19 February 2018

When, why and how can you start liquidation procedure against your non-paying customer in Hungary? How long can you register your claim? What are the chances that you get your money in liquidation? We summarized the 6 must-knows of liquidation procedures in Hungary in this article.

What it is for?

The goal of the liquidation procedure (or often called as insolvency procedure) is to put out of business insolvent business actors, by distributing their assets among creditors and by terminating them in a regulated manner.

In practice, you will start liquidation procedure against your debtor to put him under pressure, so that he pays the money he owes you, to avoid being terminated on grounds of insolveny.

What insolvency means?

Insolvency is not a financial, but rather a legal concept, which means that your debtor is no more able to pay its dues. In the following cases the debtor company is presumed to be insolvent:

  1. the debtor has not paid or disputed a contractual debt within 20 days after due date, despite a written notification of the creditor
  2. the debtor has not paid upon an enforceable judgment or other court order
  3. enforcement proceedings against the debtor were unsuccessful
  4. the bankruptcy procedure was not successful or the debtor breaches the agreement with creditors concluded in a bankruptcy or an insolvency procedure
  5. it turns out in a voluntary liquidation procedure that the assets of the company will not cover all its liabilities and the shareholders do not oblige themselves to hold the creditors harmless for the uncovered liabilities.

In cases under points 1-2), your claim must be higher than HUF 200.000, to start liquidation.

You can see that in the above cases, the debtor might not be insolvent from business point of view, because it can have money on his accounts. However, from legal point of view, the debtor company must be considered insolvent, and if any of the above conditions is met, the judge puts it under liquidation.

Who can start liquidation procedure?

In the vast majority of cases, you as creditor can start liquidation against their non-paying business partners based on point 1-2) above.

Of course, the management of the company can also start liquidation against the company itself, and in certain cases, official authorities starts the procedure, if they receive any information which shows that the company might be insolvent.

How to register claims in liquidation procedure?

If the judge puts the debtor company under liquidation, he appoints an insolvency administrator, and publishes the starting of liquidation procedure in the Official Gazette.

In this case you, as creditors have 40 (forty) days to register your claim against the debtor at the insolvency administrator, by paying a 1% registration fee. For those creditors missing the above deadline, there is another 180 (one-hundred-eighty) days within which the claim can be registered.

After the expiry of the second deadline, your claim is lost, so be aware not missing the 40 (180) days’ deadline.

How claims are satisfied in liquidation procedure?

The insolvency administrator can sell the assets of the debtor and he is responsible for satisfying the claims registered in 40 (forty) days in the following order or priority:

  1. Costs of the insolvency procedure (which include all salaries and payments to employees,  fee of the insolvency administrator, etc.)
  2. Claims secured by mortgage;
  3. Alimony, life rent, annuity and similar claims;
  4. Customer claims and claims of small companies (<50 employees, <10 Million EUR turnover or balance sheet size)
  5. Taxes and other contributions to the state;
  6. Other claims;
  7. Interest and other penalties;
  8. Claims of related parties and the management of the company.

What if there is no enough money?

If the assets of the debtor do not cover all claims, the claims in the higher classes shall have priority over claims in lower classes. If the assets do not cover the claims in a certain class, the creditors in that class shall be satisfied proportionally.

If there are creditors who submit their claims after the 40 days following the date of publication in the Company Gazette, but still within 180 days, their claim will be classified separately from the claims submitted within 40 days. If after satisfying the claims registered within 40 days, there is still money to be distributed, the claims registered within 180 days shall be satisfied in the above order of priority.