5 MUST-KNOWS BEFORE STARTING DEBT COLLECTION IN HUNGARY

18 September 2015

In this short summary we tell the 5 must–know tips that a creditor should bear in mind before starting collecting debt in Hungary. There are different legal ways available, and by answering these questions you will be able to find the legal way that best matches your interests.

What is the business situation of the debtor?

Nobody likes throwing good money after bad.

If you would like to avoid that, you should check the actual legal and business status of your debtor at first, and then decide if it is worth to invest further time and money in debt recovery.

If the debtor is under bankruptcy or liquidation (insolvency) procedure, or there are several ongoing executions against him, or just does not have any assets, it is better to reconsider, if it is a good decision to spend further money on this debt recovery project, or it is better to minimise the loss.

Practical advice: you can easily find basic legal and financial information on the web for free: the Company Registry (www.e-cegjegyzek.hu) and the annual reports of the companies (http://e-beszamolo.kim.gov.hu/kereses-Default.aspx) are available for anybody. If you are interested, we can conduct further research on the business situation of your debtor.

Do you have a written contract and/or a choice-of-court clause?

It is important to check if you have a written contract with the debtor, and /or a choice-of-court clause because it may affect the legal proceeding that you can choose and its success, as well as the forum competent to hear the case. The written contract should be duly signed by the representatives of both parties.

Practical advice: When it comes to electronic means, Hungarian courts accept only certified electronic signature as fulfilling the “in writing” requirement, and a mere e-mail correspondence does not amount to a contract “in writing”. The same goes for choice-of-court agreements and arbitration clauses.

Is your claim contested?

This is the third question that you have to answer before choosing the relevant legal procedure.
If your claim is undisputed or acknowledged by the debtor you can initiate liquidation (insolvency) procedure, or in case your debtor signed a notarial deed before a public notary, acknowledging the claim, you can start directly the enforcement procedure.

On the other hand, payment warrant, lawsuit, or arbitration is available in cases when your debtor contested your claim and there is a debate in relation with the debt.

Practical advice: your debtor has to contest your claim in writing, on the merits of the claim, before your properly drafted notice letter arrives to him. Hungarian courts do not accept contesting claims by debtors via e-mail or only formal complaints, without mentioning the grounds of objection.

Which is the most suitable procedure?

Before initiating any legal procedure you have to send a properly drafted notice letter to debtor. In the notice letter you should identify at least your claim (e.g. by contract or invoice number, amount, payment date) and you should set a final deadline after that you will start legal proceeding.

Practical advice: if your notice letter lacks the content mentioned above it will not have the necessary legal effects, so instead of drafting it on your own, turn to lawyer who will draft it on your behalf.

If the debtor does not pay within the final deadline you have set in the notice letter you can start a legal procedure. In Hungary you can choose between the following types of legal procedures:

• Liquidation (insolvency) procedure

You will start liquidation (insolvency) procedure with the aim of pressuring your debtor to pay the debt, so that he can avoid the declaration of insolvency and the closing its business.

Liquidation is available if you have a written contract with the debtor, upon which he failed to pay your due invoice which was not contested by him earlier.

Costs: court duty: HUF 80.000, publication fee: HUF 25.000.
Time frame: 6-18 months

Practical advice: you can start liquidation only if your claim is more than HUF 200.000. If your undisputed claim is above HUF 3,5 Million, liquidation is the most cost-effective way to recover undisputed debt.

• Payment warrant procedure

You can initiate a payment warrant procedure (PWP) before the public notary. The PWP is obligatory for claims less than HUF 1 Million (ca. EUR 3000).

If the debtor raises an objection within 15 days after the receipt of the payment warrant, the PWP turns into litigation, in other cases the payment warrant will be enforceable, in other words it will have the same legal force a final court judgement.

Costs: duty: 3 % of the litigated amount; if the procedure turns into litigation, an additional 3%
Time frame: 1-2 months

Practical advice: the payment warrant shall be submitted to the public notary via electronic channel, and having an electronic signature is a must, so it is better to hire a lawyer for this procedure.

• Litigation

If the debt is more than HUF 1 Million (ca. EUR 3000) you can directly sue the debtor before the competent court.

Costs: court duty: 6% of the litigated amount.
Time frame: 12-36 months

Practical advice: you can claim back the court duties and the attorney’s fee paid in the procedure if you win the case.

• Arbitration

If your contract concluded with your business partner contains a valid arbitration clause, or your business partner agrees in writing to resolve the dispute via arbitration, you can start arbitration procedure which is faster than litigation.

Costs: arbitration fee: cca. 10% of the litigated amount
Time frame: 6 -12 months

Practical advice: if the speed of the dispute resolution is important for you, arbitration is the most suitable way of settling business disputes.

How can I enforce my claim?

If you have an enforceable court judgment (arbitral award) or a claim confirmed by a notarial deed, you can initiate an enforcement procedure so that you can get your money. The procedure shall be started before the court where the debtor is seated, by filing an application for enforcement. The judge will examine the application and if it meets the conditions, will send the case to the court bailiff.

Costs: duty: 1 % of the claimed amount and the fee of the court bailiff.
Time frame: 6 months