4 MUST KNOWS ABOUT LIMITED LIABILITY “BREAKTHROUGH” IN HUNGARY

14 March 2017

Under special conditions, the shareholder of a terminated LLC will be directly and unlimitedly liable for the company’s debts. You might think that your debt recovery problem is then solved: if the debtor company is terminated, you will sue the shareholder. However, the devil is always in the details and certain conditions must be met in order to turn successfully against the shareholder. In this short article we tell you 4 things that you need to know if you decide to sue the shareholder of a terminated LLC in Hungary.

1. Being a creditor 

What a useful advice, you might think. Your company has claims against the terminated debtor, of course it is a creditor. In the common sense, you are right, but here comes the legal sense, that might cause some troubles.

Indeed, your company will only be regarded as a creditor if it has announced its claims against the debtor within the given deadline in the liquidation procedure or in the compulsory liquidation procedure.

In the compulsory liquidation procedure an additional condition is, that your company’s claims must be based on a final and enforceable court decision or at least it is non-disputed or acknowledged by the debtor.

2. Deadlines

We cannot say enough about how important deadlines are if your company would like to recover its debts against a debtor who is under liquidation or compulsory liquidation.

As mentioned before, you will be regarded as a creditor if you announced your claim within the given deadline. The trigger point of this deadline is the publication of the court order about the liquidation (compulsory liquidation) procedure in the Official Gazette. After the publication you have 40 days in case of a liquidation and 60 days in case of a compulsory liquidation procedure to announce your claims against the debtor.

No surprise that the above are not the only deadlines that you must consider. If the (compulsory) liquidation procedure has been terminated, the court publishes its order about the deletion of the company from the company register. If your claim against the company remained unsatisfied, from the date of this publication, your company has 90 days to sue the shareholder of the deleted company.

3. The shareholder’s “fault”

You cannot afford to rest on your laurels even if you have overcame the obstacles of the strict deadlines. There is a further criteria that must be met, namely the “fault” of the shareholder in connection with the insolvency and deletion of the debtor company.

In this regard you only can turn successfully against the shareholder if you can prove that

• the shareholder abused his limited liability which is the case if he implemented a disadvantageous business strategy, disposed over the assets of the company as if those were his own assets or made a decision which is obviously against the lawful operation of the company,
• the former 50%+ shareholder who sold his business share within 3 years before the starting of the (compulsory) liquidation acted in bad faith when transferring his business share.

In the meantime, the former shareholder may defend himself by proving that

• when he has sold his business share the debtor was solvent and it has been indebted after the transfer;
• the company has been already indebted by the time of the transfer of the business share but the former shareholder has taken into account the interest of the creditor.

4. Who is the shareholder?

Last but least, you must consider whether it makes sense to sue the shareholder of the debtor. Unfortunately in most cases the shareholders of liquidated companies are not listed on the Forbes’ World’s Billionaire list.

It is more likely that they have tremendous debts, for example against the tax authority and a number of execution procedures are ongoing against them.

That is why it is advisable to check the shareholder’s financial situation before starting a long and costly procedure against him. You can find useful information on the webpage of the tax authority about tax execution procedures.