Insolvency Proceedings Against a Foreign Debtor

Insolvency Proceedings Against a Foreign Debtor

According to the European Union’s position, the proper functioning of the internal market requires the effective and appropriate operation of cross-border insolvency proceedings. Therefore, the EU has adopted the Insolvency Regulation. This regulation is directly applicable and has not been transposed into Hungarian legislation.

In this article, we explain under what circumstances insolvency proceedings can be initiated in Hungary against a company with a registered office abroad, and what options are available to Hungarian creditors when insolvency proceedings are initiated in another Member State.

Can insolvency proceedings be initiated against any foreign debtor?

The regulation only applies to cases where the debtor’s registered office is located in an EU Member State. Consequently, it does not apply to countries outside the European Union. The regulation is also not applicable to Denmark.

Can insolvency proceedings be initiated in Hungary against a foreign debtor?

Yes, insolvency proceedings can be initiated in Hungary against a foreign-based debtor, and Hungarian law will govern such proceedings. In Hungary, insolvency proceedings can be initiated against a foreign debtor in one of the following two scenarios:

If the creditor can prove that although the debtor’s registered office is abroad, the debtor carries out a significant part of its economic activity in Hungary, insolvency proceedings can be initiated before a Hungarian court. In this case, it is relevant whether the debtor’s central administration is located in Hungary or whether the debtor has assets in Hungary. The court will assess all relevant circumstances to determine whether the center of the debtor’s main economic interests is in Hungary. The court will consider the location of the debtor’s central administration at the time the application is submitted. If the debtor subsequently relocates its central administration to another Member State, the Hungarian court will still have jurisdiction to order and conduct the insolvency proceedings. If it can be proven that the debtor conducts a substantial part of its business in Hungary, the insolvency proceedings will apply to the debtor’s entire estate.

If the creditor cannot prove that the debtor conducts a significant part of its business in Hungary, but the foreign debtor has a place of business (branch or establishment) in Hungary, it is still possible to initiate insolvency proceedings in Hungary. However, in this case, the proceedings will be limited to the debtor’s assets located in Hungary. A disadvantage of this type of proceeding is that, with a few exceptions, the Hungarian process cannot be initiated immediately; the creditor must wait until insolvency proceedings are commenced in the Member State where the debtor has its registered office.

What options are available if insolvency proceedings cannot be initiated in Hungary?

In such cases, the Hungarian creditor may file their claim in the foreign insolvency proceedings in accordance with the legal provisions of the respective Member State.

If the foreign insolvency administrator is aware of the Hungarian creditor’s claim, they must promptly inform the Hungarian creditor about the initiation of the proceedings and provide information on how to submit a claim. In addition, the foreign administrator may contact the Hungarian court to publish the notice of the foreign insolvency proceedings in the Company Gazette, although this is not mandatory in every case.

Claims against the debtor can be submitted in Hungarian, but it should be noted that the foreign administrator or the debtor may request a translation of the claim into the official language of the respective Member State.

What are the costs associated with initiating insolvency proceedings?

In insolvency proceedings initiated in Hungary, an application fee of HUF 80,000 and a publication cost of HUF 25,000 must be paid at the time of filing the petition. Additionally, if the court orders the commencement of insolvency proceedings, the creditor must file their claim with the insolvency administrator, which involves the payment of a registration fee amounting to 1% of the principal, with a minimum of HUF 20,000 and a maximum of HUF 400,000. A cost advance of 0.5% of the principal must also be paid, with a minimum of HUF 5,000 and a maximum of HUF 40,000. Although these costs must be advanced by the creditor, they are recoverable from the debtor, and the insolvency administrator will record them as creditor claims during the proceedings.

For insolvency proceedings conducted in another Member State, the applicable national laws of that state determine the costs involved. The regulation does not include provisions regarding such costs.

Summary

Insolvency proceedings can be initiated in Hungary against a foreign debtor if it can be proven that the center of the debtor’s main interests is located in Hungary or if the debtor has an establishment in Hungary. In the latter case, proceedings can only be initiated once insolvency proceedings have been commenced in the Member State where the debtor is based, although exceptions apply. If proceedings cannot be initiated in Hungary, the Hungarian creditor can register their claim in the insolvency proceedings taking place in the other Member State, in accordance with that Member State’s laws.