Hungary: changes to insolvency proceedings

Bankruptcy and liquidation proceedings are to change from 1 September 2009.

Key changes to bankruptcy proceedings, which aims to promote settlements between debtors and their creditors, include:

• creditors becoming entitled to initiate bankruptcy proceedings. However, the debtor’s consent (by the shareholders’ meeting) to the application is still required, enabling it to delay the application
• at the debtor’s request, the court will be able to grant a provisional moratorium and, if it considers the application to be justified, will grant and announce a final moratorium for an initial 90-day period
• during the moratorium, the creditors will have to discontinue enforcement measures against the debtor’s assets, which will enable the debtor to carry on negotiations with its creditors
• the role of the administrator is being extended and, during bankruptcy proceedings, his consent will be needed for certain commercial operations such as making payments and accepting obligations
• once a bankruptcy application has been made, creditors will have no right of set-off against the debtor or to terminate contracts with it because of outstanding payments
• creditors will only obtain voting rights at the creditors’ meeting if they have notified the administrator of their claims within 30 days after publication of the bankruptcy order and paid a registration fee and their claims have been registered as either acknowledged or not disputed

Key changes to liquidation proceedings, which aims to close down insolvent companies and satisfy the claims of its creditors in order of priority, include:

• allowing the bankruptcy court to switch to bankruptcy proceedings until it decides to start liquidation proceedings
• shortening the cut-off-period for creditors to notify their claims to the liquidator to 180 days from the start of proceedings. Creditors who let this deadline pass will lose any right to satisfaction of their claims. There are still no deadlines for liquidating or appropriating the insolvent estate, which may not (as was intended) reduce timescales for completing proceedings

These changes do not address all concerns about the current laws; for example, debtors can still waste valuable assets as creditors will be unable to force it to undertake a formal restructuring procedure.

Nonetheless, they represent an improvement, not least by making it more attractive to creditors to keep struggling debtors afloat. By setting out well-known procedural steps, they also bring the law closer the German system, which will be especially welcome to German clients.

Law: Act XLIX of 1991 on Bankruptcy Proceedings, Liquidation Proceedings and Voluntary Dissolution