Summary

As from 1 July 2017, several amendments to the Hungarian Insolvency Code will come into force which will grant some creditors a much better position in their debtors’ insolvency procedures.

Current Legislation

Under the current Civil Code, non-consumers can freely enter into call options, transfers by security, and assignments for security for securing payment obligations (together, fiduciary collaterals). Fiduciary collaterals give banks in particular more flexibility, and security which they can assert without lengthy and cost-intensive enforcement proceedings. This position, however, is only true as long as the debtor does not enter into insolvency proceedings.

Once insolvency proceedings in respect of the debtor have been commenced, creditors with fiduciary collaterals are treated as unsecured creditors, and can only receive satisfaction of their claims after full satisfaction of all creditors secured by pledges.

Problems for Creditors

Fiduciary collaterals were not satisfactory. Banks inevitably had to enter into additional pledge agreements.

What will improve?

As from 1 July 2017, creditors secured by fiduciary collaterals will be granted equal treatment to creditors secured by pledges, with the following consequences:

  • most significantly, they will be granted privileged satisfaction of their claims before all unsecured creditors, including tax and social security creditors
  • they will have the same voting rights in creditors’ meetings as creditors secured by pledges, and will therefore wield more influence.

Preconditions

Creditors should bear in mind that in order to enjoy these privileges, they must register their fiduciary collateral in the relevant registry. This means registration of call options on real estate in the land register, and registration of other fiduciary collaterals in the credit security register maintained by the Hungarian Chamber of Notaries.

What Happens if There are Other Registered Creditors?

In a debtor insolvency, there may be competing claims between secured creditors – those who are holding fiduciary collaterals, as well as those who hold pledges. If so, the date of registration of the security in the respective register is decisive.