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Hungary

Financial difficulties

Updated 07/2012

Legal requirements

In Hungary, the Act on Bankruptcy and Liquidation Proceedings governs the official procedures to be followed in relation to companies facing financial difficulties or insolvency. Different provisions of the Act relating to liquidation proceedings apply for the Hungarian branches of Hungarian enterprises with foreign seats than those applying for the Hungarian branches and sales agencies of enterprises with foreign seats. The Companies Act contains rules relating to the transformation of companies. The rules of the Civil Code govern the settlement of any conflicts arising from companies' contractual relationships.

Stabilisation of Enterprises

In order to protect a company’s capital and creditors and to maintain the company’s solvency, the Companies Act provides that if, according to the content of the company report pursuant to the Accounting Act, the company does not have enough of its own capital to match the prescribed capital stipulated as mandatory for the company for two whole, consecutive fiscal years, and the members (shareholders) of the company do not see to it that they insure their own capital within three months of adoption of the report pursuant to the Accounting Act for the second year, the company is obliged to decide upon transformation of the company into another company, or to provide for termination of the company without legal succession, within sixty days of the expiry of this deadline.

According to current legal practice, it is no longer possible to make capital-related arrangements after the expiry of the three-month deadline, and after that time the company may only decide to transform or to terminate without a legal successor.

In addition to the rule set out above, in the case of limited liability companies and joint stock companies, the supreme body of the company must be convened, owing to the limited liability of the members or shareholders in respect of the company, in order to implement the necessary measures if the company’s equity falls, through losses, to half the share capital (in the case of limited liability companies) or to two-thirds of the registered capital or below 5 million forints (in the case of joint stock companies), or if the company is threatened with insolvency or has suspended its payments, or if its property does not cover its debts.

Companies that undergo transformation are obliged to have a statement published in the Companies' Gazette regarding this within eight days of the signature of the articles of association, and the statement must be published in two consecutive issues Upon request, the Company Information and Electronic Company Registration Service of the Ministry of Public Administration and Justice sends notification of individual court decisions with legal force concerning the registration of transformation and of all court announcements published in the Companies' Gazette.

Access to different sources of finance can help overcome financial difficulties.

When filing for bankruptcy is the only option left for a business owner, it pays to cut your losses, initiate proceedings sooner rather than later, and move on to a new project.

Administrative procedures

Payment notice

Before submitting a liquidation application, the creditor must send a payment notice to the debtor in writing. The payment notice contains some mandatory elements, and there is a form that may be used for this purpose.

The main aim of the payment order proceedings is for claims that are expected to be undisputed to be settled quickly without a lawsuit, and the duration and costs of which are favourable to both parties. The notary public conducts the payment order proceedings using the uniform integrated system of the Hungarian National Chamber of Public Notaries that is nationally available on the net.

Period of grace

The bankruptcy procedure is a procedure in which the debtor is granted a period of grace, and tries to make a bankruptcy agreement. The head of the debtor economic organisation or the creditor may submit an application to the court for a bankruptcy, which is possibly only electronically from 1 January 2013. In the case of bankruptcy proceedings initiated by the head of the debtor economic organisation, the court shall order an extraordinary, temporary payment deferral (moratorium) immediately after the application is submitted. Depending on how the application is assessed, the moratorium shall apply to the taxpayer for 120 days from its publication. During the period of the payment deferral, no direct debits or claims on money may be made in respect of the taxpayer, but the enforcement of set-off claims is also forbidden. The corporate taxpayer must obtain the majority of individual creditors in proportion to their claims in order for the 120-day moratorium to be changed to 240 days. This deadline may only be increased with the support of two-thirds of individual creditors, such that the entire duration of the moratorium does not exceed 365 days.

The court will immediately publish any rulings ordering bankruptcy proceedings or extension of payment deferrals on the Companies' Gazette website. The court designates a trustee from a list of liquidators in its order on the bankruptcy proceedings.

Reorganisation

Rules relating to reorganisation are contained in Chapter VI of the Companies Act. Unless otherwise provided for by law, the rules on setting up companies must be applied appropriately when transforming one company into another. A company created by transformation is the general legal successor to the transformed company.

Companies that undergo transformation are obliged to have a statement published in the Companies' Gazette regarding this within eight days of the signature of the articles of association, and the statement must be published in two consecutive issues. The announcements must contain, inter alia, the company name, registered office and registration number of the company that is being transformed, as well as the form of the company that is being created, its company name and registered office, and key data concerning the draft balance sheet.

Applications for the registration of a company/transformation must be submitted electronically through a legal representative, and the necessary stamp duty for the proceedings and the costs of publication must be paid electronically before the application for the registration of a company/transformation is submitted, or at the same time as it is submitted. The court of registration electronically records all documentation on companies and provides the company's legal representative with an electronic certificate on registration as well as confirmation of any changes made.

Service guideline:

The works council operating at the economic organisation must be notified on the decision on conversion. The employer must ask the opinion of the works council at least fifteen days before making a decision on the employer's planned measures and rules affecting a large group of employees. Chapter X of the Labour Code lays down rules for terminating employment.

Employers shall notify the state employment body in writing of any intentions relating to mass redundancies, and the information and circumstances relating thereto as defined in law (reason for the redundancies, number of people affected, mean statistical number of employees in the six months prior to the mass redundancy decision, the planned duration and schedule for the redundancies, the selection criteria, and the conditions for redundancy benefits, as well as their amount and method). Employers may also make reports using the online system, which allows the intent and decisions for mass redundancies to be recorded electronically.

Pay-related insurance

A job-seeker is entitled to job-seeker's allowance if the competent job centre cannot guarantee a suitable job for him, and he wishes to undertake work, is not in receipt of sick pay, is not entitled to a disability or accidental disability pension, and who pursued activity as a sole trader or partner for at least 360 days within the four years prior to his becoming a jobseeker, and fulfilled his obligation to pay national insurance contributions during that activity.

Programmes

The purpose of the New Széchenyi Plan Enterprise Development Programme is intended to support the investments and developments of the enterprises with credit, capital and guarantee products, and to make the Union and Hungarian development sources available for the widest circle of enterprises.

The Széchenyi Card is a state supported loan. Micro, small and medium-sized companies can use a simplified procedure to apply for these low-interest loans designed to deal with liquidity problems.

The Széchenyi Current Assets Loan is a state supported loan not only for solving temporary liquidity problems but also for the financing of current assets due to its long term.

The Széchenyi Investment Loan is a long term loan of a higher amount intended to finance the investments and developments of enterprises. The loan can be used for the purchase, construction or development of a real estate, or for the purchase of new or used machines and tangible assets, or current assets relating to the investment.

The Széchenyi Pre-Support Loan is a state supported loan intended to solve difficulties resulting from the fact that the projects are subsequently financed. A tangible asset must be offered as a security, however, the assignment of the amount of the support received later to the creadit granting bank is not necessary.

The Széchenyi Self-Resourcing Supplement Loan is a state supported loan, and is particularly useful if the enterprise winning an EU support cannot provide additional amounts for the total costs of the project beyond its own sources and the support. In adidtion to the Széchenyi Self-Resourcing Supplement Loan, a Széchenyi Pre-Support Loan may be also requested for the won support.

As a latest loan, the Agrarian Széchenyi Card offers overdraft loans for any purposes for 1, 2 or 3 year terms to agricultural primary producers, family farmers, sole traders, as well as small and medium size enterprises engaged in the production, processing and marketing of agricultural products, forestry, game and fish management.

In the frame of the Economic Growth Bank Guarantee Programme, the National Bank of Hungary (MFB) offers a bank guarantee for the forint current assets credits/loans of ventures running for more than one year to incite the growth of economy primarily in the production sector, to increase their competency and promote the credit raising process. The target group of the loans are SMEs.

The Garantiqa Credit Guarantee helps Hungarian SMEs to obtain credit by providing cash guarantees - it undertakes to pay the lender if the debtor fails to meet any payment liabilities.

The Magyar Export-Import Bank Zrt. (Eximbank) promotes the competitiveness of the Hungarian small and medium-size enterprises on foreign markets by offering export refinancing (pre- and post-financing) loans and export (loan coverage and sales) guarantees.

The Magyar Exporthitel Biztosító Zrt. (Mehib) offers export financing and export loan insurance products to exporting companies. The services of Mehib cover security provision for the risks of the short, medium and long term supplier credits of exporters, foreign investments, buyer loans granted by banks and claims factored by banking institutions.

Help & advice

Help & advice

Companies that are facing difficulties may ask the following organisations for advice:

The aim of the Hungarian Investment and Trade Agency is to support the activities of small and medium-sized export enterprises by providing export loans and advice.

Advisers of the Széchenyi Programme Offices offer help to the applicants in the selection of the most suitable tenders for their business interests, in submission of the application, and management of administrative difficulties relating to the tender. The development advisers accompany the whole tender process from the drawing of the project idea to the final financial accounting.

A national legal aid service called the Lawpoint Network operates in 151 locations across Hungary. At the network’s offices, workers and small and medium-sized enterprises can obtain free legal aid in the areas of labour law, company law and social security.

For over fifteen years, the SEED Small Enterprise Economic Development Foundation has provided valuable assistance to small start-ups and micro-enterprises in Hungary

The National Association of Entrepreneurs and Employers is the body that represents the interests of companies.

The Hungarian Foundation for Enterprise Promotion is an independent organisation that acts as the institution running a labour programme which aims to meet the government's economic development strategy of developing small and medium-sized enterprises. Its main task is to promote the development of small and medium-sized enterprises in Hungary.

The Budapest Enterprise Agency wants to promote the creation and development of SMEs in the capital city, using its own, government, local government and EU resources.

E-mail a business organisation near you

The EU runs a network (Enterprise Europe Network) of local business organisations in most European countries that may be able to help you.

Choose your country and town and enter your enquiry below.

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