What is the scope of public assets?

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2016-01-18
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2017-11-23

The recently adopted legislative amendment which restricts access to information of public interest concerning economic ventures and funds in which MNB has a 100% interest has received a great deal of attention.

Prior to the amendments to the Central Bank Act, a legally binding, final court judgment by the Court of Appeal of Budapest on the basis of Act CXII of 2011 on Informational Self-determination and Freedom of Information required MNB to disclose information about the management of its foundations, on the grounds that it was information of public interest as the Hungarian National Bank manages public money.

However, many contest the lawfulness of the above court ruling and several lawyers, politicians and even the data protection authority have expressed their opinions on the issue.

Is it indeed so self-evident that the MNB foundations administer public money, public funds and under the Act on Informational Self-determination and Freedom of Information MNB is obliged to disclose information about the management of its foundations when requested? It is not a new question; the issue regularly emerges in case of requests for data related to public enterprises.

In order to be able to answer the above question, we first need to analyse who and in which case can be requested for access to data of public interest under the Act on Informational Self-determination and Freedom of Information. The body or the individual performing public tasks – in basic definition, the individual or body performing state or local government responsibilities – is deemed a controller of data of public interest. The itemized list of local government responsibilities is determined by law, whereas there is no such regulation in the case of state responsibilities which can be defined by specific regulation. Thus, in the case of performance of tasks specified by legislation, the body concerned is regarded as controller of data of public interest.

Beyond the above basic definition related to the performed task, Section 5 (2) Act CVI of 2007 on State-owned Assets qualifies individuals managing state assets as individuals performing public tasks, thus under the Act on Informational Self-determination and Freedom of Information they are also obliged to disclose information of public interest. At the core of the debates relating to the interpretation of the regulation is the question of what can be considered as state assets and what can be considered as public money and who qualifies as an individual managing these assets in the absence of performance of public tasks.

Unfortunately, the concept of public money is not defined by any regulation so public money as a legal concept itself gives rise to problems of interpretation. The concept of public money without definition is practically incomprehensible for the application of law as it leads to divergent subjective and dilemmatic interpretations.

The only certainty is provided by the definition of Act CXCVI of 2011 on National Assets and Act CVI of 2007 on State Property under which state- or municipality-owned financial instruments are considered as public money (Section 1 (2) c) of Act CXCVI of 2011 and Section 1 (2) e) of Act CVI of 2007).

It is important to emphasize that the Act on National Assets and – and in full coherence and consistence with it – the Act on State Property determines what classifies as state property (or as public assets as it is commonly known) in an itemized, binding, i.e. exhaustive list.

This is the point where we come to the crucial questions of civil law. The Hungarian legal system – similarly to other legal systems – does not allow for the existence of several ownerships of one thing (asset); it is conceptually impossible. (However, it does not mean that it is impossible to share a particular ownership among several co-owners.)

Therefore, we must understand that the capital invested in a company or a foundation remains either the capital of the members and the founders or the capital of the company or the foundation, but both ownership at the same time is impossible.

Foundations, as well as companies are legal entities. The essence, i.e. the basis of the existence of legal entities is the (legal) fiction that the law confers a distinct legal personality on an asset. The basic condition of the existence of a legal entity is the separate and distinct assets independent from the founders and – in case of a company – from the members.

As a result of this, it is a basic legal fact that the assets of companies and foundations can no longer be considered legally as the assets of the founders or members. This conclusion applies to all companies and foundations, therefore to all legal entities.

Accordingly, the assets become de facto and de jure, i.e. actually and legally the assets of the company even if someone who established the company – even as a sole proprietor – “feels” that the assets conferred to the company are his own. Should there not be this sharp distinction between the assets of a legal entity and the assets of a member, the concept of limited liability would become incomprehensible.

During the winding up proceedings, for example, the creditors could easily require severance payment from the assets of the member of the company as there would be an overlap and interchangeability between the assets of the company and the members. Therefore, the establishment of companies (or foundations) would practically become meaningless.

On the basis of the above, we can come to the conclusion that the assets of public foundations or companies can by no means be described as clearly public assets. On the contrary, it can be determined that neither the exhaustive list of the Act on National Assets nor that of the Act on State Property contains any provision stating that the separate and distinct assets of legal entities independent from the members should be considered as state (public) assets.

Under the legislation, only securities constituting membership in companies or foundations or other share capital of companies due to the state qualify as state or public assets, for example state-owned shares in the case of private limited companies or shares in the case of limited liability companies. (Section 1 (2) c) of Act CXCVI of 2011 and Section 1 (2) c) of Act CVI of 2007)

The legislator would be able to change the above situation, for example by inserting the point “assets of companies in which the state has a majority holding are state assets” into the list of elements of public assets but at the moment there is no such provision.

In the absence of such provision it is difficult to interpret the position of the court according to which the assets of certain companies and foundations remain the assets of the founders or members, i.e. in the present case the assets of the state (public assets). In this way, the emerging judicial practice conflicts the fundamental rules of civil law related to legal entities and ownership.

Thus, the concept of state assets cannot be arbitrarily and optionally broadened, the definition is determined by a cogent and exhaustive list. Act CXCVI of 2011 on National Assets and Act CVI of 2007 on State Property which define public assets do not include the separate assets of companies and foundations (fully or partially) owned by the state in the scope of state assets.

However, it should be added that companies and foundations in which the state or local municipalities have a majority ownership, cannot fully escape from their obligation to disclose information of public interest as the Act on the Economic Operation of Public Business Organisations contains provisions on transparent administration.

The information contained in this website should not be construed as legal advice on any matter or a substitute for legal counsel and it does not necessarily represent the official opinion of the Sárhegyi & Partners Law Firm. As a matter of policy, Sárhegyi & Partners does not accept a new client without first obtaining a written and signed engagement letter.

Because the law changes constantly, the information contained in this website may or may not reflect the most current legal developments; accordingly, information on this website is not promised or guaranteed to be fully applicable in the present circumstances of each individual matter and it is also possible that under the current developments, the effective courts and authorities come to a different legal position in their verdicts or settlements in concrete cases.

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