The International Comparative Legal Guide to Securitisation 2012 Edition
Szerző: Dr István Gárdos - Dr Erika Tomoriletöltés
GLG International Comparative Legal Guide to Securitisation 2012
1 Receivables Contracts
1.1 Formalities. In order to create an enforceable debt obligation of the obligor to the seller, (a) is it necessary that the sales of goods or services are evidenced by a formal receivables contract; (b) are invoices alone sufficient; and (c) can a receivable “contract” be deemed to exist as a result of the behaviour of the parties?
(a) There are two requirements for the creation of an enforceable debt obligation: a contract; and the provision of the service undertaken in the contract. It is not necessary that the sale of goods or services is evidenced by formal receivable contracts; the parties are usually free to choose the form of their agreement (contractual freedom). A contract may be concluded either in writing, orally or by conduct that implies their consensus. In general, the provision of service does not have to be documented either. In certain cases, however, the law expressly requires specific formalities (e.g. written form is required for the validity of a consumer loan contract; and payment may not be required until an invoice is issued). Also, the contracting parties may agree that specific formalities have to be respected for the contract to be valid. Even if there is no such requirement, a written document may facilitate the evidencing of the existence of such contract or the performance of the service in an eventual dispute.
(b) As mentioned above, there are no formal requirements either for the creation of a contract or for the performance of the required service. An invoice, however, may be useful as it indicates both the existence of the agreement and also the provision of the services to which the invoice refers. However, in a dispute, the invoice alone may not be sufficient for evidencing an enforceable debt. The position may substantially be improved by obtaining a confirmation as to the content of the invoice from the obligor, but even in that case the obligor may prove that the service turned out to be defective or that for any other reason he does not owe the amount of the invoice.
(c) As mentioned above, the parties’ conduct may create a valid contract. Thus, historic relationships and the behaviour of the parties may serve as the basis of establishing the existence of a contract regarding the sale of goods and services.
1.2 Consumer Protections. Do Hungary's laws (a) limit rates of interest on consumer credit, loans or other kinds of receivables; (b) provide a statutory right to interest on late payments; (c) permit consumers to cancel receivables for a specified period of time; or (d) provide other noteworthy rights to consumers with respect to receivables owing by them?
(a) A new law passed by Parliament in November 2011 introduces an interest rate cap on consumer mortgage loans and regulates the calculation of interest rates. The new law enables debtors to ask for the amendment of contracts that were concluded before the new law entered into force. In addition, it amends the Civil Code by introducing a mandatory base rate plus a 24 percentage-point cap for contracts where both parties are natural persons. The new law also amended the Act on Credit Institutions and Financial Enterprises (112/1996) by introducing a 24 percentage-point cap on annual interest rates. However, the cap is not applicable to high-risk, high-cost consumer loans and credit card loans: the annual interest rates for such loans are capped at 39 percentage points over the Hungarian National Bank base rate.
(b) The Civil Code provides that a debtor, who does not pay his debt when it is due, shall pay late payment interest in addition to the contractual interest, and even in cases where the debt originally is interest free. In addition, Hungary transposed European Directive 2005/35 on Combating Late Payment on Commercial Transactions.
(c) Hungarian law grants the consumer the right to cancel a receivable where the various EU consumer directives so provide. In particular, the obligor of a consumer loan entitled to pay its debt prior to its due date, and the creditor is obliged to accept such payment and reduce the costs of the loan accordingly.
(d) In consumer loans, the creditor may not require the obligor to issue a possessory note or check for securing the receivable.
1.3 Government Receivables. Where the receivables contract has been entered into with the government or a government agency, are there different requirements and laws that apply to the sale or collection of those receivables?
There are no special requirements with respect to the sale agreement in case the obligor under a receivables contract is the state or a government agency.
2 Choice of Law – Receivables Contracts
2.1 No Law Specified. If the seller and the obligor do not specify a choice of law in their receivables contract, what are the main principles in Hungary that will determine the governing law of the contract?
Choice of law is regulated by Regulation (EC) No 593/2008 of the European Parliament and of the Council (Rome I) and Act 13/1979. The Act is applicable to contracts not falling under the scope of the Rome I Regulation. The main principle of determining the governing law of the contract is under both regimes the residence of the obligor of the obligation primarily characterising the receivables contract (e.g. residence of the seller or of the party providing a service). The Rome I Regulation further provides that, in case of consumer contracts, the residence of the consumer determines primarily the governing law.
2.2 Base Case. If the seller and the obligor are both resident in Hungary, and the transactions giving rise to the receivables and the payment of the receivables take place in Hungary, and the seller and the obligor choose the law of Hungary to govern the receivables contract, is there any reason why a court in Hungary would not give effect to their choice of law?
There is no reason why a Hungarian court would not give effect to such choice of law, even if the receivable is sold to a foreign party. We note, however, that choice of law is permitted only when the transaction has a foreign element. If both the seller and the obligor are resident in Hungary, and the contract has no other foreign element either, the receivables contract will be governed by Hungarian law irrespective of the choice made by the parties.
2.3 Freedom to Choose Foreign Law of Non-Resident Seller or Obligor. If the seller is resident in Hungary but the obligor is not, or if the obligor is resident in Hungary but the seller is not, and the seller and the obligor choose the foreign law of the obligor/seller to govern their receivables contract, will a court in Hungary give effect to the choice of foreign law? Are there any limitations to the recognition of foreign law (such as public policy or mandatory principles of law) that would typically apply in commercial relationships such that between the seller and the obligor under the receivables contract?
If a foreign element exists (i.e., one of the parties is non-resident in Hungary), the parties are free to choose the law applicable to their contract. Such choice is disregarded if it conflicts with Hungarian public order. We are not aware of any limitation to the recognition of foreign law that would typically apply in commercial transactions, in particular if the chosen law is one of the EU Member countries. Under the Rome I Regulation, the choice of law may not have the result of depriving the consumer of the protection afforded to him by provisions that cannot be derogated from by agreement by virtue of the law which, in the absence of choice, would have been applicable under the Regulation. Hungarian law and Hungarian language shall apply to contracts relating to the national assets as defined by Act 196/2011. Such contracts shall belong to the exclusive jurisdiction of Hungarian courts, arbitral tribunals shall not have jurisdiction in relation to such contracts. Such contracts shall further be governed by Hungarian law and be in Hungarian language.
2.4 CISG. Is the United Nations Convention on the International Sale of Goods in effect in Hungary?
Yes, the Convention entered into force on 1 January 1988.
3 Choice of Law – Receivables Purchase Agreement
3.1 Base Case. Does Hungary's law generally require the sale of receivables to be governed by the same law as the law governing the receivables themselves? If so, does that general rule apply irrespective of which law governs the receivables (i.e., Hungary's laws or foreign laws)?
Hungarian law does not require that the sale of the receivables be governed by the same law as the law governing the receivables themselves. If the parties to an assignment of receivables choose a law which is different from the law which governs the receivables, this choice is applicable to their internal relations, but does not extend to external issues, such as the rights and obligations of obligors, the obligors’ creditors and other third parties.
3.2 Example 1: If (a) the seller and the obligor are located in Hungary, (b) the receivable is governed by the law of Hungary, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of Hungary to govern the receivables purchase agreement, and (e) the sale complies with the requirements of Hungary, will a court in Hungary recognise that sale as being effective against the seller, the obligor and other third parties (such as creditors or insolvency administrators of the seller and the obligor)?
There is no reason why a Hungarian court would not give effect to such choice of law.
3.3 Example 2: Assuming that the facts are the same as Example 1, but either the obligor or the purchaser or both are located outside Hungary, will a court in Hungary recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller), or must the requirements of the obligor’s country or the purchaser’s country (or both) be taken into account?
There is no reason why a Hungarian court would not give effect to such choice of law.
3.4 Example 3: If (a) the seller is located in Hungary but the obligor is located in another country, (b) the receivable is governed by the law of the obligor’s country, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of the obligor’s country to govern the receivables purchase agreement, and (e) the sale complies with the requirements of the obligor’s country, will a court in Hungary recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller) without the need to comply with Hungary's own sale requirements?
The parties are free to choose the governing law, if their contract has a foreign element. If that condition is met, the parties are not restricted in their choice, the chosen law does not have to be the law of the country which represent the foreign element in the contract. Therefore, there is no reason why a Hungarian court would not give effect to such choice of law. For the exceptions, see the answer to question 2.3.
3.5 Example 4: If (a) the obligor is located in Hungary but the seller is located in another country, (b) the receivable is governed by the law of the seller’s country, (c) the seller and the purchaser choose the law of the seller’s country to govern the receivables purchase agreement, and (d) the sale complies with the requirements of the seller’s country, will a court in Hungary recognise that sale as being effective against the obligor and other third parties (such as creditors or insolvency administrators of the obligor) without the need to comply with Hungary's own sale requirements?
The parties are free to choose the governing law, if their contract has a foreign element. If that condition is met, the parties are not restricted in their choice; the chosen law does not have to be the law of the country which represents the foreign element in the contract. Therefore, there is no reason why a Hungarian court would not give effect to such choice of law. For the exceptions, see the answer to question 2.3.
3.6 Example 5: If (a) the seller is located in Hungary (irrespective of the obligor’s location), (b) the receivable is governed by the law of Hungary, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of the purchaser's country to govern the receivables purchase agreement, and (e) the sale complies with the requirements of the purchaser’s country, will a court in Hungary recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller, any obligor located in Hungary and any third party creditor or insolvency administrator of any such obligor)?
The parties are free to choose the governing law, if their contract has a foreign element If that condition is met, the parties are not restricted in their choice; the chosen law does not have to be the law of the country which represents the foreign element in the contract. Therefore, there is no reason why a Hungarian court would not give effect to such choice of law. For the exceptions, see the answer to question 2.3.
4 Asset Sales
4.1 Sale Methods Generally. In Hungary what are the customary methods for a seller to sell receivables to a purchaser? What is the customary terminology – is it called a sale, transfer, assignment or something else?
The customary method to sell accounts receivables is by assignment, whereby the rights stemming from the receivables pass from the seller to the purchaser, and the purchaser steps into the shoes of the seller as creditor with respect to the sold receivables.
4.2 Perfection Generally. What formalities are required generally for perfecting a sale of receivables? Are there any additional or other formalities required for the sale of receivables to be perfected against any subsequent good faith purchasers for value of the same receivables from the seller?
In order for the sale of receivables to be perfected, the seller and the purchaser shall enter into a contract of assignment and notice shall be given to the obligor. No specific formalities are required creating a valid assignment (neither registration, notarisation, nor transfer of related documents is necessary). Typically, an assignment is executed in a properly signed document, considering the fact that receivables are intangible, therefore no transfer of possession is possible, thus the only proof of the transaction is the document itself. An assignment, however, is not effective against the obligor without notice. Prior to notification, the obligor may discharge his obligation by paying the assignor, or even a subsequent assignee who has given notice about the assignment. As the transfer becomes effective against the seller by concluding the assignment contract, in principle no subsequent purchaser may acquire any right with respect to the sold receivables. However, the obligor may discharge his obligation by paying to the subsequent purchaser in case he is not informed about the first sale but receives proper notice about the sale to the subsequent purchaser.
4.3 Perfection for Promissory Notes, etc. What additional or different requirements for sale and perfection apply to sales of promissory notes, mortgage loans, consumer loans or marketable debt securities?
Promissory notes are not widely used in Hungary; they qualify as negotiable documents which may be transferred by endorsement plus transfer of possession of the document (subsequent to a blank endorsement, only delivery is needed).
The most commonly used marketable debt securities are bonds which may be paper-based (physical) or electronic (dematerialised); physical securities may be either bearer or registered. Bearer securities do not indicate the name of the holder and may be transferred by mere transfer of possession; whoever holds the security is considered to be entitled to the rights incorporated in the security. Registered physical securities may be transferred by means of special or blank endorsements plus transfer of possession of the security. Dematerialised securities may be transferred by debiting the securities account of the seller and crediting the account of the purchaser.
Consumer loans and loans secured by a mortgage may be sold in the same way as any other receivables, no additional requirements apply.
4.4 Obligor Notification or Consent. Must the seller or the purchaser notify obligors of the sale of receivables in order for the sale to be effective against the obligors and/or creditors of the seller? Must the seller or the purchaser obtain the obligors’ consent to the sale of receivables in order for the sale to be an effective sale against the obligors? Does the answer to this question vary if (a) the receivables contract does not prohibit assignment but does not expressly permit assignment; or (b) the receivables contract expressly prohibits assignment? Whether or not notice is required to perfect a sale, are there any benefits to giving notice – such as cutting off obligor set-off rights and other obligor defences?
Notification of the obligor is necessary to allow the purchaser to enforce the debt directly against the obligor, to prevent the obligor and the seller from modifying the receivables agreement, and to prevent the obligor from discharging his debt by paying to the seller rather than the purchaser. However, even notification cannot prevent the obligor from setting off the receivables against already existing obligations of the seller. In order to avoid such possibility, the obligor must waive such right of set-off in addition to the notification. If the obligor is notified by the purchaser instead of the seller, the obligor may demand evidence of the sale or confirmation from the seller before paying to the purchaser. Notification may be made even after the insolvency of the seller or the obligor. Consent of the obligor is not necessary, unless the receivables contract expressly prohibit assignment.
4.5 Notice Mechanics. If notice is to be delivered to obligors, whether at the time of sale or later, are there any requirements regarding the form the notice must take or how it must be delivered? Is there any time limit beyond which notice is ineffective – for example, can a notice of sale be delivered after the sale, and can notice be delivered after insolvency proceedings against the obligor have commenced? Does the notice apply only to specific receivables or can it apply to any and all (including future) receivables? Are there any other limitations or considerations?
There are no requirements in relation to the form of the notice. It does not even have to be in writing. A written document, however, may facilitate the evidencing of the existence of such notification in an eventual dispute. The notice may relate to one specific receivable, or a group of receivables, or all existing and future receivables. The only requirement is that the receivables to which the notice relates have to be identifiable. The notice can be delivered any time after the assignment of the receivable, there is no time limit after which the notice would become ineffective.
4.6 Restrictions on Assignment; Liability to Obligor. Are restrictions in receivables contracts prohibiting sale or assignment generally enforceable in Hungary? Are there exceptions to this rule (e.g., for contracts between commercial entities)? If Hungary recognises prohibitions on sale or assignment and the seller nevertheless sells receivables to the purchaser, will either the seller or the purchaser be liable to the obligor for breach of contract or on any other basis?
Although there are different interpretations in legal literature, courts tend to accept contractual prohibition of assignment as effective against third parties, i.e. such a prohibition renders the transfer ineffective. In addition, where the receivables contract prohibits assignment, the seller may be found liable for breach of contract. There are, however, some new unpublished judgments where the courts found that the assignment is valid irrespective of the non-assignment clause, and the assignor will only be liable for breach of contract vis-à-vis the obligor.
4.7 Identification. Must the sale document specifically identify each of the receivables to be sold? If so, what specific information is required (e.g., obligor name, invoice number, invoice date, payment date, etc.)? Do the receivables being sold have to share objective characteristics? Alternatively, if the seller sells all of its receivables to the purchaser, is this sufficient identification of receivables?
The sale document must designate the receivables sold in a way that the receivables which are the subject of the sale can be identified unambiguously. The receivables sold may be identified individually, by naming the obligor, by describing the specific business from which the receivables arise, or by other forms of general description, even by stating that the sale affects all of the seller’s existing receivables (unless this renders the identification impossible).
4.8 Respect for Intent of Parties; Economic Effects on Sale. If the parties denominate their transaction as a sale and state their intent that it be a sale will this automatically be respected or will a court enquire into the economic characteristics of the transaction? If the latter, what economic characteristics of a sale, if any, might prevent the sale from being perfected? Among other things, to what extent may the seller retain (a) credit risk; (b) interest rate risk; and/or (c) control of collections of receivables without jeopardising perfection?
It is not primarily the denomination given by the parties, but the economic characteristics of the transaction that will determine whether a court will treat the transaction as a true sale or an assignment by way of security. Under current Hungarian law, it is uncertain what economic requirements have to be met in order for a sale of receivables to be perfected.
(a) The sale in most cases will not be perfected if the seller retains credit risk of the obligor; however, purely being liable, in case of a bad faith sale, for the insolvency of the obligor at the time of the sale probably would not render the sale ineffective.
(b) There is no practice about the effect of retaining interest rate risk on the effectiveness of the sale; the conservative view is that the seller may not retain any such risk.
(c) Normally, using the services of the seller to manage the sold debt, and maintain contact with the obligors, would not in itself re-characterise the sale. If, however, as a result of this arrangement, the obligor is not informed about the sale, and the purchaser is deprived of the right to directly contact the obligor and enforce the receivables, there is a risk that the sale shall be re-characterised as a financing transaction.
4.9 Continuous Sales of Receivables. Can the seller agree in an enforceable manner (at least prior to its insolvency) to continuous sales of receivables (i.e., sales of receivables as and when they arise)?
Neither commercial nor court practice is established in relation to the continuous sale of future receivables. Probably, prior to insolvency, an agreement on continuous sale of receivables would be enforceable against the seller. It is, however, unlikely that such an agreement would also be enforceable subsequent to the commencement of the seller’s insolvent liquidation. In order to make the sale enforceable against the obligors, they have to receive notice of the assignment. Automatic sale in itself shall not be effective against obligors.
4.10 Future Receivables. Can the seller commit in an enforceable manner to sell receivables to the purchaser that come into existence after the date of the receivables purchase agreement (e.g., “future flow” securitisation)? If so, how must the sale of future receivables be structured to be valid and enforceable? Is there a distinction between future receivables that arise prior to or after the seller’s insolvency?
A commitment to transfer receivables is effective between the seller and the purchaser, but probably may not be enforceable against the obligor. There is some uncertainty about the assignability of future receivables, in particular when they cannot be specifically identified. The Supreme Court stated earlier that future receivables cannot be assigned, newer decisions seem to overrule this decision, but it is uncertain to what extent future receivables are assignable. It seems to follow from the court practice that receivables can only be assigned if the legal basis out of which the receivable will arise already exists at the time of the assignment. According to the court practice, sale of future receivables will not be effective with respect to receivables which arise after the seller’s insolvency.
4.11 Related Security. Must any additional formalities be fulfilled in order for the related security to be transferred concurrently with the sale of receivables? If not all related security can be enforceably transferred, what methods are customarily adopted to provide the purchaser the benefits of such related security?
In principle, the purchaser automatically, by operation of law, becomes the beneficiary of any mortgage, pledge and surety securing the sold receivables. In practice, however, in order to avoid future disputes, it is useful to re-register mortgages and other charges to the name of the purchaser in the relevant registries (charges registry, land registry, registry for ships and aircrafts). With respect to personal security, it is important to find out whether a guarantee is given in general to secure a certain debt or specifically for the benefit of the seller, and to give notice to the guarantor about the sale.
5 Security Issues
5.1 Back-up Security. Is it customary in Hungary to take a “back-up” security interest over the seller’s ownership interest in the receivables and the related security, in the event that the sale is deemed by a court not to have been perfected?
A pledge over receivables may be created by a simple agreement between the pledgor and the pledgee. This agreement has to be in writing, but there are no other formal requirements. To make this pledge effective against the obligor, notice has to be given. These requirements are almost the same as for a valid and perfected assignment. Because of this simplicity, there is no risk that in case the transfer is re-characterised as a secured finance transaction, the security will fail for lack of the required formalities. For this reason it is not customary, but possible, to take back-up security in connection with the sale of receivables.
5.2 Seller Security. If so, what are the formalities for the seller granting a security interest in receivables and related security under the laws of Hungary, and for such security interest to be perfected?
A charge may be created merely by a written agreement between the seller and the purchaser. Notification is required to make the charge effective against the debtor.
5.3 Purchaser Security. If the purchaser grants security over all of its assets (including purchased receivables) in favour of the providers of its funding, what formalities must the purchaser comply with in Hungary to grant and perfect a security interest in purchased receivables governed by the laws of Hungary and the related security?
The formalities of creating a security interest over the assets of the purchaser depends on the type of security interest the purchaser intends to create. If the security interest is a non-possessory charge, a contract in a notarialised form is required and the security interest has to be registered. Regarding the creation of a security interest over the purchased receivables, it is important to note that a security interest may not be granted over related security in itself. A sub-charge is not explicitly recognised in Hungarian law, therefore it is uncertain whether related security will serve the security holder over the receivables.
5.4 Recognition. If the purchaser grants a security interest in receivables governed by the laws of Hungary, and that security interest is valid and perfected under the laws of the purchaser’s country, will it be treated as valid and perfected in Hungary or must additional steps be taken in Hungary?
According to Hungarian private international law, the governing law of a security interest is the law of the country where the collateral is located. In case the collateral is a receivable, this rule might be interpreted in two ways; the governing law with respect to the security shall be either: (i) the law of the country where the residence/central administration or usual place of business of the obligor is; or (ii) the law of the receivable itself. Thus, the security interest perfected under the laws of the purchaser's country will be treated as valid and perfected in Hungary, if the obligor is located in that other country or if the governing law of the receivable is that of the other country.
5.5 Additional Formalities. What additional or different requirements apply to security interests in or connected to insurance policies, promissory notes, mortgage loans, consumer loans or marketable debt securities?
The most common form of security interest that can be established on promissory notes or marketable debt securities is security deposit (in Hungarian: óvadék). Hungary implemented the EU’s Financial Collateral Directive (2002/47/EC) by amending the rules on security deposit. A security deposit agreement shall be concluded in writing and the possession of the promissory note or of the marketable debt security shall be transferred to the chargee. In case the marketable debt security is in dematerialised form, a security interest can be created by transferring the security to the account of the chargeholder. A security interest on consumer loans and loans secured by a mortgage can be created in the same way as on any other receivable.
5.6 Trusts. Does Hungary recognise trusts? If not, is there a mechanism whereby collections received by the seller in respect of sold receivables can be held or be deemed to be held separate and apart from the seller’s own assets until turned over to the purchaser?
Hungarian law does not recognise a trust. A similar institution which may be used for such purpose is a kind of indirect agency (in Hungarian: bizomány) where the seller acts in his own name but for the benefit of the purchaser. The seller has to keep amounts collected for the purchaser separated from its own assets to make it clear that these amounts do not belong to his property. If this requirement is fulfilled, creditors of the seller may not use these collections to satisfy their claims against the seller.
5.7 Bank Accounts. Does Hungary recognise escrow accounts? Can security be taken over a bank account located in Hungary? If so, what is the typical method? Would courts in Hungary recognise a foreign-law grant of security (for example, an English law debenture) taken over a bank account located in Hungary?
Yes, escrow is recognised in Hungarian law; amounts kept on escrow account will not form part of the account holder’s estate. Amounts in a bank account are considered as debt of the bank towards the account holder. The account holder may create charge over his rights against the bank similarly to creating security over receivables or other claims. Security over a bank account located in Hungary may be created in accordance with the laws of Hungary.
6 Insolvency Laws
6.1 Stay of Action. If, after a sale of receivables that is otherwise perfected, the seller becomes subject to an insolvency proceeding, will Hungary's insolvency laws automatically prohibit the purchaser from collecting, transferring or otherwise exercising ownership rights over the purchased receivables (a “stay of action”)? Does the insolvency official have the ability to stay collection and enforcement actions until he determines that the sale is perfected? Would the answer be different if the purchaser is deemed to only be a secured party rather than the owner of the receivables?
The primary effect of the commencement of a bankruptcy or liquidation procedure is that the creditors are prohibited from taking enforcement actions against the debtor outside of the given insolvency procedure. This automatic stay however does not apply to the collection of receivables purchased from the seller, if the sale of receivables is perfected before the commencement of the procedure. In this case, the receivables sold will be the property of the purchaser, thus the seller’s insolvency will not affect the purchaser’s ability to enforce the receivables, and the purchaser shall be entitled to continue to exercise its rights over the receivables.
In the case when the purchaser is deemed to only be a secured party, the court practice is that the receivables, which have not been collected from the obligor before insolvency, will belong to the estate of the seller, and the purchaser can receive money as a creditor in the course of the insolvency procedure.
6.2 Insolvency Official’s Powers. If there is no stay of action under what circumstances, if any, does the insolvency official have the power to prohibit the purchaser’s exercise of rights (by means of injunction, stay order or other action)?
The insolvency official, if believes that the purchaser is not the owner of the receivables, but only a secured creditor, may turn to the court to prohibit the purchaser from enforcing the receivable or, alternatively to prohibit the obligor from paying to the purchaser. In such case, the insolvency officer also may ask the court to take temporary measure to stop the purchaser collecting the receivable (injunction or stay order).
6.3 Suspect Period (Clawback). Under what facts or circumstances could the insolvency official rescind or reverse transactions that took place during a "suspect" or "preference" period before the commencement of the insolvency proceeding? What are the lengths of the “suspect” or “preference” periods in Hungary for (a) transactions between unrelated parties and (b) transactions between related parties?
The insolvency official is entitled within 1 (one) year of the commencement of the insolvency proceedings to challenge fraudulent, undervalued or preferential transactions which were concluded within the suspicion period (five years for fraudulent transactions, two years for undervalued transactions, and ninety days for preferential transactions), irrespective of whether the parties are related or not. If, however, the parties are related, the bad faith and the gratuitous nature of the transfer shall be presumed by laws.
6.4 Substantive Consolidation. Under what facts or circumstances, if any, could the insolvency official consolidate the assets and liabilities of the purchaser with those of the seller or its affiliates in the insolvency proceeding?
The insolvency official does not have right to substantive consolidation; the initiation of an insolvency procedure against the seller shall not give rise to the commencement of such proceedings against the purchaser.
6.5 Effect of Proceedings on Future Receivables. What is the effect of the initiation of insolvency proceedings on (a) sales of receivables that have not yet occurred or (b) on sales of receivables that have not yet come into existence?
The legislation does not provide for the effect of insolvency proceedings on future receivables, and the court practice is not quite settled in this respect. The court practice recognises the assignment of those future receivables where the contract from which the receivable will arise already exists at the time of the assignment. In such cases, the sale will not be affected by the seller’s insolvency. The assignment of future receivables where the contract from which the receivable will arise is not yet concluded would have no effect in the insolvency proceedings.
7 Special Rules
7.1 Securitisation Law. Is there a special securitisation law (and/or special provisions in other laws) in Hungary establishing a legal framework for securitisation transactions? If so, what are the basics?
There is no regulation in force specifically providing for securitisation transactions. Assignment is regulated in the Civil Code. There was a Government proposal some years ago, but the bill was never presented to Parliament. The new Civil Code, which is planned to be adopted in 2012 and will enter into force in 2013, will modify the provisions relating to assignment and secured transactions.
7.2 Securitisation Entities. Does Hungary have laws specifically providing for establishment of special purpose entities for securitisation? If so, what does the law provide as to: (a) requirements for establishment and management of such an entity; (b) legal attributes and benefits of the entity; and (c) any specific requirements as to the status of directors or shareholders?
Hungarian law does not provide for any aspects of special purpose entities for securitisation.
7.3 Non-Recourse Clause. Will a court in Hungary give effect to a contractual provision (even if the contract’s governing law is the law of another country) limiting the recourse of parties to available funds?
Yes, in a sale of receivables, the parties are free to exclude or limit the right of recourse of the purchaser. It is also possible to agree that certain debts are to be paid only from certain funds and only to the extent that fund is available. If the governing law is the law of another country, Hungarian courts shall give effect to such contractual provision.
7.4 Non-Petition Clause. Will a court in Hungary give effect to a contractual provision (even if the contract’s governing law is the law of another country) prohibiting the parties from: (a) taking legal action against the purchaser or another person; or (b) commencing an insolvency proceeding against the purchaser or another person?
There is no established court practice in this regard. Probably, the court would only give effect to a prohibition with respect to taking legal action or commencing insolvency proceedings, in case it was agreed for an adequate consideration. If the contract’s governing law is the law of another country, and the prohibition is valid under the governing law, a Hungarian court will give effect to that provision.
7.5 Independent Director. Will a court in Hungary give effect to a contractual provision (even if the contract’s governing law is the law of another country) or a provision in a party’s organisational documents prohibiting the directors from taking specified actions (including commencing an insolvency proceeding) without the affirmative vote of an independent director?
Hungarian company law explicitly recognises independent directors only in the context of public companies. We believe, however, that the organisational documents of a Hungarian company may require that one or more of the directors have to be independent and that the affirmative vote of the independent directors is necessary for certain decisions. Such a restriction, however, will not have any effect vis-à-vis third parties, and will not affect the validity of any transaction concluded in breach of this provision.
8 Regulatory Issues
8.1 Required Authorisations, etc. Assuming that the purchaser does no other business in Hungary, will its purchase and ownership or its collection and enforcement of receivables result in its being required to qualify to do business or to obtain any licence or its being subject to regulation as a financial institution in Hungary? Does the answer to the preceding question change if the purchaser does business with other sellers in Hungary?
Purchasing receivables falls into the category of a lending operation, which is construed as a type of financial services, which, if carried on as a business, is subject to authorisation from the Hungarian FSA. The same applies to the transfer of a single portfolio of receivables. No Hungarian authorisation is required if the purchaser is a regulated financial institution in another EU country.
8.2 Servicing. Does the seller require any licences, etc., in order to continue to enforce and collect receivables following their sale to the purchaser, including to appear before a court? Does a third party replacement servicer require any licences, etc., in order to enforce and collect sold receivables?
Servicing receivables is also subject to authorisation from the Hungarian FSA.
8.3 Data Protection. Does Hungary have laws restricting the use or dissemination of data about or provided by obligors? If so, do these laws apply only to consumer obligors or also to enterprises?
Yes, Hungary has laws restricting the use or dissemination of data about or provided by obligors. The Act on the Protection of Personal Data applies to the data of natural persons whether consumers or not; the Civil Code provides protection of the inherent rights of any legal and natural persons, and special confidentiality rules apply to all financial institution with respect to their customers.
8.4 Consumer Protection. If the obligors are consumers, will the purchaser (including a bank acting as purchaser) be required to comply with any consumer protection law of Hungary? Briefly, what is required?
Consumer protection laws primarily apply to the formation of contracts with consumers. As a result of the sale of receivables, the position of the consumers as obligors may not change, in particular not to the detriment of the consumer. Therefore, the purchaser will not be required to comply with any additional requirements. It may be worth noting that, in case of consumer loans (with the exception of mortgage loans), the obligor is entitled to prepayment of the debt.
8.5 Currency Restrictions. Does Hungary have laws restricting the exchange of Hungary's currency for other currencies or the making of payments in Hungary's currency to persons outside the country?
In Hungary, there is no restriction either on making payments outside of the country or on the exchange of the Hungarian currency (HUF).
9.1 Withholding Taxes. Will any part of payments on receivables by the obligors to the seller or the purchaser be subject to withholding taxes in Hungary? Does the answer depend on the nature of the receivables, whether they bear interest, their term to maturity, or where the seller or the purchaser is located?
Under Hungarian law, the only withholding tax is the personal income tax applicable to private persons only. That is, if private persons receive payments on receivables qualifying as income (basically interest), this could be subject to withholding tax. Since, in the context of a securitisation, neither the seller nor the purchaser would be private persons, in such a context payments on receivables are not subject to withholding tax.
9.2 Seller Tax Accounting. Does Hungary require that a specific accounting policy is adopted for tax purposes by the seller or purchaser in the context of a securitisation?
No special accounting rules apply to securitisation for tax purposes.
9.3 Stamp Duty, etc. Does Hungary impose stamp duty or other documentary taxes on sales of receivables?
Hungary does not impose stamp duty or other documentary taxes on sales of receivables. However, stamp duty is imposed on deregistration of mortgages which may be desirable in connection with the sale of certain receivables.
9.4 Value Added Taxes. Does Hungary impose value added tax, sales tax or other similar taxes on sales of goods or services, on sales of receivables or on fees for collection agent services?
Value added tax is imposed on sales of goods or services. In most cases, the sale of receivables is not subject to value added tax on the basis that not the sale, but the purchase of receivables is treated as financial service, which is exempted from value added tax. As a main rule, the provision of agency services is not exempt from VAT, unless it qualifies as a financial service or its intermediation. Although a recent position paper of the Hungarian Financial Supervisory Authority is of the opinion that the activity of a collection agency in general qualifies as financial intermediation, we think that the collection agent services in the context of a securitisation would not qualify as financial intermediation and therefore such service is likely to be subject to VAT.
9.5 Purchaser Liability. If the seller is required to pay value added tax, stamp duty or other taxes upon the sale of receivables (or on the sale of goods or services that give rise to the receivables) and the seller does not pay, then will the taxing authority be able to make claims for the unpaid tax against the purchaser or against the sold receivables or collections?
The tax authority is not entitled to make claims against the purchaser or on the receivables or collections if the seller fails to pay VAT or other taxes upon the sale of receivables (or on the sale of goods or services that give rise to the receivables).
However, if the obligor of the receivable qualifies as a taxable person for VAT purposes, then the tax authority can make claims against him for the tax not paid by the seller. Consequently, if the receivable contains VAT as well, then there is some risk that the obligor would pay the amount only net of VAT if the tax authority has previously made a claim against him for paying the VAT.
9.6 Doing Business. Assuming that the purchaser conducts no other business in Hungary, would the purchaser's purchase of the receivables, its appointment of the seller as its servicer and collection agent, or its enforcement of the receivables against the obligors, make it liable to tax in Hungary?A non-resident purchaser of receivables shall pay company tax only on the profit obtained from business activities conducted by their Hungarian permanent establishments. Whether the regular purchase and enforcement of receivables (directly or through an agent) qualifies as having a permanent establishment in Hungary, requires more specific tax analysis.