On 13 June 2016 the Hungarian Parliament has adopted several amendments to the Hungarian Civil Code which have been waited by the credit services sector for a long time and which will make doing business for creditors a lot easier. 

Call options, transfer by security, and assignment for security

These instruments had been qualified null and void by the Hungarian Civil Code as of 15 March 2014 in case they secured payment obligations, and this not only in B2C, but also in B2B relationships. After heavy protests from the credit services sector the legislator decided to partly repeal this legislation. As a result, from 1st July 2016 it will again be fully permitted for non-consumers to enter into such agreements, giving banks more flexibility and securities which they can assert without having to go for lengthy and cost-intensive enforcement proceedings. 

Transfer of loan and credit agreements

Under the existing Civil Code, in case of a transfer of the loan agreement as a whole the securities ceased to exist automatically. The parties could only agree on a re-creation of the securities, leading to major problems in the practice e.g. as regards the rank of such security. As of 1st July 2016, securities will continue to exist in case they secure a claim which is transferred to the new contractual party. This means a major easement for banks in the typical case of transfer of the whole contract to a new creditor. 

Independent mortgage

The legal concept of a pledge which can be transferred as often as desired and independently from the secured claim has already existed in Hungarian law before 2014; however, also due to misuse by pledgees in several cases the legislator then decided to abolish it. Since this decision was - particularly due to the widespread use as security in real estate financings - not received well in the practice, in the course of the current reform the legislator resolved to re-introduce such legal institute into the Civil Code with effect of 1st October 2016, however under new framework conditions, which are: the independent mortgage can only established on real estate, only financial institutions can be beneficiaries thereof, the parties have to enter into a security contract and the pledgor is better secured since he can ask for deletion of the mortgage under certain conditions, i.e. there is no risk of having to fulfil twice. 

Security trustee arrangements

As of 1st October 2016, security trustees can already be appointed by the creditors before the pledge agreement is signed, and the pledgees, the trustee and the pledger can agree on a limitation of the pledgees’ liability for action of the trustee.

The Hungarian President has signed the adopted Act and it has been published in the Company Gazette. The amendments will therefore enter into force on 1st July 2016 and on 1st October 2016. Creditors and their contractual partners will then be able to utilize the advantages granted by the amended legislation.