Prior to 1 July 2021, the legislative framework governing involuntary strike off proceedings in Hungary resulted in systemically undesirable outcomes due to three key issues:
the companies under involuntary strike off proceedings were barred from pursuing all economic activities;
once commenced, involuntary strike off proceedings could not be terminated by the Court of Registration (except under limited circumstances relating to insolvency rulings or criminal/investigatory proceedings); and
unlike voluntary dissolution, the involuntary strike off proceedings imposed no procedural duties/fees on the company or its executive officers/members and had a significantly lighter administrative burden.
To address the above deficiencies, the legislation that came into effect on 1 July introduced several significant changes.
In response to the first issue stated above, under the new rules, companies under involuntary strike off proceedings may continue their day-to-day business activities with the permission of the Court of Registration, provided that the company intends to file an application for terminating the involuntary strike off proceeding. The request for such permission must be filed with the Court of Registration within 15 days following the commencement date of the involuntary strike off proceeding and the Court of Registration will decide on the request within five business days.
In response to the second issue stated above, the amended regulations empower the Court of Registration to terminate involuntary strike off proceedings upon the company’s application, enabling companies to resume normal operations. The application for the termination of an involuntary strike off proceeding can be filed with the Court of Registration until the 90th day following the commencement of the involuntary strike off proceedings. To be eligible for this relief, a company must demonstrate that:
the grounds on which the involuntary strike off proceeding was initiated no longer apply (i.e. the company has returned to lawful operation and satisfied or settled its outstanding claims);
it has satisfied or settled all due claims it was notified of during the course of the involuntary strike off proceeding;
it has paid the stamp duty of the termination of involuntary strike off proceeding (HUF 50,000); and
- it has a valid tax number.
In response to the third point stated above, under the new rules, an involuntary strike off proceeding is subject to a stamp duty of a HUF 250,000, which is payable by executive officers and members registered in the Companies’ Register on the commencement date of the involuntary strike off proceeding. The Court of Registration will decide on the payment of the stamp duty in the court order for the termination of the involuntary strike off proceeding. The liability of the executive officers and the members for this payment is joint and several.
Additionally, under the new provisions executive officers or members may be prohibited from participation in any and all commercial associations if the grounds for the company’s involuntary strike off are proven to be directly attributable to executive officers or members having unlimited liability or the majority shareholder having limited liability registered in the Companies’ Register on the commencement date of the involuntary strike off proceeding or during the preceding two-year-long period, and those executive officers or members failed to take all reasonable measures to avoid such an outcome. This prohibition can occur even in cases where the involuntary strike off proceeding has not left any unsettled or unsatisfied claims.
For more information on this eAlert, contact your regular CMS advisor or local CMS experts: Anikó Kircsi or Szabina Marsi.
The article is co-authored by Ignác Nagy and Zsolt Zsurzsa.