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Hungary

Security interest law in Hungary

Table of contents
  1. Guarantees
  2. Security
  3. Perfection
  4. Enforcement
Hungary

Guarantees

1. Can an intercompany guarantee be granted?

1.1 Upstream?

Yes, but must consider corporate benefit and financial assistance rules may apply to companies limited by shares.

1.2 Downstream? 

Yes, must consider corporate benefit.

1.3 Lateral?

Yes, must consider corporate benefit.

2. Can a guarantee be given under foreign law (e.g. English law)?

Yes

3. Any special arrangements (e.g. to deal with transfer pricing/corporate benefit)?

No whitewash process available, therefore corporate benefit must be considered and financial assistance restrictions be respected.

Security

4. Can a security interest be granted in the following type of asset?

4.1 Real property 

Yes

4.2 Shares (privately held)

Yes

4.3 Shares (marketable securities)

Yes

4.4 Receivables 

Yes

4.5 Bank account

Yes

4.6 IP/Trademark

Yes

4.7 Equipment/Plant/Machinery

Yes

4.8 Inventory

Yes

4.9 Insurance

Yes

4.10 Rights under a contract

Yes

5. Can security interests be granted to a foreign lender?

Yes

6. Can multiple security interests be granted over the same asset?

Yes

7. Can a security interest be granted to secure liabilities of a holding company, a subsidiary or any other affiliate? 

Yes, but financial assistance rules may apply and corporate benefit should be considered.

Perfection

8. In order to be enforceable against third parties, must a security interest be?

8.1 Notarised? 

Yes, strongly recommended.

8.2 Registered?

Yes, for certain assets (e.g. real estate, fixed assets, business quotas, security over IP etc).

8.3 Other?

N/A

9. Does registration in most cases protect the secured creditor against the debtor’s subsequent dealings with the secured asset?

Yes, but in certain cases (e.g. fixed assets) special arrangements are advisable to take against third parties acting in good faith acquiring ownership title over the asset.

10. Is there any stamp or similar tax or duty payable on the security document?

No, but notarial fees, registration fees and enforcement costs are payable.

Enforcement

11. For a security interest to be legally enforceable which items must be filed as part of the registration or notarisation process?

11.1 Entire security agreement?

Principally yes, but in certain cases, an extract is sufficient.

11.2 Names of pledgor and pledgee?

Yes

11.3 Description of secured asset in general terms?

Yes

11.4 Description of each individual secured asset?

A general description is sufficient, but it is recommended to be specific.

11.5 Documents concerning ownership of secured asset?

No

11.6 Documents concerning debt in respect of which the asset is being secured?

Yes, but extracts are sometimes used.

12. Can a right to enforce security arise: 

12.1 When the secured debt is unpaid and due?

Yes

12.2 When there is some other breach of the pledge/security agreement?

This usually triggers the right to accelerate the loan, and results in unpaid and due debt.

12.3 When the debtor becomes insolvent? 

Yes, but secured creditors may only satisfy their claims in the framework of a regulated insolvency procedure.

13. Can the creditor enforce its security interest by taking possession of the asset and selling it without court assistance?

Yes, if the criteria of the out-of-court enforcement process is met.

14. Is an instrument for direct enforcement necessary/available/market practice?

Not necessary, but available if certain legal criteria are met.

15. Are powers of attorney to the secured party used to facilitate a sale of secured assets in an enforcement situation?

Yes, in principle (but not often relied on).

16. If a sale is permitted without court assistance does it have to be made by public auction?

No

17. Can a transfer of all or part of the debt be made without affecting the security over the assets?

Yes, certain securities (e.g. pledges) are accessory and transfer automatically with the debt. 
No, some forms of fiduciary security (e.g. security options and assignments) do not transfer.

18. Is there anything else of which a lender should be aware as unusual or particularly difficult?

Security agency/trustee structure not tested. 
Parallel debt structure not tested. 
Extensive challenge rights available for non-co-operational borrowers. 
Enforcement proceedings might be lengthy. 
Recovery percentage in insolvency proceedings is very low. 
The new Civil Code coming into effect on 15 March 2014 will substantially amend the applicable legal provisions.