The draft of a new insolvency Act has been circulated, following a comprehensive review of the current insolvency regime in Hungary.
It is widely recognised that the current Bankruptcy Act no longer meets the needs of a modern Hungarian market economy. Since it came into force in 1992, it has been amended over 30 times and, with Hungary's accession to the EU on 1 May 2004, further new regulations now need to be introduced.
The new Act will make it easier for companies to be reorganised and to enter into compromise arrangements with creditors or, if they cannot be reorganised, to be removed from the economy quickly. It will also make it easier for creditors to proceed against the assets of foreign undertakings located in Hungary.
The main changes are:
- individual entrepreneurs - subject to approval - will be covered within the scope of the Act;
- the procedure for members' voluntary dissolution will be dealt with in the Act CXLV of 1997 on the Register of Companies, Public Company Information and Court Registration Proceedings;
- instead of there being two separate procedures, one initiated by the management of the indebted company (bankruptcy proceeding), the other by the company management, creditors or ex officio (liquidation proceeding), a one-method procedure is to be brought in that can be initiated by any of the three. In the case of an unsuccessful reorganisation, it will be possible for the new procedure to be turned into a liquidation proceeding;
- the rights of creditors are to be strengthened by, for example, being able to choose whether to have a compromise arrangement, a reorganisation or liquidation proceedings;
- a moratorium will only be available at the request of the debtor and will take effect from midnight on the day the debtor submits his petition;
- the personal liability of managers of the companies will be extended, by making, among others, not only the present managers liable, but also former managers, where it can be proved that the company became indebted during their tenure and that they failed either to do their best to improve the position of the company or to initiate bankruptcy proceedings;
- there will be a simplified order of priority for creditors;
- goods which have been pledged will remain part of the pool of bankruptcy assets;
- a new central fund will be established into which all creditors pursuing claims against insolvent companies must pay, thus relieving the burden from the state of paying for insolvent companies to be liquidated.
For further information please contact Dr. Erika Papp on +36 1 483 4800, or at [email protected]