HUNGARY Trends and Developments Contributed by: Zoltán Tenk, Andreász Topalidisz and Anna Horvát, TENK Law Office
By law, the court procedure is designed to be expe - dited and efficient, with short deadlines and liability in case of delay. Reorganisation proceedings Reorganisation may be initiated if it is foreseeable that the debtor will not be able to satisfy the claims against it when they become due. In other words, when it is already in a situation threatening insolvency. In principle, reorganisation is not an open proceeding (the debtor can determine which creditors it wishes to involve in the reorganisation). However, the general meeting may decide to conduct an open reorganisa - tion. This allows all creditors having an overdue claim to participate, provided they submit their claims to the reorganisation expert during the proceedings. Upon initiating the reorganisation, the debtor is obliged to simultaneously file the reorganisation plan with the court which will appoint an expert to: • provide a preliminary opinion on whether the com - pany is suitable for undergoing the reorganisation process; • specify whose consent is required if the manage - ment of the debtor wishes to dispose of assets; and • specify who opines on the reorganisation plan and whether it is suitable for restoring solvency. Creditors selling products or providing services on a continuous basis and essential to the operation of the business may not suspend the performance of any unfulfilled contracts; may not terminate the contract; and may not unilaterally modify the terms to the detri- ment of the debtor due to the initiation of reorganisa - tion proceedings against the debtor. The debtor will receive a 90-day moratorium, which can be extended by a further 60 days, but it does not apply to creditors who are not involved in the reorgani - sation. In open reorganisations, the moratorium is 170 days, which cannot be extended. The approval of the reorganisation plan requires the consent of all creditors involved (in open reorganisa - tions, only 75% of the creditor’s consent is needed).
Based on the legally binding reorganisation plan, creditors of a matured claim may request the issu - ance of an enforcement order from the court. Insolvency Proceedings The main rules of insolvency proceedings in Hungary are set out in Act XLIX of 1991 on Bankruptcy Pro - ceedings and Liquidation Proceedings (the “Bank - ruptcy Act”), which regulates two types of proceed - ings: • bankruptcy proceedings; and Bankruptcy proceedings are reorganisation-oriented during which a debtor struggling with financial diffi - culties is granted a payment moratorium, in order to conclude a composition (settlement agreement) with its creditors by which the company may restore its solvency. However, this may be avoided if the share - holders are willing to inject funds into the company by either providing contributions themselves, pulling in equity or if they decide on the transformation of the company into another corporate form where capital requirements are lower. Who can initiate the proceedings • liquidation proceedings. Bankruptcy proceedings Aim of the proceedings Bankruptcy proceedings can only be initiated at the request of the debtor’s management, but this requires the prior consent of the debtor’s main governing body. Conditions to initiate proceedings Bankruptcy proceedings are typically initiated when it is foreseeable that the debtor will not be able to settle their debts by the due date. However, even in this case, the initiation of bankruptcy proceedings depends solely on the debtor’s decision. Most important characteristics Start date: If the court does not reject the debtor’s application for bankruptcy for reasons cited by law, a separate decision will be issued regarding the com - mencement of the bankruptcy proceedings, and the court will arrange the publication of the decision in the Company Gazette which will be the initial day of the bankruptcy.
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