On 13 June 2016 the Hungarian Parliament adopted an amendment to the Civil Code which entered into force two years ago. The main body of the amendment will enter into force on 1 October 2016, and reintroduces the independent mortgage (önálló zálogjog) which used to be part of the Hungarian secured transactions regime under the former civil code, and refines the rules of the security deposit (óvadék). The primary aim of the amendment, which entered into force on 1 July 2016 – according to government communication – was to correct the Civil Code's legislative and conceptual shortcomings and to simplify the operation of Hungarian financial institutions, as well as to ensure compliance with the Capital Requirements Regulation (CRR).
Transfer of contract
One of the most important changes is the amendment of the rules on transfer of contract, which enables the transfer of entire contractual positions and thus loan portfolio transfers. The main problem with the original rules was that the security interests terminated as a result of the transfer (even if the security provider consented to such transfer; however, in that case a new security interest emerged on the same rank by force of law), which was a huge barrier to loan portfolio transfers. The new rules render that security interests remain in place if the creditor's position changes, and the consent of the security provider is only required if the debtor's position changes.
The new Civil Code prohibited the transfer of title for security purposes (the so-called fiduciary securities) with some very limited exceptions. Fiduciary securities were widely used for debt securing purposes due to the inadequacy and relatively costly nature of traditional security interests (eg mortgage, fixed charge) under the old Civil Code. The last two years have shown that the economy needs the cheap, efficient and flexible fiduciary securities along with the rigid traditional security interests.
Since 1 July 2016, corporate entities are allowed to establish call options, security assignments and other fiduciary securities to secure their claims. It is important to note that the use of these types of securities is still prohibited for transactions between consumers or corporate-to-consumer transactions. Fiduciary securities are valid only in the commercial sector.
The rules on the collateral register (hitelbiztosítéki nyilvántartás) are not affected by the amendment, therefore fiduciary securities are not subject to registration or filing, which may cause problems in the future because independent third parties could not have information about the existence of these types of securities.
From 1 October 2016 the independent mortgage will replace the unsuccessful separated mortgage (különvált zálogjog) which proved to be insufficient for the needs of mortgage banks. The existing separated mortgages will be converted upon the request of the mortgagor to independent mortgages under a special process described in the amendment act.
In addition, the fact that a syndicate of lenders will be able to appoint the security trustee before entering into the security documents will be clarified. The current wording arguably stipulates that all creditors have to sign the security agreements prior to the appointment of the security trustee. The rules on security deposit (óvadék) will also be amended. Although, most of the amendment is of a technical nature, the scope of the security asset will be extended to savings accounts (betétszámla).
The new provisions of the amended Civil Code will apply to acts and legal relationships arising and statements made after the amendment entered into force.