Restructuring proceedings in Hungary provide a more flexible solution than bankruptcy and liquidation proceedings and potentially an effective alternative for companies in financial difficulties.
- A restructuring procedure may be initiated by the debtor if there is a likelihood of insolvency. The likelihood of insolvency means a situation in which there are reasonable grounds for believing that the debtor will be unable to meet its outstanding payment obligations when they fall due, unless further measures are taken. Restructuring proceedings are therefore available before a company enters insolvency and before liquidation proceedings are commenced.
- At the choice of the debtor, restructuring proceedings may be public or confidential. In public restructuring proceedings, there is a general moratorium (covering all creditors and claims), and in confidential restructuring proceedings, there is a limited moratorium (covering one or more creditors, categories of creditors or specific claims of creditors as specified by the debtor). In contrast, bankruptcy and liquidation proceedings can only be public.
- In restructuring proceedings, for the adoption of the restructuring plan with the creditors, it is possible for a majority of creditors to override a class or classes of dissenting creditors (cross-class cram-down). This process is not available in bankruptcy proceedings to assist in reaching a settlement agreement with the creditors.
Liquidation not automatic
- Restructuring proceedings are not automatically followed by liquidation proceedings, as opposed to unsuccessful bankruptcy proceedings, which inevitably lead to liquidation proceedings in court.
What lies ahead
The restructuring proceedings have only recently been implemented into Hungarian law and its effectiveness in practice, and in particular, whether it can be a viable alternative to bankruptcy and avoid the need for liquidation remains to be seen.
Find out more
Take a look at our updated European Restructuring & Insolvency online tool to find out more about the preventive restructuring framework in Hungary and compare it with 22 other European jurisdictions.
To discuss the issues raised in this article in more detail, please contact a member of our Restructuring & Insolvency team.