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New emergency rules: debtors can keep trading during insolvency

Hungary
07/02/2023
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Emergency legislation has introduced important changes to Hungarian insolvency laws that allow the debtor’s business to keep trading during insolvency.
 
The new rules apply to those debtors who are considered strategically important to the Hungarian economy and to those whose insolvency is declared under other emergency rules.
 
If the liquidator finds that the benefits are greater to preserve the value of the assets than liquidating the debtor company, the insolvent company will be allowed to continue trading even if it is making a loss. Under the new laws, the liquidator can continue the company’s operations for up to 120 days after the liquidation starts, unless the court decides otherwise. The liquidator can (but is not obliged to) request the court to approve the continuation of trading within 90 days after the liquidation begins. The court can give its consent for 90 days of further operation, which may be extended by an additional 90 days. No one can challenge the court’s decision, which will be published in the Company Gazette. The creditors’ committee in the insolvent debtor must be notified, but no creditor can appeal or otherwise attempt to change the decision.
 
Rescue financing is possible but will not have super priority, and will be treated the same as liquidation costs. Creditors providing a term loan or payment moratorium, each longer than 60 days, can take security. Again, by law they will not be granted any extra priority but will be treated as secured. 
 
If the debtor is a majority owner of a subsidiary, no enforcement can be opened against such subsidiary within 60 days from the commencement of the insolvency proceedings against the debtor. During this period, the subsidiary cannot give any security.
 
If the benefits of keeping the business running no longer outweigh the risks, the liquidator can request the court to withdraw its approval for continued trading. The decision will be published in the Company Gazette.

These changes are effective from 31 January 2023, and will be in place until emergency measures due to the war in Ukraine are lifted.

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