On 1 August 2020, amendments to Act XLIX of 1991 (the Insolvency Code) are scheduled to come into force, which have been designed to promote the cooperation between debtors and creditors in bankruptcies and allow for the use of electronic communications in insolvency procedures.
The key changes contained in the amendments include the following:
Pre-emption right for the Hungarian state
The Insolvency Code contains special rules for certain companies, which the government recognises as having enhanced strategic importance. The amendments give the state a statutory pre-emption right over assets for these companies sold by the liquidator.
Duration of the bankruptcy moratorium
The initial moratorium will be extended for 180 days instead of the current 120 days.
Flexible rules on making settlement with creditors in bankruptcy
Bankruptcy currently is not often used, and if applied for, debtors either slow down the settlement negotiations to abuse the moratorium or simply fail to comply with their obligations to prepare a reorganisation plan that best serves the interests of creditors.
Further to the changes, if more than one-quarter of each of the secured and the unsecured class gives its consent, the debtor can rework the draft settlement agreement. If the debtor fails to do so by the deadline the creditors have set for the debtor, the debtor will have to report this failure to the court. In this case, provided that the bankruptcy moratorium expires at the same time, the bankruptcy procedure must be closed and the court must open the liquidation procedure. Otherwise, the procedure can be closed only at the end of the moratorium. If the debtor manages to meet the deadline set by creditors, the debtor will have a chance to convene further meetings if it is necessary to agree on a settlement.
The managing directors can be fined up to HUF 500,000 (EUR 1,400) if they do not comply with the rules.
The changes make it possible for parties involved in an insolvency procedure to communicate by email, provided that certain formalities are complied with.
The liquidator will have to ensure that creditors can attend meetings remotely. Also, the liquidator will decide on which device can be used for the virtual meetings and how to verify the identity of an attendee.
Transactions challengeable within one year
Certain transactions, such as those made undervalue or those giving preference to one creditor, can be challenged in the liquidation procedure. The amendments change the procedural deadlines by setting only one final deadline of one year for submission of a challenge. The previous “subjective” deadline of 120 days from the time the creditor or liquidator became aware of these transactions will no longer apply.
For more information on these changes to the Hungarian Insolvency Code, contact your regular CMS advisor or local CMS experts.