Act IL of 1991 on Bankruptcy Proceedings, Liquidation Proceedings and Voluntary Dissolution




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Act IL of 1991

on Bankruptcy Proceedings, Liquidation Proceedings and Voluntary Dissolution

For the reorganization of insolvent economic organizations through bankruptcy proceedings, or, if such is not possible, dissolution of such organizations through liquidation proceedings, and for the regulation of the voluntary dissolution of solvent economic organizations which are terminating their activities, and the protection of creditors' interests, the Parliament hereby passes the following Act:



Chapter I.

General Provisions

Section 1.

(1) This Act shall regulate bankruptcy proceedings, liquidation proceedings and voluntary dissolution.

(2) Bankruptcy proceedings are proceedings in the course of which the debtor petitions, for the purpose of reaching a composition agreement, to have his debts rescheduled or attempts to have a composition agreement concluded.

(3) Liquidation proceedings are proceedings executed for the satisfaction of creditors as prescribed by this Act upon the dissolution of an insolvent debtor without legal successor.

(4) Voluntary dissolution proceedings are proceedings in the course of which solvent economic organizations, having resolved their dissolution without legal successor, satisfy their creditors.

Section 2.

(1) This Act shall apply to economic organizations and the creditors of such.

(2) The provisions of this Act referring to bankruptcy proceedings shall not apply to insurance companies limited by shares, insurance cooperatives, voluntary mutual insurance funds and private pension funds.

(3) The provisions of this Act



a) on bankruptcy proceedings, liquidation proceedings and voluntary dissolution shall apply to financial institutions, with the deviations provided for in the Act on Financial Institutions and the Activities of Financial Institutions;

b) in respect of liquidation proceedings and voluntary dissolution it shall apply to insurance companies limited by shares and insurance cooperatives, to voluntary mutual insurance funds and to private pension funds with the deviations provided for in the Act on Insurance Institutions and Insurance Activities, in the Act on Voluntary Mutual Insurance Funds and in the Act on Private Pensions and Private Pension Funds respectively.

(4) In respect of Hungarian branch offices of foreign-registered companies, the provisions of this Act regarding liquidation proceedings shall be applied with the deviations prescribed in the Act on the Hungarian Branch Offices and Commercial Representative Offices of Foreign-Registered Companies.



Section 3.

(1) For the purposes of this Act:



a) economic organization: state-owned companies, trusts, other state-owned economic organs, cooperatives, business associations, public enterprises, companies of certain legal entities, subsidiary companies and water management companies deviations provided for with the exception of public service water corporations, forest holding associations, voluntary mutual insurance funds and private pension funds;

b) debtor: an economic organization which was not able to, or presumably will not be able to settle its debt (debts) on the due date;

c) creditor: in bankruptcy and liquidation proceedings, up to the initial date of liquidation, parties having money claims against the debtor based on final and executable court or administrative orders (executable documents), or having overdue money claims or property claims expressed in monetary terms which are not disputed, or have been acknowledged by the debtor, furthermore, parties to bankruptcy proceedings having money claims or property claims expressed in monetary terms which are not yet overdue as of the initial date of bankruptcy proceedings, but are acknowledged by the debtor. In voluntary dissolution proceedings, creditors are all parties having money claims or property claims expressed in monetary terms against the economic organization. After the initial date of a liquidation, all persons having money claims against a debtor in money or property claims expressed in monetary terms and whose claims have been registered by the liquidator, shall be deemed as creditors;

d) head of economic organization: at state-owned companies, trusts, trust companies, other state-owned economic organs, companies of certain legal entities, subsidiary companies, and water management corporations: the director (company commissioner); at cooperatives: the Board of Directors (managing director) or the managing president; at general partnerships and limited partnerships: the member(s) entitled to the management of the business of the partnership and representation; at trade associations and joint enterprises: the director; at limited liability companies: the managing director(s); at companies limited by shares: the Board of Directors or the person(s) authorized by the Statutes to manage the company; at voluntary mutual insurance funds: the managing director (or the Board of Directors if no managing director is employed); at private pension funds: the managing director (or the Board of Directors if no managing director is employed); at private pension funds: the managing director;

e) assets: all property qualified as invested assets or current assets by the Accounting Act;

f)

(2)


Section 4.

(1) All assets held by an economic organization on the date of commencement of bankruptcy proceedings, liquidation proceedings or voluntary dissolution, as well as all assets acquired subsequently during the proceedings, shall be included in the scope of bankruptcy proceedings, liquidation proceedings and voluntary dissolution.

(2) The assets of an economic organization comprise the assets which it owns or manages. Assets of subsidiary companies shall also be considered assets of the economic organization; with regard to trusts, assets of the trust companies shall also be considered assets, if the deed of foundation of the trust was issued on the basis of Section 49 of Act VI of 1977 on State-Owned Companies.

(3) Subsection (2) shall not apply to the following:



a) assets managed by the debtor on the basis of a contract concluded with a state property management organization;

b) state-owned forests and nature conservation areas defined in legal regulations (national parks, areas under special protection, areas falling under the scope of international treaties), state-owned historic monuments as defined in separate legal regulations, furthermore, waters and water works managed by water management corporations and separate assets of water corporations required for providing public services;

c) arable land separated for the purpose of compensation, and allocated lands supply as defined in a separate law, as well as lands not designated to be auctioned off, and/or lands left over from compensation auctions;

d) such real property from among the assets of the economic organization which, based on the provisions of Subsection (1) of Section 7 of Act XXXII of 1991 on the Settlement of the Property Status of Former Church Properties, is included in the list approved by the Government.

(4) Military inventories appropriated by the Government during emergency periods can be included in liquidation proceedings if such appropriation is dissolved by the Government upon proposal by the state property management organization. Upon request of the liquidator the property management organization shall, within 30 days, declare whether it intends to file a proposal to have the appropriation dissolved. The Government shall reach a decision on dissolution of the appropriation within 60 days from the filing of the proposal by the property management organization. For the purposes of this Act, tangible assets and current assets necessary for military activities, including production documents as well, shall be regarded as military inventories.

(5) State reserves for national defense purposes shall not constitute a part of the assets of economic organizations.

Section 5.

(1) Upon request received during bankruptcy proceedings, liquidation proceedings and voluntary dissolution, the bankruptcy trustee, the liquidator and the party in charge of voluntary dissolution and the debtor's director shall, within 15 days, inform



a) the creditors' committee, and/or in the absence thereof, the group of creditors representing at least 10% of all creditors' claims, regarding the assets and financial standing of the debtor;

b) the employees, the trade unions defined in Section 18 of the Labor Code (LC), the employee councils (employee delegates), as well as the Employment Centers competent in the area with regard to matters affecting the employees.

(2) Creditors or their groups may establish a creditors' committee for the representation of their interests. The committee shall represent the creditors establishing it in courts and in relations maintained with the bankruptcy trustee, the liquidator and the party in charge of voluntary dissolution.

(3) Only one committee may operate at any economic organization. In the event that more than one committee is established at an economic organization as per the provisions of Subsection (1) of Section 39 or thereafter, the body which first announces its establishment to the court, shall be deemed the creditors' committee. If simultaneously more than one committee announces its establishment, the committee comprising more creditors shall be considered the creditors' committee. Establishment of such a committee shall be conditional upon establishment by at least one-third of the registered creditors, as per with Paragraph f) of Subsection (2) of Section 28 and Subsection (1) of Section 68, and upon the fact that such creditors hold at least one-third of the registered creditor claims. Such creditors shall elect from among their group a creditors' committee consisting of three members. The committee's powers, representation and rules of operation shall be established in agreements concluded by the creditors inter se. A creditor may join the creditors which have established the committee, even after the establishment of such, provided he accepts the provisions of the agreement.

(4) The committee shall inform the debtor, the court, the bankruptcy trustee or liquidator, or the party in charge of voluntary dissolution regarding its establishment, members and rights, within 8 days of its establishment.



Section 6.

(1) Bankruptcy and liquidation proceedings are non-contentious proceedings falling under the authority of the county (Budapest Municipal) court (hereinafter referred to as "court") with jurisdiction for the registered office of the debtor; voluntary dissolution is a non-contentious proceeding falling under the authority of the aforementioned court, as a court of company registration (hereinafter referred to as "Court of Company Registration").

(2) The provisions of Act III of 1952 on the Code of Civil Proceedings (hereinafter: CPC), with the differences originating from the characteristics of non-contentious civil proceedings, shall apply mutatis mutandis to procedural questions not regulated separately by this Act, in that suspension, interruption and discontinuance shall not be applied in bankruptcy and voluntary dissolution, while interruption shall not be applied in liquidation.

(3) No application for a review may be submitted against a final ruling



a) which determines insolvency and orders the liquidation of an economic organization [Subsection (1) of Section 27], as well as

b) which discharges the liquidation proceedings [Subsections (1)-(2) of Section 60].

(4) In bankruptcy proceedings the debtor, the creditor, and the bankruptcy trustee, in liquidation proceedings the debtor, the creditor, and the liquidator and in voluntary dissolution proceedings the economic organization, the creditor, and the party in charge of voluntary dissolution shall be considered parties. If judgment of a complaint submitted based on the action or omission of action of a bankruptcy trustee or liquidator affects the rights of any third party, such shall also qualify as a party.



Chapter II.

Bankruptcy Proceedings

Commencement of Bankruptcy Proceedings

Section 7.

(1) The directors of economic organizations may file a petition for bankruptcy proceedings with the court.

(2) A debtor may not file another petition within 2 years of the receipt of the bankruptcy petition by the court, if he was granted moratorium in the previous proceedings. If the debtor filed a bankruptcy petition prior to this Act entering into effect, the two-year period shall commence from the date of announcement of the bankruptcy proceedings.

Section 8.

(1) Prior consent of the following organs is required for filing the petition specified in Section 7:



a) the company council, the body performing general management at state-owned companies operating under the direction of the General Assembly of Workers or the Delegates' Assembly;

b) the General Assembly at cooperatives;

c) the membership at unlimited partnerships and limited partnerships, the Board of Directors at trade associations and joint ventures, the General Meeting at limited liability companies and water management corporations and the General Assembly of Shareholders at companies limited by shares;

d) the organ exercising founder's rights at state-owned companies under state administration supervision, trusts and other state-owned economic organs;

e) the establishing organ at the companies and subsidiary companies of certain legal entities; and

f) the trust, at trust companies.

Employees, trade unions defined in Section 18 of LC and employee councils (employee delegates) shall be informed regarding filing of the petition.

(2) The document certifying the prior consent of the organs specified in Subsection (1), the balance-sheet (simplified balance-sheet) prepared within three months to date and the tax identification number of the debtor, as well as the list of creditors, the amounts of debts and the dates of maturity, and the document certifying the payment of the publishing fee shall be attached to the petition for bankruptcy. The debtor shall also declare whether he has been granted moratorium within two years preceding filing of the petition.

(3) The initial date of the bankruptcy proceedings is the date of receipt of the debtor's petition by the court.

(4) If, simultaneously with the initial date of the bankruptcy proceedings or subsequently thereto, a petition for commencement of liquidation proceedings against the debtor is received by the court, the court shall suspend review of such petition until final discharge of bankruptcy is ordered.

Section 9.

(1) For the purpose of reaching an agreement with creditors necessary in the interest of having a moratorium granted, the debtor shall hold negotiations, within 30 days of the initial date of bankruptcy proceedings, with direct invitation of known creditors, and indirect invitation of unknown creditors by way of public notice, simultaneously upon filing the petition and sending the documents prescribed in Subsection (2) of Section 8. The notice shall be published in two daily papers with national circulation within 3 days of the initial date of the bankruptcy proceedings.

(2) The notice shall contain:

a) the name and registered office of the debtor;

b) the initial date of the bankruptcy proceeding;

c) the place and date of the negotiations;

d) information concerning where the documents specified in Subsection (2) of Section 8 shall be available for creditors to review up to the scheduled date of negotiations.

(3) In the negotiations, the debtor shall request the creditors' agreement to having a moratorium on payment granted.

(4) An agreement shall be considered reached, if more than half of the parties holding creditors' claims overdue at the initial date of the bankruptcy proceedings, and more than a quarter of the parties holding non-expired creditors' claims agree to having a moratorium granted, provided the combined claims of the aforementioned creditors amount to two-thirds of the total creditors' claims indicated by the debtor in the balance-sheet (simplified balance-sheet) as prescribed in Subsection (2) of Section 8.

(5) The liabilities specified in Paragraph a) of Subsection (1) of Section 12 shall not be taken into consideration when calculating the ratio necessary for agreement with creditors. Simultaneously with the agreement for granting moratorium, the amount, for financial fulfillment and assumption of obligations for which the debtor is required to obtain the consent of the bankruptcy trustee, shall also be decided, by the application of the voting ratio as specified in Subsection (4).

(6) The debtor shall prepare minutes of the negotiations containing the list of names of the creditors invited and those attending. The minutes shall be witnessed by two persons appointed by the creditors attending the negotiations. If the creditors agree to the moratorium as described in Subsection (4), the declarations of agreement of the participating parties and the official authorizations of the participants in the negotiations concerning the signing of the agreement, shall constitute the schedule to the minutes.

Section 10.

(1) The debtor shall notify the court of the result of the negotiations within three days of the conclusion of such. The documents certifying creditors' agreement shall be attached to this notification.

(2) Upon receiving notification as per Subsection (1) the court shall decide whether to terminate the proceedings or to pass an order containing the moratorium.

(3) The court shall terminate the proceeding, if:



a) the bankruptcy petition was not filed by a party entitled to do so;

b) a petition returned due to deficiencies was not corrected by the filing party within 8 days, or was re-filed with deficiencies still remaining;

c) prior consent of the organs specified in Subsection (1) of Section 8 is not available;

d) the two-year period as per Subsection (2) of Section 7 has not expired yet;

e) the debtor was not granted the agreement of creditors necessary for the moratorium, or failed to file the notification within the deadline specified for filing the result of the negotiations.

(4) If liquidation proceedings initiated against the debtor were suspended by the court in accordance with Subsection (4) of Section 8, the continuance of such proceedings shall be ordered simultaneously with termination of the bankruptcy proceedings.

(5) If the proceedings were terminated by the court on the basis of Paragraphs c) and d) of Subsection (3), the court may file charges against the director of the economic organization, in accordance with the provisions of Subsection (1) of Section 33.

Section 11.

(1) The court shall, within 15 days, take measures for having the order on the termination of bankruptcy proceedings, and/or the court order on the moratorium granted published in the Company Gazette (Cégközlöny).

(2) The order published on the termination of the bankruptcy proceedings shall contain the:

a) name of the court and the case number;

b) names, registered offices, and tax identification numbers of the debtor and its subsidiaries, of the economic work groups operating under debtor's assumption of responsibility, and the trust companies established by the debtor in accordance with Section 49 of Act VI of 1977 on State-Owned Companies. If legal succession has taken place within two years prior to the announcement of the proceedings, the name, registered office and tax identification number of the legal predecessor shall also be indicated;

c) reason for terminating the bankruptcy proceedings [Subsection (3) of Section 10].

(3) The court order to be published on the moratorium shall contain:



a) the contents specified in Paragraphs a) and b) of Subsection (2);

b) the initial date of the bankruptcy proceedings;

c) the name and registered office of the bankruptcy trustee appointed by the court (Section 14);

d) the fact that the debtor is eligible for a moratorium for a period of 90 days from the publishing of the court order, with respect to financial liabilities due prior to the initial date of the moratorium or becoming due thereafter.

Section 12.

(1) The moratorium shall not represent an exemption from the payment of



a) wages and other benefits based on claims existing on and established following the initial date of the bankruptcy proceedings, as well as any subsequent charges imposed thereon, personal income tax advances, health and pension insurance contributions, contributions paid in accordance with the Act on Furthering Employment and Provisions for the Unemployed, severance pay, alimony, life-annuities, compensation contributions, supplementary mining benefits, vocational training contribution obligations, benefits and allowances of students participating in vocational training, furthermore, water and sewage fees due on the basis of the service providing obligation defined in a separate legal regulation, as well as the costs of the bankruptcy trustee charged in accordance with Subsection (2) of Section 17, furthermore,

b) value added taxes payable on the basis of the liabilities established after the initial date of the bankruptcy proceedings.

(2) During the period of moratorium, legal consequences associated with the non-fulfillment or delayed fulfillment of money payment obligation, with the exception of the provisions of Subsection (4), shall not apply.

(3) During the period of moratorium, the execution of financial claims against the debtor, with the exception of the provisions of Subsection (1), shall be suspended.

(4) During the period of moratorium, creditors' claims, unless otherwise prescribed in the agreement, shall bear interest.

(5) During the period of moratorium, with the exception of the claims defined in Paragraph a) of Subsection (1) of Section 12, the debtor may not fulfill payments based on claims existing on the initial date of the bankruptcy proceedings.

Section 13.

(1) Upon request of the debtor and the creditors representing the ratio defined in Subsection (4) of Section 9, the court may extend the period of moratorium by not more than 60 days. The application shall be submitted to the court prior to expiration of the moratorium.

(2) The court order on the extension of the moratorium is not subject to appeal. The court order on the extension of the moratorium shall be published, as prescribed in Subsection (3) of Section 11, in the Company Gazette without delay.

Bankruptcy Trustee

Section 14.

(1) In the court order on the moratorium the court shall appoint a bankruptcy trustee from the register of liquidators. The regulations applying to liquidators in respect of conflict of interest and refusal of appointment shall apply mutatis mutandis.

(2) The directors of the debtor economic organization may only exercise their respective scope of authority without violating the rights provided for the bankruptcy trustee.

(3) The bankruptcy trustee shall, with due consideration to protecting creditors' interests, monitor the debtor's business activities. In the framework thereof, the bankruptcy trustee



a) shall review the debtor's financial standing in the course of which he shall inspect of the books, cash-desk, securities and inventories of goods, contracts and bank accounts of the debtor, request information from the directors of the economic organization, and inform the creditors regarding his findings in accordance with the provisions of Section 5;

b)

c) shall approve, with the exception of the provisions of Subsection (1) of Section 12, the assumption of property-related obligations incurred after the initial date of the bankruptcy proceedings, if such obligations exceed the amount fixed by the creditors in the moratorium agreement;

d) shall call upon the debtor to enforce his claims, and shall check the execution of such;

e) may file actions contesting contracts or legal declarations made by the debtor within one year prior to the initial date of the bankruptcy proceedings and after commencement of the proceedings, if the subject thereof include alienation of debtor's assets without compensation, assumption, without compensation, of obligations encumbering the assets or the commutative legal transaction concluded in favor of a third party with an extraordinarily high difference in value.

(4) The bankruptcy trustee may only approve payments necessary for the practical operation of the debtor.

(5) In the course of his activities, the bankruptcy trustee shall act with the diligence generally expected in the given situation and shall be held liable for damages caused by violating his obligations in accordance with the general provisions of civil law.

Section 15.

(1) The bankruptcy trustee shall take part in the negotiations of the reorganization program aimed at restoring or maintaining solvency and those for the composition proposal.

(2) The bankruptcy trustee shall approve the composition with creditors concluded during the bankruptcy proceedings if it conforms with the provisions of Subsection (4) of Section 19. Any agreement concluded disregard of the aforementioned provision shall be considered null and void.

Section 16.

(1) Upon request of the court, and within the deadline and in the manner defined by the court, the bankruptcy trustee shall file a report on his own activities and on the financial standing of the debtor.

(2) In the event that the bankruptcy trustee violates the law or the legitimate interests of the parties or of other persons, the aggrieved party may file an objection at the court conducting the bankruptcy proceedings within 8 days of gaining knowledge thereof.

(3) If the objection is found to be legitimate by the court, it shall overturn the measures taken by the bankruptcy trustee or shall order him to take the appropriate measures - otherwise the court shall reject the objection.

(4) With respect to court proceeding the provisions of Section 51 shall be observed mutatis mutandis, with the difference that the court order on the objection is not subject to appeal.

Section 17.

(1) The office of the bankruptcy trustee shall be terminated upon the termination of the bankruptcy proceedings (discharge), or, in the case of continuance of suspended liquidation proceedings, upon appointment of a liquidator.

(2) The fee and documented costs of the bankruptcy trustee shall be covered by the debtor. The costs of the bankruptcy trustee shall be paid against invoice at the time they are incurred. The fee of the bankruptcy trustee shall be 1% of the book value of the assets shown in the balance-sheet (simplified balance-sheet) described in Subsection (2) of Section 8. The fee shall be determined by the court in the court order terminating the proceedings, discharging the proceedings, or containing the appointment of the liquidator.

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