder: Legal Basis for Squeeze‑Outs and Sell‑Outs in Hungary

Hungary’s squeeze‑out regime sits on two pillars: EU legislation and domestic statute. Directive 2004/25/EC on takeover bids, the EU Takeover Directive, establishes the baseline in Article 15, requiring Member States to grant a majority acquirer who holds at least 90% of voting capital the right to compel remaining shareholders to sell at a fair price. Hungary transposed this directive through the Tpt., which mirrors the 90% threshold and adds procedural detail specific to the Budapest Stock Exchange (BSE) ecosystem.

The National Bank of Hungary (MNB) acts as the supervisory authority for public takeover bids. Every mandatory or voluntary bid must be filed with, and approved by, the MNB before publication. The MNB reviews the offer prospectus, the price justification, and proof of funding. Once approved, the bid is published through the MNB’s electronic disclosure portal and the BSE’s own announcement system.

In addition, Act V of 2013, Hungary’s Civil Code, governs general corporate‑law principles applicable to private limited companies (Kft.) and private joint‑stock companies (Zrt.). For these entities, there is no statutory squeeze‑out equivalent; instead, majority owners must rely on contractual mechanisms (drag‑along clauses in shareholders’ agreements) or, in extreme cases, court remedies grounded in breach of duty, exclusion of a member, or dissolution claims.

The table below summarises the three principal routes available to force the exit of a minority shareholder in Hungary.

Route 1, Public Takeover and Follow‑On Squeeze‑Out: How Does a Squeeze‑Out Work in Hungary?

The public takeover followed by a follow‑on squeeze‑out is the primary commercial route for forcing out minority shareholders in a BSE‑listed company. It unfolds in a structured sequence regulated by the Tpt. and supervised at every stage by the MNB.

Step‑by‑Step Timeline

The process begins well before the public announcement. A typical sequence, from pre‑bid planning through to the final squeeze‑out, runs as follows:

Throughout this process, updates must be published on the MNB’s electronic disclosure portal and communicated to the BSE. The target company’s board of directors is required to issue a reasoned opinion on the offer, which is also published and available to minority shareholders before the acceptance period begins.

Pricing Rules and Statutory Floors

Getting the offer price right is critical, both for MNB approval and for minimising post‑closing litigation. The Tpt. requires that the offer price in a mandatory bid must be at least equal to the highest price paid by the offeror (or persons acting in concert) for the target’s shares during a prescribed look‑back period. In practice, bidders also benchmark against the volume‑weighted average market price (VWAP) calculated over 180‑day and 360‑day windows preceding the announcement.

Where the squeeze‑out is exercised as a follow‑on to the accepted bid, the squeeze‑out price must generally match the bid price, unless circumstances have materially changed, in which case the MNB or a court may require an adjustment. Industry observers expect this price‑matching requirement to remain the standard approach, as it provides a clear, auditable benchmark and reduces the risk of valuation disputes.

For voluntary bids, which are less common but occasionally used by private equity sponsors seeking control at a negotiated premium, the pricing floor is more flexible. However, the MNB will still review whether the price is fair and may refuse to approve a bid it considers prejudicial to minority interests.

Offer Security and Proof of Funds

The MNB expects the offeror to demonstrate, at the time of filing, that sufficient funds or committed financing are available to settle all tendered shares plus the potential squeeze‑out. In practice this means providing a bank guarantee, an escrow confirmation, or committed facility letters from financing banks. Recent MNB filings show that regulators scrutinise the conditionality of financing commitments carefully, an offer backed by conditional financing that includes market‑out clauses may face delays or rejection.

Route 2, Drag‑Along Clauses and Contractual Forced Sale in Private Companies

For private companies, Kft. (limited liability) and privately‑held Zrt. (private joint‑stock), there is no statutory squeeze‑out mechanism. Instead, the most reliable way to force out a minority shareholder is through a well‑drafted drag‑along clause in the shareholders’ agreement or articles of association.

When Drag‑Along Works, and When It Fails

A drag‑along right allows the majority (or a defined super‑majority) to compel all other shareholders to sell their shares to a third‑party buyer on the same terms. In Hungarian practice, drag‑along provisions are enforceable provided they satisfy several conditions:

• Clear threshold. The agreement must specify the ownership percentage that triggers the right, commonly 75% to 90% of total equity.
• Price protection. Minority shareholders must receive at least the same price per share as the majority. Clauses that allow the majority to set an artificially low price are vulnerable to challenge under Civil Code good‑faith principles.
• Notice period. The majority must notify minorities within a reasonable period and provide material transaction details, including the identity of the buyer and the proposed price.
• Compliance with Civil Code duties. Act V of 2013 imposes a general duty of good faith and fair dealing on all contracting parties. A drag‑along that is exercised in a manner designed to oppress the minority, for instance, at a price that does not reflect fair value, can be challenged as an abuse of right.

Drafting pitfalls are common. Agreements that omit a valuation mechanism, fail to address tag‑along reciprocity, or use ambiguous threshold language frequently lead to disputes. The recommended approach is to pair every drag‑along with a corresponding tag‑along right and an independent valuation procedure (typically a Big Four or recognised appraiser). For a deeper comparison of these mechanisms, see the related guide on drag‑along versus tag‑along structures in Hungary.

Practitioners dealing with deadlock provisions in shareholders’ agreements should ensure that the drag‑along clause interacts cleanly with any deadlock‑resolution or shoot‑out mechanism already in the agreement.

Route 3, Voluntary Buyout Negotiations and Compulsory Judicial Remedies

Voluntary Negotiated Buyouts

The simplest path, and the one that generates the least legal risk, is a negotiated buyout. The majority approaches the minority with an offer, ideally supported by an independent fairness opinion or at least a credible valuation report. In Hungarian practice, valuations for negotiated buyouts typically rely on discounted cash‑flow analysis, comparable‑transactions multiples, or net asset value, depending on the nature of the target business.

The key advantage of the negotiated route is speed: a willing seller and buyer can close within weeks, subject only to standard corporate approvals (board and, if required, shareholders’ meeting resolutions) and any pre‑emption rights set out in the articles of association or shareholders’ agreement. The downside is obvious, the minority has no obligation to accept.

Court Remedies, Exclusion and Judicial Buyout Orders

Where negotiation fails and no contractual drag‑along exists, the majority’s options narrow to judicial remedies under the Civil Code. Hungarian company law, as codified in Act V of 2013, provides two main avenues:

• Exclusion of a member (Kft.). Under the Civil Code provisions governing Kft. companies, a member may be excluded by court order if the member’s continued participation seriously endangers the operation of the company. This is a high bar, it requires demonstrating that the minority shareholder is actively obstructing business operations, not merely being a passive or unwilling seller.
• Dissolution claim with buyout alternative. A shareholder may petition the court for dissolution of the company. Hungarian courts have, in some cases, offered the remaining shareholders the option to buy out the petitioning shareholder at a court‑determined fair price as an alternative to dissolution.

Both routes are slow (typically 12–24 months to first‑instance judgment), expensive, and uncertain in outcome. They are best understood as last‑resort mechanisms or as leverage tools in negotiation rather than as reliable forced‑exit strategies. For further analysis of how courts approach minority shareholder protection, the general principles are broadly consistent across Central European jurisdictions.

Practical Compliance Checklist for Forcing Out a Minority Shareholder

Whether pursuing a statutory squeeze‑out or a contractual drag‑along, the following checklist covers the core compliance steps that deal teams should track:

1. Pre‑bid governance review. Confirm that the target’s articles of association and any shareholders’ agreements do not contain blocking provisions, unusual pre‑emption rights, or anti‑dilution protections that could frustrate the squeeze‑out.
2. Board opinion. The target company’s board must issue a reasoned opinion on the offer. Engage early with the board (or its independent directors) to manage timing and messaging.
3. Offer prospectus preparation. Draft the full bid document, including price justification, conditions, financing confirmation, and squeeze‑out intentions. The prospectus must comply with MNB formatting and content requirements.
4. MNB application. File the complete application package with the MNB. Allow at least 15 business days for review; anticipate possible information requests that may extend this window.
5. BSE and MNB portal publication. Once approved, publish the bid on the MNB’s electronic disclosure portal and the BSE announcement system within 2 business days.
6. Acceptance period management. Monitor acceptance rates in real time. Coordinate with KELER (the central securities depository) for settlement mechanics.
7. Escrow / offer security. Ensure funds or bank guarantees remain available throughout the acceptance and squeeze‑out periods.
8. 90% threshold assessment. Immediately after settlement of accepted shares, calculate whether the 90% voting‑rights threshold has been met (including shares already owned and shares acquired through the bid).
9. Follow‑on squeeze‑out notice. If the threshold is met, issue the formal squeeze‑out notice within the 3‑month statutory window. The notice must specify the price (which must match the bid price unless adjusted) and the settlement procedure.
10. Delisting application. Apply to the BSE for delisting once the squeeze‑out is complete. Coordinate settlement of remaining shares through KELER.

Bidders should also conduct thorough disclosure‑letter analysis during the due‑diligence phase to identify any undisclosed liabilities or commitments that could affect valuation or trigger warranty claims post‑closing.

Valuation and Pricing Protections in Hungarian Squeeze‑Outs

How Courts Treat Offer Price in Squeeze‑Out Disputes

Price is the single most litigated element of a squeeze‑out. Under the Tpt., the follow‑on squeeze‑out price must ordinarily equal the original bid price. However, minorities may challenge the price as unfair, particularly where they argue that the bid price did not reflect true intrinsic value or where the market price was artificially depressed before the announcement.

Hungarian courts have regard to several benchmarks when assessing price fairness:

• VWAP over 180 and 360 days. The volume‑weighted average price over these standard windows is treated as a core reference point. A bid price significantly below the longer‑term VWAP may attract judicial scrutiny.
• Highest price paid. Under the mandatory‑bid pricing rule, the offer price must equal or exceed the highest price the offeror paid for target shares during the look‑back period. This creates a de facto floor.
• Independent valuation. Courts may appoint an independent expert or give weight to fairness opinions submitted by either side. A well‑documented DCF or comparable‑transactions valuation strengthens the offeror’s position.

Recommended Valuation Protocol and Escrow Options

To minimise post‑closing disputes, industry observers recommend that bidders include a clear valuation protocol in the offer prospectus and establish a price‑adjustment escrow. The escrow, typically 5–10% of the aggregate squeeze‑out consideration, is held for a defined period (6–12 months) and released once any pricing challenges have been resolved or the limitation period for claims has expired. This mechanism provides comfort to both bidders (who can close and delist on schedule) and minorities (who retain a funded remedy if the price is later adjusted upward).

Litigation and Dispute Risks When Forcing Out Minority Shareholders

How Minorities Typically Challenge a Squeeze‑Out

Minority shareholders who object to a squeeze‑out in Hungary generally pursue one or more of the following strategies:

• Price fairness claims. The minority argues that the squeeze‑out price does not reflect fair market value. This is the most common challenge and typically involves competing valuation evidence.
• Procedural breaches. Claims that the offeror failed to comply with Tpt. notice requirements, filing deadlines, or MNB conditions. Even minor procedural lapses can provide grounds for interim injunctions.
• Market manipulation or insider‑trading allegations. In cases where the share price declined significantly before the bid announcement, minorities may allege that the bidder or its associates engaged in conduct that artificially depressed the price. These claims are investigated by the MNB in its market‑supervision capacity.
• Civil Code good‑faith challenges. For contractual drag‑alongs, minorities may invoke the general duty of good faith under Act V of 2013 to argue that the exercise of the drag‑along right was abusive or disproportionate.

Enforcement and Typical Remedies

Hungarian courts can grant several remedies to a successful minority challenger: a price adjustment (the most common outcome), an interim injunction suspending the squeeze‑out (rare, but possible where serious procedural defects are shown), or damages for losses caused by breach of duty. The likely practical effect of most pricing challenges, however, is a modest upward adjustment rather than a reversal of the entire transaction. Early engagement with key minorities, including structured settlement discussions before or immediately after the squeeze‑out notice, remains the most cost‑effective approach to managing litigation risk.

Worked Example: Anatomy of a BSE Squeeze‑Out

To illustrate how the process works in practice, consider a typical public‑to‑private transaction on the Budapest Stock Exchange. The following anonymised timeline is modelled on recent Hungarian squeeze‑out transactions, with filing mechanics drawn from MNB and BSE announcements:

• Week 1–6: The bidder (a private equity fund) conducts due diligence and structures a mandatory takeover bid for a BSE‑listed industrial company. At announcement, the bidder already holds 62% of voting rights through market purchases and a block trade.
• Week 7: The offer prospectus and MNB application are filed. The proposed bid price is set at a 25% premium to the 180‑day VWAP, which also exceeds the highest price paid during the look‑back period.
• Week 9: MNB approves the bid after requesting supplementary financing documentation. The approved bid is published on the MNB portal and the BSE announcement system.
• Weeks 10–15: The acceptance period runs for 40 days. By the close, an additional 30% of shares have been tendered, bringing the bidder’s total holding to 92%.
• Week 16: The bidder exercises the follow‑on squeeze‑out right, issuing a formal notice to the remaining 8% of shareholders at the original bid price.
• Week 20: Settlement of the squeeze‑out shares is completed through KELER. The bidder applies to the BSE for delisting, which is granted.

The entire process from MNB filing to delisting took approximately 14 weeks, broadly consistent with well‑executed Hungarian squeeze‑out transactions. The critical variable was the acceptance rate during the offer period: had the bidder not reached 90%, the squeeze‑out option would have been unavailable, and the bidder would have needed to pursue alternative strategies (secondary offer, market purchases, or a drag‑along if contractually available).

Conclusion: Decision Checklist for Bidders Considering a Squeeze‑Out in Hungary

Successfully forcing out a minority shareholder in Hungary requires careful alignment of legal strategy, regulatory compliance, and commercial execution. Before launching a bid or exercising a drag‑along, deal teams should confirm the following:

• The correct route has been identified (statutory squeeze‑out for listed targets; contractual drag‑along for private companies; court remedies as a last resort).
• The 90% threshold is realistically achievable through the bid, including any irrevocable undertakings from key shareholders.
• The offer price satisfies both the statutory floor (highest price paid) and market‑practice benchmarks (180/360‑day VWAP).
• Financing is fully committed and unconditional, with escrow or bank‑guarantee arrangements in place.
• MNB and BSE filing timelines have been built into the transaction timetable, with contingency for information requests.
• A litigation‑risk assessment has been completed, and a settlement strategy for potential minority‑price challenges is ready.

Hungary’s squeeze‑out framework, while procedurally demanding, offers bidders a clear and enforceable path to full ownership, provided the statutory requirements are met precisely. The consequences of missteps, whether in pricing, filing, or timing, can range from costly litigation to a failed squeeze‑out and continued minority participation. Early legal advice from specialists with direct experience of MNB practice and BSE mechanics is not optional, it is essential.

Sources

1. Act CXX of 2001 on the Capital Market (English PDF)
2. EUR‑Lex, Directive 2004/25/EC on Takeover Bids (Consolidated)
3. National Bank of Hungary (MNB), Electronic Disclosure Portal
4. Budapest Stock Exchange (BSE / BÉT)
5. Act V of 2013, Civil Code of Hungary (Consolidated English Text)