Blog » DEBTOR PARADISE – THE SUMMER AMENDMENT OF HUNGARIAN BANKRUPTCY ACT
DEBTOR PARADISE – THE SUMMER AMENDMENT OF HUNGARIAN BANKRUPTCY ACT
25 July 2018
The Devil is always in the details. The truth of the old adage is proven by the new bill adopted by the Hungarian Parliament during the hot summer sessions of July 2018. The new law amending the Bankruptcy Act modifies only one section of the liquidation procedure, but it will further erode the already low paying moral in Hungary, giving more months of grace to non-paying debtors.
To better understand the above negative impacts, it is worth to sum up the evolution of the relevant provisions of the Hungarian Bankruptcy Act.
The first 20 years
Liquidation procedures with the aim of debt collection are present in the Hungarian legal system for more than 30 years. The Bankruptcy Act, adopted in 1991 made it possible from the very beginning to launch liquidation procedure because of non-payment of non-disputed invoices.
This “weapon” was used by creditors in practice as an alternative of litigation, because due to the special features of liquidation procedure – procedure in writing, lack of court hearings, witness testimonies – it was possible to collect undisputed claims within 0,5 – 1 year while a classical litigation took more years.
In practice, the vast majority of debtors after being declared insolvent in a liquidation by a first instance court order paid to the creditor. If they still wanted to make a legal dispute, they sued creditor and tried to claim the money back.
Reasonable CEOs did not want to risk whether the appeal is successful or not, because in case it was unfounded, the company was declared insolvent in a minute, and the court-appointed liquidator took control of the company.
2012 – The wall is breached
The above rules were modified in 2012, when the Bankruptcy Act made it possible for the creditor to withdraw the liquidation procedure after the second instance court order was issued, but before it was published in the Company Gazette. This obviously happened in case the debtor paid in the meantime.
Even if this solution is not the most elegant from legal point of view, because it breaks through the principle of “res judicata”, the wish of the legislator was clear: it is unreasonable to push into liquidation businesses in “good standing”, if they could agree with their creditors, even after the 24th hour.
2018 – Lex Airport
The problem that 2012 amendment gave an option to creditors to blackmail debtors: certain creditors made conditional their withdrawal from the liquidation procedure upon further conditions, which were falling outside the scope of the original claim, enforced in the liquidation procedure.
For example, certain creditors tried to force the debtor, threatened by the declaration of insolvency, to pay other claims, or make further concessions in different legal disputes.
The recent amendment of the Bankruptcy Act makes this kind of creditor’s tactic impossible in the future. In fact, it provides that after being declared insolvent by second instance court order, and before the publication of this order in the Company Gazette, the debtor can pay the claim, which forms the basis of the liquidation, and in this case the court shall terminate the procedure.
Out of thy frying pan into the fire
It seems that the legislator, by passing a law to solve rather exceptional problems, has gone from one extreme to the other, or even worse.
In the vast majority of debt collection aimed liquidations, there are simpler creditor-debtor relations, where the legal dispute is between small and medium sized businesses, around one, or two unpaid invoices.
In these cases, there are no complex contracts or more ongoing legal disputes between the parties, which is more characteristic in the relations of bigger corporations, where it is worth to use tactics in relation with the withdrawal of liquidation, in order to win other legal “battles”.
At the same time the opportunities, provided by this new legislation will be used by both small and bigger businesses too.
Given that debtors will have the possibility to avoid liquidation after the delivery of the second instance court order, by simply paying a sum to the creditor, the vast majority will honour payments in the 25th hour.
It means that the first instance court decision declaring insolvency will not have any force, the debtor will appeal, and he will pay the sum only after the court of second instance declares the insolvency in a 6-12 months procedure.
The icing on the cake is that the new rules will be applicable in ongoing proceedings, too.
Based on the above, who would not say that Hungary is a Debtor Paradise?
CAN THE EMPLOYER EXPAND THE EMPLOYEES’ DUTIES WITHOUT CHANGING THE JOB DESCRIPTION IN HUNGARY?
The position and tasks of the employee are one of the key elements of the employment contract and are typically recorded in the job description. It is often a matter of dispute between the parties whether the employer can unilaterally modify the job description at all, and if so, to what extent. In a recent court decision, a Hungarian appellate court addressed the above question in a situation where the employer supplemented the employee's tasks with new tasks similar to his existing tasks. In this article, we analyse the recent decision on this matter.Read more »
CAN A HARSH FACEBOOK COMMENT BE A LAWFUL GROUND FOR DISMISSAL IN HUNGARY?
Social media platforms significantly changed the ways how people express their opinions: sharing views became easier than ever. On the one hand, this is positive, but on the other hand, it is also dangerous in the employment context, as the employee's opinion may be prejudicial to the employer's interests. A recent decision of the Hungarian Supreme Court gives answer to the question whether the employer can dismiss the employee for expressing his opinion on Facebook.Read more »
NEW EU – US DATA PRIVACY FRAMEWORK - SIMPLIFIED DATA TRANSFER TO THE US
With the Schrems II judgment, which invalidated the Privacy Shield, the CJEU (Court of Justice of the European Union) make it more difficult to comply with the GDPR for companies transferring personal data from the EU to the US. However, the new EU-US Data Privacy Framework (or “Framework”) adopted on 10 July aims to put an end to this situation. But how does the Framework make data transfers between the EU and US easier? In this short article, we explain the basics of the new Framework and answer the above question.Read more »