A new institution in Hungarian bankruptcy law
By Dr. AttilaKovács, Kovács Réti Szegheõ Attorneys at Law
A new institution has been introduced by the Hungarian legislator for bankruptcy law, with the aim of contributing to enterprises' reorganisation and debt settlement. It is known as the 'Major Economic Operator of Preferential Status (MEOPS)'. In cases defined within the Act, an economic operator may be classified as a MEOPS if it is engaged in the pursuit of activities that are deemed to be of strategic importance for Hungary's national economic purposes, including the implementation of projects that have been given priority for national economic consideration.
An economic operator may also qualify by being involved in discharging public functions conferred by law nationwide. Qualification may also be awarded to economic operators whose activities may be considered of national importance for reasons of national security, defence, law enforcement, energy safety, environmental protection, public health considerations or any other reasons listed by the Act.
The Hungarian airline Malév, which has a significant history and is well-known, is one of the first companies to whose case this new legal institution has been applied.
The importance of the new institution is that special rules apply to MEOPS in cases of bankruptcy or liquidation, which should be applied if there is national economic or special public interest in coming to an agreement with the company's creditors, settling its debts, or performing a successful reorganisation. These special rules also apply in cases where there is a key economic interest in the termination without a legal successor and it is necessary to conduct the connecting procedure in a more transparent, standardised and faster way. Tasks in connection with the above are performed by a liquidator appointed by the State, whose primary goal is to keep the company's properties together and to ensure the company's operation. The MEOPS is not allowed to make payments without the consent of the liquidator. Such consent is given if the payment is necessary for the normal operation of the company or for pursuing its prioritised activities.
During liquidation, provided that the government decree qualified the company as a MEOPS, imposing the application of certain rules, enterprises enjoy protection for a certain period, which is similar to bankruptcy protection. This institution is called "special moratorium". During this time, special regulations ensure several guarantees for the MEOPS: in the case of Malév, the possibility of enforcing monetary claims on the company by recovery was suspended, securities could not be enforced in accordance with the law, and partners were not allowed to terminate and withdraw from an agreement previously concluded with Malév. The debtor is entitled to this protection from the filing of the petition initiating a liquidation procedure until the decision on liquidation is made and for an additional 90 days following the possible order on liquidation.
Another novelty of the regulation is the special sale of properties. The task of the liquidator is to sell the enterprise's properties and intangible assets at the highest price they can possibly achieve on the market. The liquidator may also conduct private sales – by certain guarantees – if there is public interest in selling the economic operator's properties as an operating company in order to ensure the company's uninterrupted and continued operation.
There is a significant difference in the process of the liquidation compared to other liquidations as well. For example, forfeit deadlines for notifications and for inspection times have been reduced (180 days to 120 days and 45 days to 40 respectively). Furthermore, time allotted for the preparation of the closing balance sheet has been shortened from two years to 270 days. Contrary to general rules, the debtor may not request a payment delay for the settlement of its debts.
The rules described above may only be applied if the Hungarian government qualifies the company as a MEOPS in a government decree within the deadline stipulated by the Act.
The practice which will develop in the future may answer questions such as how often governments live with this opportunity and with how much efficiency this can help national economy interests to prevail to a greater extent.
Dr. Attila Kovács, Managing Partner
Kovács Réti Szegheõ Attorneys at Law
Tl: +361 275 27 85
Dr. Attila Kovács graduated from the Faculty of Law at Eötvös Loránd University in 1996. After gaining professional experience in Hungarian and German law offices, he is a member of Kovács Réti Szegheő Attorneys at Law, and has been Managing Partners since 2004. He is an arbitrator at the Arbitration Court that is attached to Hungarian Chamber of Agriculture, he is Chairman of the Geneva Group International's Insolvency Practice Group, and Chairman of the Zugliget Voluntary Pension Fund's Supervisory Board. Attila speaks Hungarian, English and German and his primary areas of practice are bankruptcy law, real estate law and corporate law.
Kovács Réti Szegheő Attorneys at Law was established in 1992 and is one of the oldest independent Hungarian law firms. It is active in Hungarian, English, German and Italian and operates over a wide spectrum within the fields of civil and business law, for both domestic and international clients. Kovács Réti Szegheő Attorneys at Law has gained immersive experience in the fields of corporate law, mergers and acquisitions, construction law, real estate law, securities law, bankruptcy law, labour and employment (also including health & safety), competition law and intellectual property law. It also advises clients in matters related to the internet such as e-business and data protection, as well as advising on environmental protection, public procurement law and energy law.