17 April 2020
Although no insolvency law-specific regulatory changes have been introduced in Hungary due to COVID-19, the Hungarian Government has adopted numerous extraordinary measures that may have a profound effect on how companies deal with solvency and liquidity related problems under the new circumstances.
Firstly, although the bankruptcy procedure is to be initiated by the management of the company, the prior approval of the main body of the company (ie the shareholders) is required. Due to the curfew currently in effect, in-person shareholders’ meetings are mostly prohibited.
However, an extraordinary government decree made it possible for companies to hold shareholders’ meetings via electronic means, or adopt decisions without holding a shareholders’ meeting (eg voting by mail), even where this would otherwise be impossible based on the entity’s deed of foundation.
Similar exceptions have been introduced in connection to other company bodies as well (eg management board, supervisory board, auditing committee).
Where the above special rules do not apply – for example, in larger companies where the shareholders or management do not request this – the company’s management is entitled to adopt the most important decisions, with certain limitations. This includes situations when management cannot decide on the termination of the company without a legal successor, or where the deed of foundation needs to be modified; there are also limitations concerning decisions on capital replenishment.
Although a decision by the management on approving the initiation of a bankruptcy procedure without the involvement of the shareholders is not expressly prohibited, there is currently no special guidance on whether the management is entitled to initiate the bankruptcy procedure where the main body is hindered in approving this due to the curfew.
Furthermore, special rules on holding creditors’ meetings – which shall be held within 60 days of the commencement of the bankruptcy procedure – are yet to be introduced. There is, however, currently no indication as to whether the Government is planning to adopt such measures.
There is also an all-encompassing moratorium on obligations to pay capital, interest and fees under all commercial loan agreements and financial lease contracts until 31 December 2020 (unless prolonged by the Government).
Consequently, the deadline for performance of the above contracts shall be extended by the duration of the moratorium. The corresponding provisions only apply to loans already granted as of 18 March 2020. Compound interest on unpaid interest accumulated during the moratorium is also prohibited.
Finally, on-site enforcement procedures are currently prohibited. As a result, the enforcement of non-pecuniary claims (eg the vacation of premises due to unpaid rent) is essentially impossible.