Hungary
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1. Insolvency and restructuring procedures
1.1 – What are the main insolvency and restructuring procedures applicable to companies?
The main proceedings are the following:
- Bankruptcy Proceeding (in Hungarian: csődeljárás)
- Liquidation Proceeding (in Hungarian: felszámolási eljárás)
- Involuntary De-registration proceeding (in Hungarian: kényszertörlési eljárás)
- Restructuring proceeding (in Hungarian: szerkezetátalakĂtási eljárás)
1.2 – Can a company obtain a moratorium whilst it prepares a restructuring plan? If so, what is the effect of the moratorium?
Yes, the debtor company may obtain a general or limited moratorium.
The effects of the moratorium are the following:
The creditor to whom the moratorium applies:
- may not initiate enforcement against the debtor (ongoing enforcement – initiated after the starting date of the restructuring process – shall be suspended);
- may not initiate liquidation proceedings against the debtor;
- may not exercise setoff against the debtor;
- shall refrain from making any claims against.
Certain rights of the creditors are also restricted:
- the creditor shall not be entitled to (i) contractual penalty, (ii) interest on late payment, (iii) default interest, (iv) lump-sum collection charge in connection with claims that became due before the moratorium;
- the lien holder, the holder of the collateralized option to buy, or the beneficiary of the assignment of a right or claim by way of a guarantee may not exercise his rights related to enforcement;
- payment orders may not be submitted against the debtor.
1.3 – How long will it generally take for a creditor to achieve the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?
Generally, it takes one and a half month, but the debtor may ask for a 45 day deadline which extends the proceeding.
1.4 – Does your jurisdiction make use of a distressed sale process by which the business/assets of the company can be sold?
In the liquidation proceeding the liquidator shall dispose of the debtor’s assets through public sales which usually results in a distressed price below the market price.
2. Insolvency office-holders and courts
2.1 – Who can act as an insolvency office-holder?
Pursuant to Hungarian law the insolvency office-holders are the administrator (Bankruptcy Proceeding) and the liquidator (Liquidation Proceeding).
The administrator and liquidator:
- shall have no prior criminal record;
- shall not be restrained by court order from practicing or participating in the activities of administrators or liquidators;
- not be subject to any grounds for exclusion or any reason giving cause to conflict of interest;
- shall have the required training in the field of liquidation and property administration and at least one year of verifiable professional experience obtained at a liquidator company.
2.2 – Who decides the identity of the insolvency office-holder, and what restrictions apply?
The court appoints the administrator or liquidator company, and the company appoints the administrator or liquidator.
The following restrictions apply to administrators and liquidators:
A business association may not be appointed:
- if it is the owner or creditor of the debtor, or a non-professional fiduciary managing the debtor’s assets;
- if its owner is an owner or creditor of the debtor, or a non-professional fiduciary managing the debtor’s assets;
- if any of its executive officers or the close relatives thereof has majority control in the debtor organization or in any other organization that is engaged in any incompatible activities;
- if it participated before the time of the ordering of liquidation in restructuring opened by the debtor as a practitioner in the field of restructuring, and two years have not elapsed from the date of appointment, delegation as a practitioner in the field of restructuring.
A person may not be appointed:
- if he is the owner or creditor of the debtor, or the owner of the business association that controls the debtor exclusively or by way of majority;
- if he is the close relative of any person covered by point (i);
- if his close relative is the owner or creditor of the debtor;
- if he is an executive officer of a business association that is the owner or creditor of the debtor;
- if he is the close relative of an executive officer referred to in point (iv);
- if he himself or his close relative is a member, shareholder or executive officer of a legal person or unincorporated business association that is engaged in any incompatible activities;
- if he has been employed by the debtor within the past three years, or maintains close business relations with the debtor, with the exception of transactions in connection with standard procedures and operations;
- if he has served, or still serves at the debtor as a regulatory commissioner in accordance with the Act on the National Bank of Hungary;
- if he is not registered in the register of liquidators, or the necessary public register;
- if he has majority interest in a business association or any company established or registered for taxation purposes in a State specified in the decree on the publication of the list of fiscally non-cooperative States, or whose tax laws do not impose any tax liability in the nature of corporate tax (not including any State that is a party to the Agreement on the European Economic Area) or if the prescribed corporate tax rate does not exceed 10 per cent;
- if he has been registered by the Authority with respect to any infringement, for a period of three years from the time of registration;
- if it participated within two years before the time of the ordering of liquidation in restructuring opened by the debtor as a practitioner in the field of restructuring.
2.3 – Are insolvency cases heard by specialist judges, or in the general commercial courts?
The insolvency cases are heard by special courts: the Bankruptcy and Liquidation Group of the Economic College.
3. Position of directors
3.1 – To what extent do the directors of the company remain in control of its affairs during any of the procedures described above?
In case of a bankruptcy proceedings the director may continue his duty within certain limits.
In case of a restructuring proceeding the director can still exercise his management and representation rights.
In case of the liquidation proceeding the liquidator exercises the rights of the director.
3.2 – Are there circumstances in which directors are obliged to file for insolvency proceedings? If so, when do those circumstances arise?
No, the directors do not have this kind of obligation.
3.3 – What are the risks facing the directors of an insolvent company?
A claim may be brought against them for the unsatisfied claims of the creditors (if the director failed to exercise his management functions in the interests of creditors three years prior to the opening of liquidation proceedings in the wake of any situation carrying potential danger of insolvency.)
If the above mentioned claim is successful and the court establishes the liability of the managing director, the court of registry shall disqualify him for five years. The disqualified person (i) shall not acquire majority control in any business association, (ii) shall not be installed as a member with unlimited liability in any business association or as a member of a sole proprietorship, and (iii) shall not be an executive officer (representative) of any company.
4. Position of creditors
4.1 – What are the main forms of security over movable and immovable property?
The main form of security over movable and immovable property is the pledge.
4.2 – How does the opening of insolvency proceedings affect the rights of secured creditors?
The line holder cannot exercise his right for enforcement of the pledge against the company, his claims shall be satisfied in the framework of the insolvency proceeding. This begins (i) in the case of bankruptcy proceedings, from the time the notice of bankruptcy, or failing this, the temporary stay of payment or stay of payment is published (ii) in the case of liquidation proceedings or before liquidation is ordered, from the time of receipt of the court ruling permitting a deadline for the settlement of debt, or from the time the special moratorium is published (iii) in other cases from the time the liquidation order is published.
4.3 – Where a debt owed to a secured creditor exceeds the value of the security, is the secured creditor entitled to claim for the shortfall?
They are entitled to claim the shortfall pursuant to the general rules of litigation.
4.4 – Which classes of creditor are given preferential status? Are any classes subordinated?
The following classes of creditors are given a preferential status and they shall be satisfied before other claims:
- liquidation costs;
- the part of a claim secured by a pledge;
- alimony and life-annuity payments, compensation benefits, income supplement to miners, monetary aid granted to members of agricultural cooperatives in lieu of household land or produce, for which the beneficiary is entitled for his/her lifetime;
- with the exception of claims based on bonds, other claims of private individuals not originating from economic activities, claims of small and micro companies and small-scale agricultural producers, and the receivables of the Szövetkezeti Hitelintézetek Tőkefedezeti Közös Alapja (Common Capital Fund of Cooperative Credit Institutions);
- debts owed to social security funds, taxes and outstanding public dues enforced as taxes, claims under the Act on General Public Administration Procedures, creditor’s claims in criminal actions, and repayable State aid and financial aids from the European Union and other international resources by virtue of international agreement, as well as public utility charges and condominium maintenance fees.
4.5 – Is there a date by which creditors must make claims in the insolvency proceedings? If so, what are the consequences of failing to claim by that date?
Yes, in the liquidation proceeding they shall report their claims to the liquidator within 40 days from the publication of the ruling ordering the liquidation. If they fail to keep this deadline, they may still report their claims within 180 days of the publication of the opening of the liquidation proceeding, but their claims will be satisfied if there are sufficient funds remaining following the settlement of the debts of the creditors who kept the previously specified deadline. Those creditors who fail to keep the 180 days deadline cannot report their claims in the liquidation proceeding.
4.6 – Are contractual rights of set-off and/or netting effective in insolvency?
They are not effective under Hungarian law.
4.7 – Are contract terms permitting termination of a contract by reason of insolvency (“ipso facto clauses”) effective?
Yes, they are effective under Hungarian law.
4.8 – Are retention of title clauses enforceable and (if applicable) what are the main requirements for enforceability?
Yes, they are enforceable in case of sales contracts, if the following requirements are met:
- the title of ownership is retained only until the full purchase price is paid;
- the agreement on the retention shall be executed in writing;
- the fact of retention and the buyer is registered (i) in case of real estate property in the real estate register (ingatlan-nyilvántartás), (ii) in case of movable property in collateral or public register (hitelbiztosĂtĂ©ki nyilvántartás).
4.9 – Are foreign creditors treated equally to domestic creditors?
Yes, they are treated equally to domestic creditors.
5. Setting aside transactions
5.1 – What are the main transaction avoidance provisions applicable to the proceedings referred to above?
Certain transactions may be contested before the court: (i) contracts which intend to conceal the debtor’s assets or to defraud any one creditor, (ii) contracts in which the debtor undertakes commitments without compensation or the stipulated consideration constitutes unreasonable and extensive benefits to a third party, (iii) contracts that give a preference or privilege for certain creditors, (iv) contracts for the purpose of transfer of ownership by way of guarantee or other means if the right was not registered in the collateral or real estate register.
5.2 – Who is entitled to challenge transactions under these provisions?
The creditors and the liquidator on behalf of the debtor.
6. Cross-border insolvency
6.1 – Do your courts recognize insolvency proceedings commenced in the courts of other jurisdictions?
Yes, Hungarian courts shall recognize insolvency proceedings commenced in the courts of another Member States jurisdictions pursuant to Article 19 of REGULATION (EU) 2015/848 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 20 May 2015 on insolvency proceedings (“Insolvency Directive”)
6.2 – If so, what assistance can your courts provide, following recognition?
The courts may order that the key elements of the foreign judgment opening main insolvency proceedings and the decision appointing the foreign insolvency practitioner be published (upon the request from the debtor or the insolvency practitioner or the debtor).
The courts may order to have the fact of the judgment opening main insolvency proceedings registered in the real estate register and/or other public register (upon the request from the debtor or the insolvency practitioner or the debtor in possession of its assets in the insolvency proceedings.)
6.3 – Is it possible to commence insolvency proceedings in relation to a foreign company?
Yes, it I possible to commence insolvency proceedings to a foreign company in accordance with Article 3 of the Insolvency Directive.
7. Other matters
7.1 – Please consider whether there is any other feature of your country’s insolvency regime of which a lender, investor or purchasers of distressed debts or businesses should be aware? For example, are there any mistakes that foreign creditors often make?
It is a specific feature of the Hungarian legal system that the initiation of liquidation proceedings may be one of the most effective ways of enforcing claims, as in the preliminary phase of the proceeding the debtor company has the opportunity to acknowledge and pay the claim.
7.2 – Are there any other stakeholders or entities (eg governmental or regulatory) which may influence the outcome of any restructuring?
No, there are no other stakeholders or entities which may influence the outcome of these proceedings.
7.3 – Are there currently any proposals for significant reform of your insolvency laws?
No, currently there are no proposals for the significant reform of the Hungarian insolvency laws.
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