Blog » COMPANY SHUTDOWN WITH DEBTS IN HUNGARY
COMPANY SHUTDOWN WITH DEBTS IN HUNGARY
20 February 2017
Imagine the situation that you have a non-prospering company without perspectives. The mass of non-paid invoices is just bigger and your company cannot pay taxes. In this case the best option just to shut down the company and say goodbye to Hungary thinking that you are not liable for your company’s debts. However, the situation is not so simple, and leaving just the company behind may be risky. In this short summary we summarise the legal aspects of company shutdown which is worth to read before the “close-shop”.
1.Sanctions imposed by the tax authority
Even if the company has no income, until it is terminated, it has to pay taxes, file tax returns and reports.
In case of non-compliance with these obligations, the tax authority can impose fines, suspend or delete the company’s tax number. The list of the suspended and deleted tax numbers is available on the webpage of the tax authority.
If the tax authority suspend or deletes the tax number, it will inform the company court and request the termination of the company.
You can see that the non-compliance will result in additional charges and headaches.
2. Winding up procedure
If you would like to legally terminate the company, you can start a winding up procedure, or file a request for voluntary liquidation.
In winding up procedure, the company repays all of his debts, and the company court terminates the company at the end by deleting it from the company register.
3. Voluntary liquidation
If there is no chance that the company can repay its debts, the company manager can request a voluntary liquidation against its own company.
If the company started a voluntary liquidation but the procedure cannot be completed because of unpaid debts, the voluntary liquidator can also request the liquidation of the company. In this case the court orders the liquidation if the owner of the company does not undertake the provide sources which cover the debt.
In case of liquidation, the CEO of the company has to cooperate with the liquidator in several ways starting with providing closing balance sheet and handing over the company documents. The non-compliance with these responsibilities may have serious consequences as you will see later.
After the liquidation procedure is completed, the company shall be deleted from the company register.
4. Compulsory liquidation
If you just disappear without winding up the company or requesting voluntary liquidation, sooner or later the company court will start a compulsory liquidation procedure, based on the information of the tax authority, or from creditors.
The court terminates the compulsory liquidation and requests a “normal” liquidation if based on the financial background check claims against the company have been announced or the company’s assets will cover the cost of liquidation procedure.
Otherwise the company court deletes the company from the company register and orders the prohibition of the CEO and / or the owner of the company from business in Hungary.
5. Liability of the owner and the CEO
If company has been deleted from the company register in a compulsory liquidation procedure, the ex-shareholder of the company shall be liable for the unpaid claims of the creditor if the shareholder has abused his limited liability.
The shareholder has abused his limited liability if he
- implemented a business strategy disadvantageous for the company,
- disposed over the assets of the company as if those were his own assets,
- made a decision about which he had known or should have known that it is obviously against the lawful operation of the company.
The above rules apply in liquidation procedure for the majority shareholder of the company and for the former 50%+ shareholder, who sold his business share within 3 years before the starting of the liquidation acted in bad faith when transferring his business share.
In case of (compulsory) liquidation the CEO of the company will be held liable if the creditor can prove that the CEO failed to take the creditors’ interests into account in the event of an imminent threat to the company’s solvency. In case of liquidation there is a presumption that the CEO failed to take the creditors’ interests into account if he failed to comply with his cooperation obligations with the liquidator.
6. Prohibition from business
The court prohibits from being a 50%+ shareholder and from being CEO in a Hungarian company for 5 years
- the CEO and the 50 %+ shareholder of the company which has been deleted from the company register in a compulsory liquidation procedure or
- the CEO and the shareholder of the company which has been deleted from the company register in a compulsory liquidation procedure or “normal” liquidation procedure if the liability of these person for the unpaid claims has been declared and the payment obligation could not be enforced.
5 THING YOU SHOULD NOT MISS OUT FROM YOUR ONLINE SHOP TERM&CONDITIONS IN HUNGARY
Online shopping is more and more trendy. While it is a very good opportunity, it has more risks for consumers than traditional retail shopping. For example, you cannot see the product in reality, so what if the shirt you ordered for your father as a Christmas present does not fit? The European Union recognized the risks of online shopping and adopted several consumer protection rules. In this short article I collected 5 issues you must include in your terms&conditions if you operate an E-shop in Hungary. Please note that these rules only apply if your buyer is a consumer (a natural person who is not acting for business purposes).Read more »
HOW TO OPEN AN ONLINE SHOP IN HUNGARY?
Online shopping is more and more popular among customers for certain reasons: it is more convenient and often cheaper than traditional shopping. Online shopping is not only an attractive alternative for the shoppers but for the traders, too. By opening an online shop, you can remove the need for expensive retail premises and customer-facing staff. Another huge advantage is that you can expand your market beyond local customers very quickly. Here are 4 things that you need to clarify if you decided to open an online shop in Hungary.Read more »
INTERNATIONAL LAW FIRMS CONFERENCE IN CYPRUS
We are members of International Law Firms (ILF) a worldwide network of small & medium sized law forms around the world, with around 70 members from 50 jurisdictions. The goal of ILF is improving client service in cross border business legal issues. Every year there are annual and regional conferences where we can share our experiences, meet new people, new viewpoints, and make our community better.Read more »