In this article, we provide a brief overview of the some of the most important new rules applicable to Hungarian liquidation proceedings after 1 September 2009.

Under Hungarian law, the liquidation of a company aims at the dissolution of an insolvent company with no legal successor. Act no XLIX of 1991 on Bankruptcy and Liquidation Proceedings (the "Bankruptcy Act") explicitly provides for the circumstances that may serve as grounds for liquidation.

Pursuant to the Bankruptcy Act, liquidation may take place if the competent court establishes that a company against which a request for liquidation has been submitted is insolvent. The court declares a company insolvent if any of the following conditions apply:

(i) the debtor company failed to comply, within 15 days from the due date, with its contractual obligation which obligation was not challenged, or was explicitly acknowledged by the debtor company and the debtor company did not pay its debts following the respective payment notice by the creditor;

(ii) the debtor company failed to pay its debts based on a final and binding judicial decision within the deadline set therein;

(iii) the enforcement procedure against the debtor company has proven to be unsuccessful; or

(iv) the debtor company failed to comply with its obligations set forth in the settlement agreement concluded during a bankruptcy procedure.

The amendment to the Bankruptcy Act introduced two new grounds for insolvency, which are as follows:

(v) the court terminated a previous bankruptcy procedure on the grounds that no settlement agreement was reached by the debtor and the creditors or the settlement agreement is not in compliance with Hungarian laws;

(vi) the debts of the debtor exceed the debtor's assets within the proceeding initiated by the debtor or the final accounting manager or the debtor was or will presumably be unable to satisfy its debts on the due date and the owners of the debtor - despite being called upon to do so - do not assume an obligation to ensure satisfactory funds for the payment of the debts upon the due date.

If any of these conditions apply, the court orders liquidation within 60 days of receipt of the request. The court also simultaneously appoints a liquidator from the liquidator's list at random. The liquidation order is published in the Companies Gazette when it becomes final and binding.

Creditors are required to report their claims to the liquidator within 40 days from publication of the liquidation order in the Companies Gazette. During liquidation, all creditors' claims are to be satisfied to the extent possible and in the order prescribed by the Bankruptcy Act. In the event a creditor fails to report its claim within the 40-day period, it may report the same to the liquidator within 180 days (before 1 September 2009, this period was one year) from publication of the liquidation order. Any claim reported after the 180-day period will be automatically rejected by the liquidator.

Upon reporting the claim, the creditor is required to pay to a specific bank account a so-called 'registration fee', which is currently set at 1% of the amount claimed and a maximum of HUF 200,000 (approx. EUR 735).

Any claim reported and registered during a bankruptcy procedure preceding the liquidation procedure does not need to be reported to the liquidator within the frame of the liquidation procedure.

During a liquidation procedure ordered on the basis of clause (iv) above, the creditor may report only the claims that were acknowledged or were not challenged during bankruptcy and which were not recovered during execution of the settlement agreement.

The executive officer of the entity under liquidation has some additional obligations since the amendments to the Bankruptcy Act entered into force. For example, executive officers are obliged to make a statement pursuant to which the closing inventory and annual accounts to be handed over to the liquidator and the tax authority provide a true and accurate picture of the company's financial situation. Executive officers must also make a declaration on any and all changes in the debtor's financial standing following adoption of the balance sheet.

Under certain circumstances, the executive officers of the liquidated company may be sued by the creditors and the liquidator. In the lawsuit, subject to specific conditions, the creditors/liquidator may request the court to establish that the executive officers did not act in the creditor's interest when the company reached the brink of insolvency or, if the debtor's assets do not cover the debts based on a court-approved interim balance sheet and detailed proposal for asset distribution, to deliver a judgment pursuant to which the former executive officer(s) of the company under liquidation are liable for the company's debts.

Certain contracts concluded by the company may be challenged by the creditors and the liquidator within 90 days from becoming aware of the relevant contract and within the maximum of one year from the publication of the liquidation order in the Companies Gazette. Omission to challenge a contract within said one year results in the forfeiture of the right to challenge.

As a new rule, the court terminates the liquidation proceeding if all registered, acknowledged or unchallenged debts of the debtor have been fully paid and the debtor grants a security for the challenged debts and the payment of the liquidator's fee. The debtor may file a request for the termination of the liquidation proceeding following the expiry of the 180-day period referred to above and by no later than the date of the preparation of the closing liquidation balance sheet and the proposal for asset distribution. Certain documents as set forth in the Bankruptcy Act must be enclosed with the request. The court then forwards the request and its exhibits to the tax authority for review. If the tax authority makes no remarks in connection with the request within 30 days, the court delivers an order on the termination of the liquidation and publishes the order in the Companies Gazette.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.