Implementing the Restructuring Directive in Hungary

With the adoption of the LXIV law from 2021, the Hungarian Parliament implemented the EU Directive on the preventive restructuring framework (2019/1023) on 3 June in the Hungarian legal system and introduced the restructuring procedure. The most important economic policy objective of the policy is to address financial difficulties of companies at an early stage, promote their restructuring and restore their solvency. This is not an insolvency proceeding, but a new pre-insolvency proceeding. The new law will take effect on 01.07.2022.

The new restructuring procedure could essentially represent an alternative to the settlement procedure for companies in financial difficulties. A major advantage of restructuring proceedings is that they are usually controlled by the parties, and the court has only limited jurisdiction. In addition, not all creditors are necessarily involved; the debtor decides who should be involved. The debtor is granted a payment moratorium vis-a-vis the participating creditors so that the negotiations can be continued; however, the debtor must continue to fulfil the contracts with the uninvolved creditors. This provides debtors with sufficient flexibility to allow the company to continue operations while negotiating with key creditors on whom its financial stability depends. However, if all creditors are involved, the moratorium becomes general and the proceedings become public, which increases the jurisdiction of the court.

The debtor is supported in the procedure by restructuring officers if this is necessary or desired by one of the parties. The role of the experts is to help with the creation of the restructuring plan, to negotiate with the creditors, to conduct the negotiations and to bear responsibility for the correct implementation of the restructuring plan.

The main advantage of the restructuring procedure compared to a purely contractual agreement between the parties is that it must be accepted by majority resolution with mandatory consent. This avoids the oft-experienced situation in which the tenacity of an individual creditor blocks the agreement and thus the survival of the debtor. It also has the advantage, compared to the current settlement procedure, that the creditors have much more decision-making power, the debtor’s hands are not tied, and every unsuccessful negotiation does not automatically lead to a liquidation procedure, which in the past represented a significant risk for the debtors.

It may therefore be expected that the introduction of restructuring procedures will strengthen the position of companies and thus their creditors on the Hungarian market, which will have a positive effect on the Hungarian economy in the long term.

Autor: Beatrix Fakó