Company Liquidation in Hungary

There are several ways a company in Hungary can cease operations and settle its debts. This article clarifies the different procedures involved like company liquidation in Hungary.

Solvent vs. Insolvent Companies

The process depends on the company’s financial health. If a company’s assets exceed its liabilities (solvent), it can initiate a voluntary liquidation procedure (végelszámolás).

However, if the company is insolvent (assets are less than liabilities), two main options exist:

Bankruptcy procedure (csődeljárás): This aims to restructure the company’s debts to allow it to continue operating after reaching an agreement with creditors.
Insolvency procedure (felszámolási eljárás): This leads to the company’s liquidation, focusing solely on selling assets and distributing the proceeds to creditors.

Transparency and Creditor Rights

All procedures are governed by clear regulations to ensure transparency. Business partners can claim outstanding debts throughout these processes, potentially impacting the outcome. For instance, a company initiating voluntary company liquidation in Hungary might be declared insolvent and undergo an insolvency procedure instead.

Involuntary Company Liquidation in Hungary

Another option is involuntary company liquidation in Hungary (kényszertörlés), triggered by a court order due to the company’s inactivity. This could be because the company is unreachable at its registered address or has lost its tax ID. Similar to other procedures, creditors can still claim their dues, and an involuntary liquidation can evolve into an insolvency procedure.

Enforcement Proceedings vs. Company Liquidation in Hungary

It’s important to distinguish between enforcement proceedings, which aim to collect debts from a solvent company, and liquidation procedures. If a company appears insolvent, it’s wiser to initiate an insolvency procedure directly. While unsuccessful enforcement can lead to insolvency proceedings anyway, a third-party initiated process would still terminate the enforcement action.

The article concludes by mentioning that a court-ordered grace period during insolvency proceedings automatically suspends enforcement actions. If a successful agreement is reached with creditors, the enforcement is terminated altogether.

This excerpt details the processes for initiating bankruptcy and insolvency procedures in Hungary, highlighting the roles of debtors, creditors, and courts.

Initiating Bankruptcy by the Debtor

Sole authority: Only the debtor company can file for bankruptcy.
Mandatory legal counsel: An attorney is required to represent the company throughout the process.
Automatic dismissal grounds:
- Existing bankruptcy or insolvency procedure against the company.
- Unsettled claims from a previous creditor arrangement.
- Less than two years since the termination of the last bankruptcy procedure.
- Dismissed application within the past year.
Decision-making: The company’s general meeting approves the application, typically by a simple majority vote (unless articles of association specify otherwise).
Information dissemination: The company must inform employees, unions, and the work council (if applicable).
Manager’s duties: The managing director submits:
- A statement detailing significant financial changes since the last accounts.
- A comprehensive list of creditors and company bank accounts.
- A declaration to inform banks and avoid actions jeopardizing the moratorium or discriminating against creditors.

Initiating Insolvency by the Debtor

The process largely mirrors that of bankruptcy, with the following key points:

Approval and representation: General meeting approval is required, and the company must engage an attorney.
Employee and committee notification: Similar obligations exist as in bankruptcy.
Manager’s duties: The managing director fulfills the same responsibilities as in bankruptcy.

Initiating Insolvency by a Creditor

A creditor can initiate insolvency proceedings if they believe the debtor is insolvent. The application should detail the debt, its due date, and the reasoning behind the insolvency claim.

Grounds for Creditor-initiated Insolvency:

Debtor’s failure to pay or dispute a contractual debt within 20 days after a written dunning letter (for claims exceeding HUF 200,000).
Debtor’s non-payment of a debt established in a final verdict or order.
Unsuccessful enforcement proceedings against the debtor.
Unsuccessful bankruptcy procedure or breach of a creditor agreement.
Voluntary liquidation revealing insufficient assets to cover liabilities, with shareholders not covering the shortfall.

Important Note:

Cases a) and b) for creditor-initiated insolvency require the claim amount to exceed HUF 200,000.

Hungary’s Bankruptcy Procedure: Reorganization or Company Liquidation in Hungary?

This section explains the two main outcomes of a bankruptcy procedure in Hungary: reorganization through a composition agreement or liquidation through insolvency proceedings.

The Moratorium Period: A Chance for Revival

Upon receiving a bankruptcy application, the court grants a 120-day moratorium (suspension of debt collection) before ruling on the case. This period can be extended if a bankruptcy administrator requests it.
Exempt Claims: Certain privileged claims like salaries, taxes, and utilities are not subject to the moratorium.

Debtor’s Role in Rescue

The debtor has 60 days to invite registered creditors to negotiate a composition agreement, a plan to restore solvency. This plan is publicized in national newspapers.
The debtor also prepares a reorganization program outlining the path to financial recovery.

Creditor Participation and Voting

Creditors have voting rights based on their claim amount (excluding interest and fees). Every HUF 50,000 of a claim equals one vote.
Creditors can:
- Reject the initial reorganization program and request revisions.
- Approve a moratorium extension (up to one year total).
- Enter into a composition agreement, requiring majority approval from both secured and unsecured creditor groups.

The Composition Agreement: A Win-Win Solution

A composition agreement aims to restore the debtor’s solvency through various measures:

Partial or complete debt write-off
Claim transfer
Deferred payments
Securing claims with assets
Issuing debtor shares to creditors

Failure to Agree: Transition to Insolvency

If no agreement is reached or approved by the court, the bankruptcy procedure ends, and insolvency proceedings begin.

Insolvency Proceedings: Company Liquidation in Hungary for Debt Settlement

The goal of insolvency proceedings is to sell the company’s assets and distribute the funds to creditors. The court may grant the debtor a maximum 45-day deferment before commencing this process.

Limited Escape from Company Liquidation in Hungary

Even during insolvency, the company can avoid liquidation in two scenarios:

Reaching a Composition Agreement: This requires approval from a majority vote across all creditor classes, with those approving creditors representing at least two-thirds of the total claim value.
Settling All Debts: The debtor can pay all undisputed claims and provide guarantees for disputed claims and procedure costs.

The Fate of Unsalvaged Companies

If neither option above is achieved, the court will order asset division among creditors according to Hungarian law.

Conclusion: Company liquidation in Hungary

The provided articles outlined the options available to Hungarian companies facing financial difficulties. The key takeaway is that companies have a chance to avoid complete liquidation through proactive measures.

Bankruptcy Procedure: This process offers a 120-day moratorium and the opportunity to negotiate a composition agreement with creditors. This agreement allows for debt restructuring and the company’s potential revival.
Insolvency Procedure: If a composition agreement fails, insolvency proceedings lead to company liquidation and asset distribution to creditors. However, even during insolvency, a last-minute composition agreement or full debt settlement can prevent liquidation.

The importance of seeking legal counsel and maintaining transparency throughout these procedures is emphasized. By understanding the available options and acting promptly, companies facing financial challenges can potentially achieve a successful reorganization and avoid complete closure.

Our team is always ready to provide high-quality advice and help in solving any tasks you set. Subscribe to our pages on social networks. If you have any questions, want to order services or consultations from us, then follow this link or write to us on WhatsApp/Viber/Telegram +380 98 363 6493 or call us.