HUNGARY Trends and Developments Contributed by: Zoltán Tenk, Andreász Topalidisz and Anna Horvát, TENK Law Office
sidiaries. The principal deviations from the initial rules of insolvency laws are as follows. • New grounds were created for the mandatory and non-appealable initiation of liquidation proce - dure by the court, which are if a company fails to deposit its annual report with the tax authority for a consecutive period of 400 days and the last depos - ited annual report shows a net revenue exceed - ing HUF10 billion. The court is likewise obliged to initiate liquidation proceedings if the debtor, due to a lack of coverage for its wage arrears towards employees, has requested their settlement from the (central) Wage Guarantee Fund, or if the debtor fails to comply with its obligations set out in the decree on the emergency provisions governing the drawdown of support from the Fund. • Business activity may be conducted even if at a loss, if this is deemed more advantageous by the liquidator for the safeguarding of the assets of the debtor company, for which no creditor consent is required and external financing may be accepted. • The debtor company is entitled to establish sub - sidiaries strictly for the purposes of continuing its business activity, and its assets and workforce can be transferred into such newly incorporated special purpose vehicles which can then be sold to third parties chosen after a public tender bid (two-round tender) within 365 days. • The funds from the sale purchase will form part of the debtor’s estate. • The creditor providing such external financing: (a) has a special protection of sorts since the underlying agreement cannot be terminated or annulled under the rules of the Insolvency Act; and (b) has an absolute priority over other creditors (referred to colloquially as a “super A” catego - ry) in the liquidation procedure. • Creditors’ rights are clipped by the fact that they have no right to appeal the court order approving the continuation of business activity. However, they may appeal the extension thereof. Claims arising from the support disbursed from the Wage Guarantee Fund under the relevant emergency government decree are likewise deemed to fall within the “super A” category of claims.
The new regulation was prompted by and effectively implemented during the liquidation of ISD Dunaferr Zrt, Hungary’s largest steel plant, marking a signifi - cant event in liquidation proceedings in the country. This regime empowered the liquidator to maintain the debtor’s business operations through various financ - ing methods. Notably, it facilitated the purchase of raw materials for tolling operations and allowed suppliers’ purchase price claims to be categorised as “super A” creditor claims, which receive special legislative preferences. In order to continue its business activity, ISD Dunaferr Zrt established two special purpose vehicles under this special regime, thereby enabling business conti - nuity. However, due to the ongoing challenges in the steel production industry as mentioned in the intro - duction – including high energy costs, outdated infra - structure and weaker export demand – both subsidi - aries were later placed under liquidation as well, with those liquidation proceedings also being governed by the rules of the special regime. Insights gained from these regulations during Dunaferr’s and its subsidi - aries’ liquidation will likely be taken into account in future legislative efforts. Future of Insolvency Legislation The applicable Bankruptcy Act was adopted in 1991 and has since been amended more than 150 times. As a result of these collective amendments, the law has undergone significant conceptual transformations. As a result, it has lost its initial coherence and business trends and the economic climate have also changed considerably. The existing regulations have therefore become difficult to follow and apply with consistency. Recognising the need for a recodification, the Hungar - ian government issued Government Decree 1284 of 2024 (IX 19), which not only instructs the competent ministries to create new insolvency legislation but also outlines the key principles for the new law. The government has set the goal of introducing a flex - ible, unified and modern insolvency procedure that meets EU standards and is based on a stricter liability concept. A further objective is to reduce the duration of insolvency proceedings, allowing for the faster and
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