1.1 Amicable Phase
Accounts Receivable Hungary is dedicated to providing a professional collection process to our clients and the debtors that we’re asked to pursue. Our primary focus is on maintaining an open and amicable relationship between our client and debtor throughout the entire debt recovery process, and we do that by maintaining a professional and well-trained collection staff in-house. When pursuing a debtor during the amicable phase, Accounts Receivable Hungary will pursue both telephone contact and written communication via postal mail. It is our policy to adhere to all state and federal laws when collecting a debt.
In the event that the debtor disputes the debt that we are trying to collect, we will attempt to reach an agreeable resolution by examining contractual documents, invoices, orders, and other documentation. This will completed with the consultation and assistance of our own in-house legal team, as will any further investigations into the debtor or the debt.
1.1.2 Local agent
Accounts Receivable Hungary maintains a network of field agents that can personally visit debtors located in the greater Budapest area of the country. For visits outside this area, we rely on an external field agent who will work under our control and according to the terms of an agreed contract. The goal of these field visits is to meet with the debtor in order to determine their financial situation and their ability to pay. Our field agents also assess the debtor’s assets to determine whether or not the collection process will yield the desired results for our clients. After a visit has been completed, our agents will provide us with photos and a written summary of their findings. Our agents are not empowered to collect money toward the debt’s outstanding balance during these field visits.
Accounts Receivable Hungary always adds interest to the amount of the outstanding debt. This rate is determined by the code of civil law within Hungary. We use the rate set by the Hungarian National Bank and add a flat rate of 7 percent to it, and then levy this interest rate on the debt on a daily basis. We cannot charge a higher rate than the one outlined in the country’s civil law unless a higher rate is specified in contractual agreements between the creditor and the debtor.
In Hungary, any interest rate charged to an outstanding debt is viewed as a tool for negotiation. We may lower the interest rate to secure payment of the debt, but we will always consult our clients before any such modification is made.
1.1.4 Debt collection costs
Debt collection costs can be charged to the debtor in Hungary, but no existing regulations determine how much this amount is or whether it can be negotiated. No costs can be added to any debt if those costs are not specified in an existing contractual agreement, however, and those documents must be available if a court requires proof of the ability to charge collection costs.
As with interest rates, Hungarian debtors view the charging of collection costs as a point of negotiation with the creditor. We may modify any costs permitted in the contractual agreement between the parties in order to achieve payment of the debt, but only after we have consulted with our client.
The statute of limitations in Hungary lasts five years from the due date of the original debt. Transport claims have a far shorter limitation period, however, lasting just one year from the delivery of goods. The CMR Convention of Geneva governs transport claims.
The statute of limitations can be suspended at any time due to amicable collection success, an acknowledgement of the debt or a payment toward the debt. It can also be suspended during legal action and arbitration.
1.1.6 Accepted and most common payment methods
Debts are most often satisfied via bank transfers or paper cheques.
1.1.7 Types of companies
There are several different types of companies in Hungary, including:
Egyéni cég (Private company)
This company has only one owner, and unlimited liability unless the company has capital. In the event that the company has capital, liability will be limited by that amount.
Bt. (Betéti Társaság) (Limited partnership)
No minimum capital is required for this partnership, but at least one partner will be subject to unlimited liability for the company’s debts with both private and business funds.
Kft. (Korlátolt Felelősségű Társaság) (Company with limited liability)
Capital of at least 500,000.00 HUF must be maintained, but can be in the form of assets or cash. Liability is limited to this capital.
Rt. (Részvénytársaság) (Corporation)
Minimum capital for this company stands at 5,000,000.00 HUF for a private operation, and 20,000,000.00 HUF for a public entity. Liability is limited to capital.
1.1.8 Sources of information
Accounts Receivable Hungary obtains financial information about debtors via credit reporting agencies. This also provides us with information about assets, like real estate and other goods. We combine the information obtained through credit reports with the information obtained by our own agents through telephone, written, and in-person contact. This information is used to advise our clients about the best course of action. In some cases, we are also able to request information about the debtor through public registries.
All companies in Hungary are required to register with the Trade Register at a company court, and this information is available via the Internet. We have access to this information, and it is a key part of our ability to trade debtors and pursue recovery. This information often includes balance sheets, names of shareholders, historic information bout the business, and associated business partners.
Accounts Receivable will monitor the debtor’s solvency at all times in order to ensure that our clients lodge a claim in time to receive a payment or dividend during an insolvency proceeding.
1.2 Retention of Title
Retention of Title is used very rarely during collection cases in Hungary. In order for ROT to be enforced, it must be agreed upon in writing prior to the debt being owed. Both parties must sign any agreement. Even so, utilization of ROT is barely supported by the courts and lawyers within Hungary, forcing most companies to pursue outright liquidation instead.
1.3 Safeguarding measures
If a debtor cannot quickly make payment and satisfy a debt, Accounts Receivable Hungary will pursue securitization to ensure the debt is eventually paid. This is done via several different avenues in Hungary:
– A notarized acknowledgment of the debt
– Mortgages and debt assignments to assets or property
– A guarantee of the debtor’s shareholders or business partners
– Assignment of the claim to a debtor’s absolute guarantee, often notarized
1.4 Legal Procedures
Hungary’s legal system is split into civil law, for relations between two people or companies, and public law, which applies to cases between two individuals or the state.
It is possible to begin legal proceedings against a debtor without prior notification. This is rarely done, however, because most courts prefer some form of notification to be sent, as well as some form of mediation to take place before a trial begins. After this court-mandated mediation has been completed, debtors can either adhere to the agreement that was reached or provide the court with proof that any agreement was made impossible by their differing opinions. At this time, the judge will request a submission of evidence and prior correspondence in order to reach a final judgment in the case. All told, this process is actually quite fast in comparison to many surrounding countries.
1.4.2 Legal System
The court of first instance is determined by the location of the debtor and by the amount of money owed to the creditor.
1.4.3 Required documents
To pursue legal action against a debtor, Accounts Receivable must first be provided with the following documentation:
– Copies of the contract
– Copies of invoices
– Copies of account statements and credit notes
If legal action moves beyond mediation and into a traditional lawsuit, additional documentation will be required:
– All contractual documentation, copied
– Copies of orders, delivery notices, and confirmations
– Copies of all outstanding invoices and credits
– Documentation of the entire relationship between the parties
– Documentation of any agreements, written or oral, between the parties
– Names of witnesses, if requested, during a dispute
1.4.4 Payment order procedure
Payment orders are issued only for non-disputed debts or those debts that involve movable goods. It can be enforced if the debtor does not appeal it within 15 days of receiving the order in the mail. Upon appeal, a payment order transitions into a traditional lawsuit.
A lawsuit is initiated immediately after amicable collection has failed to produce the desired result. It is also initiated if a debtor files a dispute against the creditor, or it can commence after the legal dunning procedure has been pursued with the debtor. A written pre-procedure statement is generally issued to the debtor; both the debtor and the creditor exchange opinions and evidence with the court following the receipt of that statement. When the judge feels he or she has the evidence needed to make a ruling, a hearing will be called. Both parties must attend that hearing.
Typically, the judge will lodge a judgment against the debtor for the full outstanding balance, as well as some costs or fees. The judgment itself will be sent to both parties, and enforcement can begin almost immediately after receipt.
Judgments can be appealed, and the court of second instance will review the case.
A payment order issued against the debtor typically costs roughly 3 percent of the debt, and 6 percent of the debt at the time of the lawsuit. An appeal will cost 8 percent of the debt’s outstanding balance. Hungarian law regulates these amounts. Court costs typically range from between 1 percent and 3 percent, and lawyer’s costs will be negotiated between the lawyer and the creditor. An estimation of all costs involved will be provided on a case-by-case basis.
1.4.8 Expected timeframe
Legal dunning typically takes between one and four months. A lawsuit can take between one and three months, though more complex cases will take longer.
1.4.9 Interests and costs in the legal phase
Any costs incurred by the creditor can be claimed as part of the balance during a lawsuit, but these costs may not be awarded by the judge during the lodging of a judgment. The losing party in any suit does have to bear the costs of the procedure, however.
1.5.1 Enforcement in debt
Creditors are permitted to block the debtor’s bank account or garnish their wages to enforce a debt. This is typically very difficult, however, because creditors must have very specific and detailed information about the debtor’s accounts, employer, and financial situation.
1.5.2 Enforcement in movable goods
Considered the standard enforcement procedure, a bailiff will visit the debtor and remove any assets that can be liquidated to pay off the outstanding balance of the judgment. Goods necessarily for daily life cannot be seized as part of this process.
1.5.3 Enforcement in immovable goods
If enforcement via movable goods is not successful, a record of the claim can be placed in the land register and then attached to the debtor’s real estate. This can force a sale of the property or the sequestration of the real estate if the real estate is tenant-occupied.
1.5.4 Expected timeframe
Enforcement takes between three and nine months in most cases, though enforcement in immovable goods can take far longer.
1.6 Insolvency Proceedings
In Hungary, insolvency proceedings typically amount to a collective enforcement of all the debtor’s obligations at one time. During any insolvency procedure, outstanding collections and enforcements are suspended. If the proceedings stop or fail for any reason, then those procedures will continue. It should be noted that the laws governing insolvency in Hungary make it a highly ineffective process, despite further revisions to the code made during the 1990s. In 2012 alone, 20,000 insolvency cases were recorded with an average dividend to creditors of just 1 percent.
Reorganization and bankruptcy proceedings are not a typical way to creditors or debtors to proceed, and are exceedingly rare in Hungary.
The goal of filing for traditional insolvency is simply to pay out an equal dividend to all creditors by liquidating a debtor company’s assets. At the conclusion of this process, all outstanding debts are considered eliminated and cannot be pursued further.
Bankruptcy, on the other hand, seeks to restructure a company’s debts in order to allow for more robust satisfaction of outstanding financial obligations. Repayment agreements are initiated with each creditor that files a claim during this process.
Creditors can only lodge their claims against the debtor company after it has been published in official resources nationwide. This must be done within 120 days. Any goods due to be recovered by Retention of Title must be taken back during the same period of time. Any goods on stock that are not reclaimed during the 120-day period
An appointed liquidator will accept or deny any claims made by the creditors. If a claim is disputed, it may be re-filed only once. There is a small fee to lodge a claim, equal to 1 percent of the debt owed to the creditor.
If a creditor does not wish to file a claim, they can file a request for a tax write-off form that will eliminate the debt from their balance sheet.
1.6.3 Required documents
To file a claim during insolvency, we need the following documentation:
– Original Power of Attorney
– Copies of invoices
If a claim is disputed, the following additional documentation will be required:
– Copies of contracts
– Copies of conditions of sales, if relevant
– Copies of correspondence proving the debt
– Copies of orders, deliveries, and confirmations
1.6.4 Expected timeframe and outcome
Liquidation proceedings in Hungary typically last a minimum of three years, with more complex cases lasting as many as seven years. If the debtor company has no assets, a simplified procedure can take place and full liquidation can occur within one or two years.
1.6.5 Limited companies
Liability for limited companies is typically limited to the amount of capital they have on hand. During a lawsuit, however, a court can judge the liability of the shareholders and hold them responsible for many of the company’s outstanding debts. Those shareholders must be involved in gross mismanagement or other misconduct, however, and this process is very rarely successful.
1.6.6 Non-limited companies/individuals
Liability is unlimited for these companies, and shareholders are liable for losses with their own assets.
1.6.7 Pool of creditors
Creditors can form their own pool in an effort to represent their interests alongside the appointed liquidator.
The appointed liquidator has the ability to reclaim payments made by the debtor prior to the publishing of the insolvency case itself. If a payment must be refunded, a creditor will be required to refund the debtor and claim a different debt amount with the payment’s refund reflected.
1.7 Arbitration and Mediation
The Chamber of Industry and Commerce governs arbitration in Hungary, which allows for an independent third party to hear the case and make a decision outside of the traditional court setting. There is no appeal, however, which can make this process a big gamble for creditors and debtors alike.
Mediation can also be chosen by both parties in an attempt to reach an agreeable solution outside of a traditional lawsuit procedure. Any agreement reached is a contract, rather than a judgment. In both mediation and arbitration, enforcement can begin immediately.To get started today, call us at321-710-3530 to speak with an associate