Posted by Péter Györfi-Tóth, Mark Seres and Levente Biro on 18 June 2020
Tagged to Bankruptcy, Insolvency Laws, Liquidation

The Hungarian government submitted a bill to the Parliament on 12 June 2020 that introduces certain amendments to Act XLIX of 1991 on Bankruptcy and Liquidation Proceedings (Bankruptcy Act) with the effect of 1 August 2020. 

According to the explanation of the bill, the purpose of the amendments – among others – is to modernize the bankruptcy and insolvency proceedings in Hungary and to facilitate the conclusion of settlements between debtors and creditors. Furthermore the bill also entitles the Hungarian Government to introduce further regulation on the reorganisation and restoration of debtor companies, accordingly, the Hungarian Government will be able to adapt more specific regulation in the future in the form of Government Decrees. Below we outline some of the most important amendments planned to be introduced by this new bill.

Firstly, the Hungarian State will be granted a pre-emption right in liquidation proceedings with regards to the asset of strategically important economic organizations[1]. In such case, the Government may specify the entity to exercise such pre-emption right in the form of a Government Decree. This will be also applicable in on-going liquidation proceedings, not only proceedings that was initiated after the effective date of the new amendments (i.e. 1 August 2020).

The amendments concern the rules on wrongful trading as well. There is a two-stage litigation process in Hungary in this respect. During the first stage[2], a declaratory action should be brought against the former director of the company by the liquidator or any creditor(s) to establish its liability. In the second stage of the litigation process, the creditor(s) may bring an action for compensation. There has been a strict mandatory deadline to pursue the second stage of litigation. Such deadline was 90 days from the official publication of the closing of the liquidation proceedings and the proposed bill plans to abolish this deadline.

Furthermore, the bill plans to make bankruptcy and liquidation proceedings more effective and to lower the administrative burden of the involved parties by introducing some technical solutions. Accordingly, the liquidator and the creditors might communicate by electronic means and the liquidator needs to ensure that the creditors can attend the creditors’ meeting via electronic means.

The mandatory payment moratorium that is automatically granted to the debtor entering into a bankruptcy proceeding will also be extended from 120 to 180 days.

As mentioned above, the amendments plan to introduce more favourable rules to facilitate the conclusion of settlements in liquidation proceedings. It will be sufficient to have a 50% + 1 votes from all group of creditors, if the amount of claims of such creditors exceeds more than half of all the registered claims (as opposed to the currently applicable 2/3 of the registered claims requirement). In addition to that a 2/3 of the votes in favour of the settlement from the secured creditors is also necessary.

Please note that the bill is still subject to revision and modification until it will be adopted by the Hungarian parliament.

We will keep you updated as the regulatory framework develops. 

[1] Pursuant to the Bankruptcy Act, the Hungarian Government may declare that certain companies qualify as strategically important economic organizations, if certain requirements are met (e.g. due to national security, home defense, law enforcement, infrastructure, security industry, environmental protection, energy security, transport etc.)
[2] After the opening but before the closing of the insolvency proceedings.


The authors

Mark Seres
Mark Seres
Levente Biro
Levente Biro

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