The Hungarian Parliament has adopted several amendments to the Civil Code. These have been long-awaited by the financial services sector and will make doing business a lot easier.
Call Options, Transfer by Security, and Assignment for Security
In 2014, these instruments were declared null and void under the Hungarian Civil Code. The declaration applied even in the context of B2B relationships.
After much lobbying, the legislature has decided to partially repeal these aspects of the Code. From 1 July 2016, non-consumers are now permitted to enter into such agreements, giving banks more flexibility and security which they can assert without lengthy and costly enforcement proceedings.
Transfer of Loan and Credit Agreements
On 1 July 2016, the former automatic termination of related security in the event of a loan transfer has been repealed. Security now continues to exist when it secures a loan which is transferred to a new contractual party. This makes things much easier for banks on a typical transfer of an entire loan agreement and security package to a new creditor.
In 2014, the decision of the Hungarian legislature to abolish the concept of a pledge which can be transferred as often as desired and independently from the secured claim was not well received.
It has now resolved to re-introduce the concept into the Civil Code with effect from 1 October 2016. However, new framework conditions will apply. For example, independent mortgages can only apply to real estate; only financial institutions can be beneficiaries thereof; and the arrangements need to ensure that the pledgor is not obliged to repay numerous times.
Security Trustee Arrangements
As of 1 October 2016, a security trustee can be appointed by a creditor before the pledge agreement is signed. The pledgee, the security trustee and the pledgor can agree to limit the pledgee’s liability in relation to the trustee.