Extended period to settle creditors’ claims before certain liquidation proceedings in Hungary

Due to the severe economic consequences of the coronavirus pandemic, the Hungarian Government adopted Government Decree 249/2020 (28 May) that introduced certain amendments to Act XLIX of 1991 on Bankruptcy and Liquidation Proceedings.

The Government Decree extends the period open to settle creditors’ claims by the debtor before the creditor is able to initiate liquidation proceedings on the basis of the non-payment of its undisputed or acknowledged claims (also called as "liquidation proceedings aimed at debt collection"[1]). Accordingly, the debtor is entitled to an additional 75 days period to settle its debts started from the due date that was initially specified by the creditor in a formal notification to settle the debts. The recent amendments appears not to extend the period during which the creditor’s claim may be disputed but only grants additional 75 days for the debtor to settle the debts.

Furthermore, the statutory minimum to initiate liquidation proceedings aimed at debt collection increased from HUF200,000 to HUF400,000 (approx. EUR1,150).

For the time being, the above changes shall be in force solely during the state of danger.

The Hungarian Government plans to lift the state of danger in Hungary in the near future[2]. However, the Hungarian Government has submitted a bill to the Parliament on the transitional rules relating to the termination of the state of danger that – among others – provides for the prolongation of certain measures that were adopted during the state of danger. Although, the bill is still subject to discussions and amendments, it is expected that certain state of danger measures that were introduced by the Hungarian Government will be prolonged by the Parliament. We expect that the above insolvency law related measures will be also included in this transitional legislation and prolonged.

[1] Such proceedings have become widespread in Hungary in the last few decades. The main characteristic of those proceedings are that a creditor, in order to exercise pressure, initiates liquidation proceedings against his debtor. The debtor, if he wants to avoid being liquidated, has to pay off the sole creditor initiating liquidation proceedings or settle the case. The concept is comparable to the statutory demand procedure in some common law countries

[2] Pursuant to recent press releases, the state of danger in Hungary will end on 20 June 2020.