Liquidation, Bankruptcy, Dissolution

According to Hungarian law companies may extinct without successor as follows.

The Dissolution Procedure of Companies in Hungary

This procedure is applied if the company is not insolvent, which means that it has enough assets to pay off his debts to his creditors.

The dissolution procedure is the ordinary way of extinguishing a company without successor. The supreme body of the company (meeting of members, members’ meeeting, general meeting) makes a decision on the commencement of the dissolution procedure and simultaneously decides on the extinguishing of the company.

The company’s supreme body may elect any person to serve as the receiver. After the opening of the dissolution procedure the receiver shall be considered as the company’s executive officer vested with independent power of representation.  The receiver assesses the company’s financial position in the course of the dissolution proceeding, recovers its claims, pays its debts, enforces its claims and discharges its obligations, and shall sell off its assets if necessary.

The receiver distributes the assets remaining after the satisfaction of creditors among the members (shareholders) in cash or in kind, and terminates the company’s operations.

The bankruptcy and the liquidation proceedings containing provisions regarding the termination of an insolvent company.

The Bankruptcy Procedure in Hungary

As to the bankruptcy procedure the debtor company requests for a moratorium (delay in payment) and tries to conclude a so called composition agreement with the creditors.So the aim of the bankruptcy procedure is not the termination but the survival of the company.

If the company is able to recover, even through reorganization or borrowings, it can escape from the termination and follow its economic activity. Let’s see how the bankruptcy procedure works in the practice in Hungary.

First of all the the general manager of the company submits a request to the company court with regard to the conduction of the bankruptcy procedure. This request is preceeded of course by the previous consent of the supreme body of the company.

Thereafter the company invites its creditors directly or through announcement and makes attempt to request for a moratorium (delay in payment). If the debtor company gets the moratorium, it has time until the deadline of the moratorium to obtain the necessary financial sources and pay the creditors’ bill.Until the deadline of moratorium the debt is not burdened by default interest or any other sanction related to the default in paying of the debts.

The „outsider person” in the bankruptcy proceeding is the bankruptcy trustee. The tasks of the bankruptcy trustee are the following:

• Monitoring of the financial operations,
  
  
• controlling of the enforcement of the claims, and
  
  
• approval of the payments of the company. 

The debtor company is obliged to draft financial programme and  composition agreement with regard to the restitution of solvency. If the composition agreement is concluded by the creditors and the bankruptcy trustee approves it, the company court puts an end to the bankruptcy procedure.

The Liquidation Procedure in Hungary

But what is to be done if the creditors give no moratorium or the solvency cannot be restituted?

In the above situation the liquidation procedure shall be conducted upon the request of a creditor.

The liquidation procedure shall be conducted even if it is requested by the debtor, by the receiver of the dissolution procedure, and it can also be based on a notice by the company court or by the court acting in a criminal case.

In the second phase of the proceeding the court examines whether the debtor company is insolvent or not. If the court finds that the debtor is insolvent, it rules on the commencement of the liquidation procedure. After the date of publishing of the final order of the court regarding the liquidation, the creditors can enforce their claims exclusively within the confines of the liquidation proceeding.

The latter means that creditors shall notify their claims after 40 days within the publication of the liquidation in the Company Gazette but maximum within 1 year.

Only the registered claims can be satisfied by the liquidator. The claims notified within 40 days from the beginning of the liquidation have priority over the claims notified thereafter.

As of the initial date of liquidation, only the liquidator is authorized to dispose over the assets of the company, and he is the only person who can lawfully represent the company.

As of the same date, the abbreviation "f.a.", standing for the term "under liquidation" must be affixed to the company's name as an extension .

The law presribes an order for the satisfaction of creditors’ claims (from category A to F).

The liquidator collects the claims of the debtor company and markets its assets in order to collect funds for paying off the company’s debts of to the creditors.

At the end of liquidation, the liquidator should prepare closing financial documents (closing balance sheet, closing reports etc.) and forward them to the court and to the tax office.

After the preparation of the closing financial documents the court decides on the termination of liquidation and on the dissolution of the debtor.

Budapest, July 2008

DISCLAIMER:
The information contained in this article is provided for general information only. Considering the nature of online advising is inadequate for all-around complete advising Dr. Andras Toth-Kalaszi Law Firm is no responsible for the on-line advices, and it's not amenable to any action.

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