Hungary
Lending in Hungary can be structured in a number of different ways to include a variety of features depending on the commercial needs of the parties.
A loan can either be provided on a bilateral basis (a single lender providing the entire facility) or syndicated basis (multiple lenders each providing parts of the overall facility).
Syndicated facilities by their nature involve more parties (such as agents which fulfil certain roles for the finance parties), are more highly structured and involve more complex documentation. Larger financings will typically be done on a syndicated basis with one of the syndicate members taking the lead in coordinating and arranging the financing.
Loans will be structured to achieve specific objectives, eg term loans, working capital loans, equity bridge facilities, project facilities and letter of credit facilities.
Loan durations
The duration of a loan can also vary between:
- a term loan, provided for an agreed period of time but with a short availability period;
- a revolving loan, provided for an agreed period of time with an availability period that extends nearer to maturity of the loan and which may be redrawn if repaid;
- an overdraft, provided on a short-term basis to solve short-term cash flow issues; or
- a standby or a bridging loan, intended to be used in exceptional circumstances when other forms of finance are unavailable and often attracting a higher margin.
Loan security
A loan can either be secured, unsecured or guaranteed. For more information, see Giving and taking guarantees and security.
Loan commitment
A loan can also be:
- committed, meaning that the lender is obliged to provide the loan if certain conditions are fulfilled; or
- uncommitted, meaning that the lender has discretion whether or not to provide the loan.
Loan repayment
A loan can also be repayable on demand, on an amortizing basis (in instalments over the life of the loan) or scheduled (usually meaning the loan is repayable in full at maturity).
Are there any restrictions on giving and taking guarantees and security?
Some of the key areas affecting the giving of guarantees and security are as follows.
Capacity
It is important to check the constitutional documents of a company giving a guarantee or security to ensure it has an express or ancillary power to do so and that there are no restrictions on the directors' powers that would be preventative.
Insolvency
Guarantees and security may be at risk of being set aside under the insolvency laws of Hungary if the guarantee or security was granted by a company within a certain period of time prior to the onset of insolvency.
Under Hungarian law, the creditor, and on behalf of the debtor, the liquidator may file for legal action before the court within 90 days from the time of gaining knowledge or within a one-year limitation period from the date of publication of the notice of liquidation to contest certain contracts entered into by the debtor prior to the onset of insolvency.
Financial assistance
Public companies limited by shares may provide financial assistance to third parties for the acquisition of shares issued by the public company limited by shares only under market conditions, from the assets available for the payment of dividends and provided that the general meeting has approved such decision by at least a three-quarters majority upon recommendation by the management board. No financial assistance restrictions apply for other corporate forms.
What are common types of guarantees and security?
Common forms of guarantees
Unless the parties agree otherwise, under the general rules of the Hungarian Civil Code the guarantee contract, and the statement of guarantee means a guarantor’s commitment under which payment is to be made to the creditor subject to the conditions laid down in the statement. The obligation of the guarantor set out in the statement of guarantee is independent of the underlying obligation of the debtor. The guarantor may not raise the same objections that can be made by the debtor against the creditor. The guarantor is liable to make payment under the guarantee if the creditor requested payment in writing, strictly abiding by the requirements specified in the statement of guarantee.
Common forms of security
There are three basic types of security interest that can be created under the laws of Hungary:
- a pledge;
- a charge; and
- a mortgage.
Different types of security are suitable for securing different types of assets.
Under Hungarian law it is possible to grant security over all of the assets of a Hungarian company or over individual assets. Granting security over all of a company's assets will tend to be achieved by way of a pledge agreement which will include:
- a mortgage over real estate;
- a pledge over assets which are identifiable and can be controlled by the creditors (such as equipment);
- a pledge over assets identified by detailed description (such as stock); and
- an assignment or pledge over receivables and rights.
Are there any other notable risks or issues around giving and taking guarantees and security?
Giving or taking guarantees
To be valid, a guarantee needs to be in writing and signed by the guarantor.
Consideration for a guarantee is subject to general contractual principles. In the case of a guarantee, the underlying obligations will usually be the consideration for the guarantee and so it is advisable to execute the guarantee at the same time as executing the underlying obligations to avoid any suggestion of past consideration. Often the guarantee is included in the loan agreement and so this should not be an issue. It can also be difficult to establish consideration for a guarantee as the primary obligations are between the underlying obligor and beneficiary, for example between the borrower and lender.
Giving or taking security
Once granted, certain forms of security need to be properly perfected before they are valid against third parties. Perfection formalities can range from having the secured asset delivered to the security holder, registration of the security and notice being given to third parties. Most charges created by a Hungarian company must be registered at the public registry within 15 days of its creation.
Like guarantees, for a period after a new security interest has been granted (known as the hardening period), it is at risk of being set aside in certain circumstances under Hungarian insolvency laws. Reviewable transactions include those conducted at an undervalue or preferences.
Péter Györfi-Tóth
Partner
Horváth & Partners Law Firm
[email protected]
T +36 1 510 1120
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