In this article, we address the issue of whether a claim reported by a creditor during winding-up of a Hungarian company needs to be reported to the liquidator after the winding-up has turned into liquidation, or whether such a claim automatically qualifies as duly reported during liquidation and must, therefore, be registered by the liquidator.
Winding-Up And Liquidation
Under Hungarian law, a winding-up procedure (or voluntary dissolution) aims at the dissolution of a solvent company with no legal successor. Throughout the winding-up, all creditors' claims must be satisfied and the remaining assets of the company must then be distributed to the owners of the dissolved company. As opposed to winding-up, liquidation of a company aims at the dissolution of an insolvent company with no legal successor. During liquidation, all creditors' claims are to be satisfied to the extent possible and in the order required by the applicable laws. If it becomes evident during a winding-up procedure that the assets of the company being wound up do not cover its debts and it is therefore unable to satisfy all its creditors, winding-up must be turned into liquidation.
While the winding-up procedure is managed by a final accounting manager and by the competent court of registration, liquidation is managed by a liquidator and the competent ordinary court.
According to the previous practice of the Hungarian Supreme Court, a claim reported by a creditor to the final accounting manager of the relevant debtor company in accordance with applicable laws during winding-up procedure did not need to be reported to the liquidator if the winding-up had turned into liquidation. In this case, the liquidator was required to register said claim even if the creditor did not report its claim to the liquidator during liquidation.
The Supreme Court revisited its approach and adopted a decision that is binding upon Hungarian courts and which overturned the previous approach. In its reasoning in the decision, the Supreme Court emphasizes that winding-up and liquidation are two separate proceedings. Further, under Act no XLIX of 1991 on Bankruptcy and Liquidation Proceeding (the "Bankruptcy Act"), a proceeding initiated by a creditor prior to the commencement date of liquidation with a view to recover an amount owed to that creditor does not relieve the creditor from reporting the claim to the liquidator within 40 days from the date of publication of the liquidation order (or within 1 year from said date) and from paying the registration fee for the registration of the claim. In the Supreme Court's view, if a creditor reports its claim to the final accounting manager during the winding-up procedure, said report qualifies as a proceeding initiated by the creditor with a view to recovering the outstanding amount. Pursuant to the Bankruptcy Act, an entity is regarded as a creditor during liquidation if said entity reports its claim to and has the claim registered with the liquidator in accordance with Hungarian law. Therefore, as the Supreme Court argues, the entity reporting its claim during winding-up to the final accounting manager may not be regarded as creditor from the perspective of liquidation unless the creditor properly reports its claim to the liquidator and pays the relevant registration fee (i.e. 1% of the amount claimed and a minimum of HUF 1,000 and a maximum of HUF 100,000).
Under the Hungarian Supreme Court's new approach, a claim reported by a creditor to the final accounting manager during winding-up of a debtor company needs to be reported to the liquidator in accordance with the laws governing Hungarian liquidation proceedings. In the absence of such a claim during liquidation, said claim may not be registered and the relevant creditor will not qualify as a creditor under Hungarian insolvency laws. Therefore, if the creditor duly reports its claim to the final accounting manager of the debtor company and then fails to report the claim to the liquidator after the winding-up of the debtor company has turned into liquidation, the creditor will not be able to recover the claim from the debtor. Of course, even if a claim is duly reported to the liquidator during liquidation, the likelihood that the claim will be satisfied is very low.
The contents of this article are intended to provide only a general overview of the subject matter. Specialist advice should be sought for specific matters.