Insolvency Law at Hungary
In Hungary, insolvency law is governed by a comprehensive framework that aims to balance the interests of creditors and debtors, while promoting the efficient resolution of financial distress situations. The primary laws governing insolvency proceedings in Hungary include:
1. Key Legislation
Act XL of 2009 on Bankruptcy and Liquidation Proceedings (commonly known as the Bankruptcy and Liquidation Act) — This is the main statute governing corporate and individual insolvency in Hungary.
Act V of 2013 on the Civil Code — Provides general principles on legal relationships, including insolvency-related provisions.
Act CXXX of 2016 on Insolvency and Restructuring — A more recent legislation designed to improve the insolvency procedure and introduce more efficient restructuring options.
2. Types of Insolvency Proceedings
a. Bankruptcy Proceedings (Corporate and Individual)
Purpose: The goal of bankruptcy proceedings is to give debtors an opportunity to reorganize their financial affairs and eventually return to solvency.
Initiation: Can be initiated by either the debtor or a creditor (through court proceedings).
Court's Role: The court appoints an administrator to oversee the bankruptcy process.
Moratorium: A moratorium may be granted temporarily, preventing creditors from initiating enforcement actions during the bankruptcy process.
Restructuring: The debtor may propose a restructuring plan, subject to creditors' approval (at least 50% of the creditors by value must approve the plan).
Repayment Plan: The debtor can propose a repayment plan to creditors, who can either approve or reject it.
b. Liquidation (Winding-Up)
Purpose: Liquidation involves the dissolution of the company, sale of assets, and the distribution of proceeds among creditors.
Initiation: Similar to bankruptcy proceedings, liquidation can be initiated either by the debtor or a creditor through the court.
Administration: The court appoints a liquidator to manage the liquidation process.
Priority of Claims: In liquidation, creditors are paid in a particular order. Secured creditors are paid first, followed by preferential creditors, and then unsecured creditors. Shareholders generally receive nothing unless all debts are satisfied.
c. Debt Settlement (Debt Restructuring) for Individuals
Personal Insolvency: Individuals can initiate debt settlement procedures if they are in financial distress and unable to pay their debts.
Moratorium: A personal insolvency procedure offers a temporary moratorium, preventing creditors from enforcing debts while the individual works on a repayment plan.
Restructuring Plan: Similar to corporate bankruptcy, individuals can propose a debt settlement plan, subject to the approval of creditors.
Eligibility: The individual must meet certain criteria, including demonstrating that they have sufficient income to make payments under the plan.
3. Key Features of Hungarian Insolvency Law
a. Restructuring and Rehabilitation
Corporate Rehabilitation: In Hungary, corporate rehabilitation allows businesses to recover by negotiating with creditors, restructuring debt, or creating a new business plan. The aim is to avoid liquidation if possible.
Court Supervision: The court plays a key role in overseeing both bankruptcy and restructuring proceedings, ensuring fairness and compliance with the law.
b. Out-of-Court Restructuring
In Hungary, there is also a possibility for out-of-court restructuring. This allows businesses and individuals to renegotiate debts and avoid formal insolvency proceedings. However, this approach requires the agreement of creditors.
4. Priority of Creditors in Insolvency
Hungarian insolvency law provides a clear hierarchy for creditors' claims, which generally follow this order:
Secured creditors (those with collateral over specific assets).
Preferred creditors (such as employees’ wages and social security contributions).
Unsecured creditors (including suppliers and general trade creditors).
Shareholders (who usually do not receive anything unless all other claims are satisfied).
5. Role of the Insolvency Practitioner
In Hungarian insolvency proceedings, the court usually appoints a bankruptcy trustee or liquidator (known as "felszámoló"), who is responsible for managing the process, including asset liquidation, creditor negotiations, and distribution of proceeds. For restructuring cases, the court may also appoint an administrator to supervise the rehabilitation process.
6. Recent Developments
Changes to Corporate Insolvency Law: Hungary has made recent updates to its insolvency laws, introducing more flexible frameworks for corporate restructuring, including alternative dispute resolution mechanisms and faster procedures for simpler cases.
Consumer Insolvency: There have been efforts to introduce more accessible personal insolvency procedures, particularly for individuals who are unable to meet their obligations. The system aims to balance creditor interests with giving debtors a fresh start.
7. International Insolvency
Hungary is a member of the European Union, and thus, its insolvency laws are influenced by EU regulations, including:
Regulation (EU) 2015/848 on Insolvency Proceedings: This regulation aims to standardize insolvency procedures across EU member states and facilitate cross-border insolvency recognition and cooperation.
Hungary is also a signatory of international treaties related to cross-border insolvency, such as the UNCITRAL Model Law on Cross-Border Insolvency, which aims to enhance coordination between jurisdictions when a debtor has assets in multiple countries.
Conclusion
Hungary's insolvency laws offer a range of mechanisms for both corporate and personal debtors to manage their financial difficulties, with a focus on restructuring and rehabilitation where possible. Liquidation remains an option for businesses that cannot be saved, but the law aims to balance the interests of creditors while providing a fresh start for individuals and businesses that can be rehabilitated.
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