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.
CAN YOUR DEBTOR ESCAPE LIQUIDATION BY SETTING OFF CLAIMS IN HUNGARY?
The initiation of a liquidation procedure is an effective debt collection method, since the debtor may only avoid being liquidated by paying the claim if the conditions specified in the Act on Bankruptcy Proceedings and Liquidation (Bankruptcy Act) are met. For this reason, in the case of liquidation, one of the most common defences of the debtor is the reference to offsetting. But can the debtor refer to offsetting without limitation during liquidation? In our short article we answer this question.Read more »
SZIGET FESTIVAL FINED RECORD HUF 30 MILLION FOR GDPR BREACHES – WHAT WENT WRONG?
A few days prior to the first anniversary of the entry into force of the GDPR the Hungarian Data Protection Authority imposed the biggest data protection fine in Hungary so far. The target was the biggest Hungarian festival organizer company thanks to whom the public may enjoy the SZIGET, the VOLT or the Balaton Sound Festival. The Data Protection Authority reviewed the check-in system of the festival and the data processing in relation with the check-in. In our short article we summarize the mistakes the Authority identified.Read more »
CONSTRUCTION TRUSTEESHIP IN HUNGARY - GETTING PAID IN CONSTRUCTION PROJECTS AS SUBCONTRACTOR
Construction trusteeship, as mandatory collateral management of major private construction projects in Hungary, strives for protecting subcontractors against non-paying general contractor, by allowing direct payments from employer under certain conditions. How does it work in practice and what are the limits of subcontractor protection? We address these issues in this article.Read more »