Hungarian Model of the Restructuring Process - National Report

As a result of the transposition obligation in Article 34 of Directive (EU) 2019/ 1023 of the European Parliament and of the Council on restructuring frameworks and insolvency, Act LXIV of 2021 (hereinafter - referred to as the Restructuring Act) on restructuring and the amendment of certain acts with the purpose of legal harmonisation was promulgated on 3 June 2021, effective as of of 1 July 2022 for any legal persons struggling with financial difficulties not yet insolvent. The creation of a restructuring model prescribed by the EU directive was implemented by the Hungarian legislator through the opening of a non-contentious court procedure ordered within the jurisdiction and exclusive competence of the Metropolitan Court of Budapest. The primary aim of this paper is to develop a complex and comprehensive picture of the restructuring procedure as placed within the system of insolvency and reorganisation procedures in Hungary. Firstly, the paper showcases the unified EU objectives set out by the directive within the system of European insolvency procedures. Secondly, it describes the Hungarian procedural rules and the most important related legal institutions adopted to implement these objectives. Section 6 of the Restructuring Act sets out that the aim of restructuring is to adopt and implement a restructuring plan with some or all of the creditors and thus prevent the debtor’s future insolvency and ensure the debtor’s financial viability. For the purpose of reaching this objective, therefore, restructuring constitutes measures aiming at restoring the financial balance of the debtor, including changing the composition, the conditions or the structure of the debtor’s assets and liabilities and any other part of the debtor’s capital structure. Among these measures, the Restructuring Act lists as example the sale of the debtor’s property or part thereof, or the sale of any participation in the debt. The condition for restructuring is the likelihood of the company’s insolvency. The definition of the likelihood of insolvent Directive (EU) on restructuring frameworks and insolvency, European insolvency procedures, insolvency and reorganisation procedures, restructuring plan, non-contentious court procedure bears a central significance here: it constitutes the entrance point into the restructuring procedure. In addition to the definition of insolvency, Section 2(2) of the Restructuring and Insolvency Directive renders the interpretation of the probability of insolvency into Member State jurisdiction. Among the Explanatory notes the Restructuring Act defines the likelihood of becoming insolvent as a situation in which there are reasonable grounds for believing that the debtor will be unable to meet his/her outstanding payment obligations when they fall due, unless further measures are taken. Keywords: Directive (EU) on restructuring frameworks and insolvency; European insolvency procedures; Insolvency and reorganisation procedures; Restructuring plan; non-contentious court procedure